Unlimited Credit for Fannie/Freddie Mae

[Americano]

The Federal Reserve has as much bad paper on their balance sheet as they want. They're in the process of winding down their purchases of mortgage-backed securities (which default as individual mortgages furnishing the security collateral/cash flow default - look at foreclosure rates) which has kept banks, insurers and pension funds afloat since the crash.

The US Treasury Department will take up the slack by essentially nationalizing Fanny and Freddie (F/F). Given what's in the article, it's too new to get any decent analysis (I despise the WSJ), my initial impression is to open the floodgates for modification of individual mortgages in default before they go into foreclosure. That would allow individual mortgage holders (banks) to make the modifications (they use a formula based on income/expenses legislated 4/09) while F/F buys back those securities without Fed approval. F/F eats the difference by keeping what's left on the balance sheet and using government cash injections for new loans under lending conditions that make them attractive for new securities issue collateral.

http://online.wsj.com/article/SB30001424052748704234304574626630520798314.html

This is an extremely significant US economic circumstance. The modification legislation was enacted last April with a $75B cap and to me the economy is still in such deep trouble the Fed no longer has the appetite to support rapidly expanding mortgage foreclosures. Mortgages with five-year rate adjustment and five-year interest only conditions from the bubble boom years of 2005/6 are right around the corner.

[Michael]

Quite depressing actually since in every other respect, there are indeed lots of good signs of economic recovery beginning outside of the USA.

As we've noted many times, this recession is looking like it is going to be a long and drawn out one in the USA. Even if it isn't technically a recession, it will likely be very low growth (near net zero) for the next couple of years.

[Americano]

Quite depressing actually since in every other respect, there are indeed lots of good signs of economic recovery beginning outside of the USA.

Outside the US being the key point. US government reports of economic improvements of .0000000001% over the prior periods in US industry ain't gonna hack it. Upcoming US domestic social requirements will dwarf what's left of US industrial capability.

As we've noted many times, this recession is looking like it is going to be a long and drawn out one in the USA. Even if it isn't technically a recession, it will likely be very low growth (near net zero) for the next couple of years.

From a financial viewpoint I don't see another direction any administration could take short of bringing all the US military home and using that savings to subsidize Fannie and Freddie. That would be the logical direction but special interests will never allow that to transpire. Those wars and military bases are prime GDP contributors.

You can bet any mortgage modifications (which essentially constitute new mortgages) will be booked as GDP growth.

[justabubba]

http://i45.photobucket.com/albums/f51/savvyamigo/retail-sq-ft.png
from that graph - showing only the most retailed nations - the over supply of retail space in the USA is staggering
the implications are that the foreclosure of defaulted commercial real estate will follow that pattern now being felt in the residential real estate sector
notice how easy it was to find parking at the malls the week prior to Christmas? so, in addition to the end of the era of easy credit to fuel retail spending, store fronts also are now competing with internet retail as has long been forecast
those empty stores indicate the direction of the commercial retail real estate
the GSEs are needed as a way to prop up the RE values; by warehousing the defaulted mortgages at fannie mae and freddie mac instead of foreclosing against them, it is hoped the commercial real estate market might not implode from the swift devaluation which would otherwise result from massives foreclosures
notice that those institutions which were too big to fail in the fall of '08 are now much larger today than they were then. that reality now includes these two GSEs
we privitized the profits and are now socializing the losses

[Americano]

http://i45.photobucket.com/albums/f51/savvyamigo/retail-sq-ft.png
from that graph - showing only the most retailed nations - the over supply of retail space in the USA is staggering
the implications are that the foreclosure of defaulted commercial real estate will follow that pattern now being felt in the residential real estate sector
notice how easy it was to find parking at the malls the week prior to Christmas? so, in addition to the end of the era of easy credit to fuel retail spending, store fronts also are now competing with internet retail as has long been forecast
those empty stores indicate the direction of the commercial retail real estate
the GSEs are needed as a way to prop up the RE values; by warehousing the defaulted mortgages at fannie mae and freddie mac instead of foreclosing against them, it is hoped the commercial real estate market might not implode from the swift devaluation which would otherwise result from massives foreclosures
notice that those institutions which were too big to fail in the fall of '08 are now much larger today than they were then. that reality now includes these two GSEs
we privitized the profits and are now socializing the losses

I think it's a stretch labeling them as GSEs. They should be folded into housing and drop the facade. Two former GSEs competing for investment security sales with treasury is inefficient.

Commercial real estate business plan viability was just a step below the residential housing bubble. Consumer spending, which supports retail and business commercial property cash flow requirements, took the big hits of credit contraction, stagnated wages, massive unemployment and asset deflation in a very short period of time.

[Michael]

Wow! I knew US had a bit of a flooded market in retail but I never knew it was that big! :eek:

That's a lot of dead malls.

[Americano]

Wow! I knew US had a bit of a flooded market in retail but I never knew it was that big! :eek:

That's a lot of dead malls.

Not just malls but empty storefronts in what remains of downtown city shopping areas around the country. The credit bubble distorted retail markets to a point where banks were taking 90-95% debt positions on commercial development when 70-80% had long been the norm. With negligible equity required developers built like the population was going to quadruple.

[The Drunk Girl]

Not just malls but empty storefronts in what remains of downtown city shopping areas around the country. The credit bubble distorted retail markets to a point where banks were taking 90-95% debt positions on commercial development when 70-80% had long been the norm. With negligible equity required developers built like the population was going to quadruple.


Would the supercenters of WalMart, Meijers, Krogers, and KMart fit into this category as well?

[Americano]

Would the supercenters of WalMart, Meijers, Krogers, and KMart fit into this category as well?

I don't feel Walmart has any competition. I know Meijers has been experiencing severe operating problems since the early '90s and is primarily a regional operation. Krogers is quite large, very diversified as to store names (in the Pacific NW they're branded Fred Meyer) and normally the step up from Walmart (more expensive). Kmart is, for all practical purposes, history.

What I'm seeing is widespread failure in general and specialty merchandise retail offerings, those stand-alone and chains without a core grocery business to drive traffic.

[The Drunk Girl]

I don't feel Walmart has any competition. I know Meijers has been experiencing severe operating problems since the early '90s and is primarily a regional operation. Krogers is quite large, very diversified as to store names (in the Pacific NW they're branded Fred Meyer) and normally the step up from Walmart (more expensive). Kmart is, for all practical purposes, history.

What I'm seeing is widespread failure in general and specialty merchandise retail offerings, those stand-alone and chains without a core grocery business to drive traffic.

Referring to your comment about empty storefronts, I have seen (and even in my hometown) where a WalMart once was and now is empty due to the building of a SuperCenter. In the shopping plaza where WM once was, there were all kinds of stores there and they continued to stay open until the SuperCenter was built a few miles on down the road. Since then, the only thing that has managed to stay open is a Kroger, which now has added a gas station added to the parking lot. I can't even think of how many (decent) stores that have tried to come into the plaza and have shut down because there is nothing else there. WM fed the entire plaza.

It would be nice to see more specialty stores around. But, I don't see them making a comeback anytime soon. People lack the ability to appreciate things of that nature today. A world in which a society supports and acknowledges it's local products, hard work, and their unique qualities is long gone.

[Michael]

Walmart hasn't been able to penetrate my city yet. They tried, but I notice that a couple that were out in the suburbs have since closed.

I think Walmart can only survive in suburban or rural environments where they can profit from eliminating the competition. Elsewhere, not so much.

I've still never been inside a Walmart in my life. :shrug: