Fannie and Freddie are dead. Long live the mortgage market!
With the stroke of a pen, Hank Paulson wiped out billions of dollars in shareholder investments and simultaneously sparked a 200 billion dollar rally in the stock market. The Agencies will continue to do business, but now the taxpayers will be on the hook for the losses that have come about from the last 5 years of aggressive lending.
This solution was apparently “baked in the cake” a couple weeks ago when Freddie’s CEO came back from New York empty handed. Apparently the Feds are the only investors willing to belly up to the bar.
What’s next? For now, the mortgage market has been stabilized, with rates falling almost half a point. Long term, it’s hard to see how anyone will trust a government agency with so much dominance again. But then, I thought Amtrack would die in the ‘70s.
Douglas R. Tengdin, CFA
Chief Investment Officer
Leave a comment if you have any questions—I read them all!
Follow me on Twitter @GlobalMarketUpd