Fed’s Increased Power, FNMA/FHLMC Freefall, Mortgage Rates Drop Slightly

It appears that Congress can’t quite decide what to do on the current mortgage legislation. The broad thinking suggests that if they can’t do something prior to their summer recess, when they return the November election will consume their time. Although doing nothing is an option, let’s hope they don’t take it. Here’s the latest.

This week Bernanke and Paulson urge Congress to provide additional authority to the Federal Reserve and possibly to other regulatory agencies to strengthen supervision of investment banks, oversee payments and settlement systems, and provide a set of standards for the orderly liquidation of financial firms on the brink of failure. Both of them are pushing for significant changes to the existing US regulatory structure, and each is concerned with three top issues: prudent supervision of investment banks, strengthening the financial infrastructure, and preventing or mitigating future crises.

“Pounded” is the term best describing what has happened to the stock market value of Freddie and Fannie this week. There are concerns about their solvency, and nervousness about the impact their collapse would have on the U.S. housing market and broad economy. Supposedly administration officials have held talks about what to do in the event the two government-sponsored firms falter, and the New York Times reported on its web site that “officials are mulling the possibility of taking over one or both of the companies and placing them into conservatorship.” Given that so many mortgage companies have re-tooled to direct their production volume toward conforming product and Fannie & Freddie guidelines (let’s leave FHA problems out of this…) many mortgage bankers seem in a bit of daze.

According to the government, contingency plans have been discussed for months in the Treasury Department and other financial regulatory departments. Saying that “the talks have become more serious recently” is an understatement, since Freddie & Fannie’s stability is vital to the functioning of the nation’s housing market. Government officials and market analysts expect both companies will be able to raise large amounts of capital relatively easily. Here is the latest.

An article that appeared in American Banker this week paints a possible very “bleak” outcome of IndyMac’s failure. The article states that due to Federal Home Loan bank advances, it would one of the costliest failures in history. The $10 billion in advances means:

a sizable chunk of IndyMac’s quality assets that remained after its collapse would be pledged to the Federal Home Loan Bank of San Francisco, which, as a secured lender, would trump the Federal Deposit Insurance Corp.’s rights to assume the assets to offset resolution costs…The advances are not the only problem. More than a quarter of IndyMac’s outstanding balance of single-family residential mortgage loans were payment option adjustable-rate mortgages at the end of last year — assets that currently have a low market value. If the FDIC moves quickly to sell off such assets, they are likely to receive little in return — further raising the cost of an IndyMac failure.

What difference, really, do interest rates make if Fannie or Freddie is on the ropes? 10-yr Treasuries hit their lowest yields since May, getting down to 3.80%. The U.S. trade deficit shrank unexpectedly to $59.8 billion in May, as both exports and imports hit record highs and the average price for imported oil shot to an all-time high. The Commerce Department said that exports, helped by the weak dollar, rose 0.9 percent in May to a record $157.5 billion, including individual records for exports to Canada, the European Union and South and Central America. After the news mortgage prices are up (better) by about .250, which means about .10% to .125% better in rate, but that might not last the morning after gains of the last 2 trading sessions.

Are men happier?
When the bill arrives, Mike, Dave and John will each throw in $20, even though it’s only for $32.50. None of them will have anything smaller and none will actually admit they want change back.
When the girls get their bill, out come the pocket calculators.
A man will pay $2 for a $1 item he needs.
A woman will pay $1 for a $2 item that she doesn’t need but it’s on sale.
A man has six items in his bathroom: toothbrush and toothpaste, shaving cream, razor, a bar of soap, and a towel.
The average number of items in the typical woman’s bathroom is 337. A man would not be able to identify more than 20 of these items.
A woman has the last word in any argument.
Anything a man says after that is the beginning of a new argument.
A woman worries about the future until she gets a husband.
A man never worries about the future until he gets a wife.
A woman marries a man expecting he will change, but he doesn’t.
A man marries a woman expecting that she won’t change, but she does.
Ah, children. A woman knows all about her children. She knows about dentist appointments and romances, best friends, favorite foods, secret fears and hopes and dreams.
A man is vaguely aware of some short people living in the house.