The Trillion-Dollar Mortgage Time Bomb

CNN. Money.com ^ | April 21, 2008 | Chris Isadore

[freerepublic_or_die]

Among the nightmares lurking around the corner for the already battered housing and credit markets would be a meltdown at mortgage financing giants Fannie Mae and Freddie Mac.

Although few are predicting an imminent need for a bailout just yet, credit rating agency Standard & Poor's recently placed an estimated price tag on this worst case scenario -- $420 billion to $1.1 trillion of taxpayer's money. This dwarfs how much it cost to help banks during the savings and loan crisis of the late 1980's and early 1990's. That cost taxpayers about $250 billion in today's dollars.

S&P added that saving Fannie (FNM) and Freddie (FRE, Fortune 500) might cost so much that the federal government's AAA credit rating, the top possible rating, might even be at risk. If that was lost, then all federal government borrowing would become more expensive. Fannie Mae and Freddie Mac both help the mortgage market function by purchasing pools of loans and packaging them into securities.

So it is crucial for the mortgage industry for the two agencies to continue functioning smoothly. The two companies are known as government-sponsored entities because they have Congressional charters, which implies that the federal government is behind them.

[freerepublic_or_die]

Do either Obama or McCain realize what they're getting themselves into?

[goldstategop]

Just make housing free and forgive all current mortgages. We can't really bail out the mortgage industry and we won't throw hundreds of thousands of people out on the streets, that leaves the above option - really the only option on the table. If there's a Doomsday Scenario in the cards.

"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus

[org.whodat]

Cannot be true just yesterday someone here said it was all over and boom times were here again, then he jumped out the window.

[Calpernia]

ping

[freerepublic_or_die]

Your suggestion is never going to fly for reasons that are overwhelmingly obvious.

You might as well close your eyes, repeat three times MORTGAGE CRISIS BE GONE! and then POOF!, Problem solved.

[goldstategop]

I don't expect that to happen unless the economy really crashes. So far, the damage has been confined to the sub-prime loan market. But if that spreads, then all bets are off.

"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus

[doug from upland]

This is a problem of immense proportion. The housing industry is a leading indicator. People are already seen huge numbers of job losses in mortgage brokers, escrow companies, title companies, and all the periphal jobs that go along with movement in housing -— drywallers, roofers, painters, remodels, etc.

[goldstategop]

Forget about applying for an investment loan in this market - even if you can make the down payment. Lenders look at that stuff as too risky now.

"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus

[Jack Black]

Do either Obama or McCain realize what they're getting themselves into?

Great question! I would say "No". They are living in the bubble of the campaign now. Every waking moment is devoted to winning. I don't think they or their advisers have time to watch the still somewhat hidden world of financial derivatives collapsing.

If we knew that a deep recession was inevitable, with all sorts of difficulties ahead would it change who you supported? McCain's case get stronger because of experience. But there is a part of me that says the Dems MUST own the next recession. Things like Social Security and Medicare are Dem programs. They MUST fail duringa Dem administration so they "get the blame" and have to figure out the hard landing. Or else it will just be spun by the media and other leftists as simply another "Republican Corruption" that is causing the problem.

The deep corruptoin of the media makes the voting calculus in these times much more difficult to figure out.

Arguing against this is that FDR used a similar opportunity to drive the country far to the left, a position from which we have never retreated

But the super cynic says: fine. Let's have Obama and the crisis, and lets have one more giant dose of Leftism as the cure to the Leftist disease. The resulting disagreement may finally bring us the purge we need.

Decisions, decisions.

[Mr. Jeeves]

So far, the damage has been confined to the sub-prime loan market. But if that spreads, then all bets are off.

It will spread. Subprime was a relatively small segment and its problems are nearly all known to the markets. The real fun will be in a year or so when the full extent of Alt-A and Option ARMs defaults becomes apparent - that's where all the "liar loans" are hidden.

Commerical real estate is also in huge trouble, way overbuilt with retail chains closing stores left and right.

We may have a reflex rally in the markets for the next few months, but 2009 is going to go down as one of the ugliest years on record. If McCain is President, it will suddenly be all the Republicans' fault - if Obama is, it will be blamed on latent racism. ;)

[Froufrou]

You’re right, doug. Just last week, Pulte Homes announced unprecendented deep discounts on their new-builds.

But since there are so many illegals in the construction related industry I’m not sure it’s as many American workers who’ll be affected as illegal workers.

