Fannie Mae pours billions into area -- Mortgage giant seeks to put more people in homes

SFGate.com ^ | 8/26/03 | Kelly Zito

[lelio]

Fannie Mae that provided $50,000 toward his down payment [ on a $200k condo ]

Doesn't this show that prices in San Fran are 30% overvalued if the only way you can afford to buy something is to get an advance for that much?

Sort of reminds me about the mob handing out dollars to people on their block. How could a man that just bought my dinner be bad?

[SAJ]

Speaking broadly, Fannie and Freddie are essentially low-volatility versions of LTCM, w/o the exotic conversion trades. They are WILDLY overleveraged, and haven't the first clue as to what to do when their lending pyramid begins collapsing, as it will start to do if interest rates should suddenly rise sharply, more sharply even than the long end of the curve has risen from May to the current date. Maybe the pyramid won't collapse; Greenbean and the boys will do everything in their power to see that it does not.

But, do you or anyone want to bet the entire financial future of the US on that proposition?

[Dec31,1999]

Fannie Mae, a quasi-governmental entity that buys mortgages from lenders and then packages them to sell to the equity market, also will continue to buy more-risky loans made to people with poor credit histories or minimal down payments.

Sounds like a recipe for disaster! What happens when housing prices drop by 20%, or even 10%?