[FReepaholic]

...But there is a part of me that says the Dems MUST own the next recession. Things like Social Security and Medicare are Dem programs. They MUST fail duringa Dem administration so they "get the blame" and have to figure out the hard landing...

Too late. It's already Bush's fault according to all the "Letters To The Editor" I see.

[xtinct]

MA == housing costs are tied to revenue from property taxes.

House worth is very, very, very highly inflated because of the property taxes.

People are forking over more than half of their wages and salaries for a house, taxes, and insurance. So, of course there is a housing crisis. What did the powers that be expect?

If the average house in MA is around $400,000 and the average * family * salary is $76,000... do the math... these people cannot afford their houses. Then add in taxes and insurance... poof...

Dad and Mom may both work ... so double that salary $152,000 ...BUT they have 3 kids... ALL require day care at $1,400 a month EACH... As they grow, they need private schools because the public schools in MA ...SUCK... or they're teaching things like (Buffy has two mommies... unacceptable !!! ).

And, none of that counts food, clothing, shoes, cable TV - Internet connection - landline, cell phones, credit card payments, car payments, etc.

[Froufrou]

So, taxes are the problem. Why are they so high? How many people in MA are on entitlements? Is there a correlation?

[OeOeO]

Did anyone wonder, when all the construction was hot, who is buying all these homes? How did they get so rich? In the Chicago area they were slapping up expen$ive housing from far out boonie farmland to every piece of far in,far out ,urban postage stamps parcels.
Huge factories were turned into condos,old luxury hotels were condo-ized and at a mil a piece,even the old Playboy mansion was split up. There were buildings in some,to me,unlivable areas that were selling for $300,000.
I wondered , but I was too complacent to do anything about it.

[Husker8877]

Probably true already.

I (and so many others of course) just wrote out our huge IRS and state tax checks, paying much more into the governmental money stew in addition to all the tax we already plowed in all year!

All to pay for the greed and incompetence of so many thousands up and down the residential mortgage chain.

Might’s well have just written my check directly:

—To pay the mortgages of these dumbass bastards who took out loans they knew they couldn’t afford because they’d always be able to refi and take out more cash. Cause everyone knows RE never decreases in value;

—to slimy mortgage brokers who knew the borrower couldn’t afford the loans so they just fudged every line they needed to in order to qualify every living breathing, human that had even a feint pulse within the previous year;

—to the incompetent bankers who knew the brokers had no responsibility or ability to know the difference between a good loan and a guaranteed train wreck, and STILL funded the loans;

—to fannie mae/freddie mac (led in recent years by Clinton appointees and riffraff that put these institutions on this disastrous path to begin with) who accepted those so-called “loans”;

—to the idiot Harvard MBA’s who packaged the garbage and made them “default-proof” by attaching derivative contracts so complicated and deep that no one could ever figure them out—much less be “hedged” by them!

(BTW—I’ve always said if you hire a Harvard MBA-type because you think that adding that designation to the end of their name makes a difference... HAH! better be ready to add a bunch more ZEROS to your bottom-line LOSSES too. No group of people on the planet can lose money faster and for a greater amount than these wunderkind uber-genius Harvard-MBA-type bastards! LOL!)

—to the greedy incompetents on Wall Street who sold the so-called securitized debt;

—to the greedbag dopes around the USA and the world who invested in the securities.

One way or another, directly or indirectly, this is where my IRS and state tax checks are going (and yours too.)

Years from now, the most significant legacy of this crisis of greed and stupidity will be the fact that all the major financial giants will be principally run by foreign entities—from the Middle East (Dubai, Saudi Arabia, Syria, Iran, etc), Communist China, North Korea, etc. It is just astonishing and sad to see.

But I’m not pissed. No.

;>)

[Mogollon]

Judging from the comments on this thread you would think that this prediction came from a respected conservative source instead of CNN.

[TheRightGuy]

<>It's already Bush's fault according to all the "Letters To The Editor" I see.

Two comets could collide in deppest darkest out space and would be Bush's fault.

[investigateworld]

Did anyone wonder, when all the construction was hot, who is buying all these homes? How did they get so rich?

They all worked for Churn, Clip and Hedge Stockbrokers - Investment Bankers

[cowtowney]

“Just make housing free and forgive all current mortgages.”

Why stop at housing? Let’s make everything free.

Although, sometimes “free” can be very expensive.