The Crisis of Confidence....that's probably the best way to describe it.
Friday was a crazy day in the financial markets being headlined by the potential failure of the government sponsors agencies (GSEs), Fannie Mae and Freddie Mac. At the start of Friday it was reported the government could take over these agencies over the weekend and perhaps they would dissolve and rename them. Well both stocks opened sharply to the downside.
At about 2pm there were rumors that the Bernanke was going to announce the opening of the discount window to Fannie and Freddie to help solve their liquidity problems. By 315pm the information was deemed untrue. Freddie Mac rallied to positive territory and ended up closing slightly negative on the day, Fannie Mae was still done considerably. After the close both GSEs made a statement saying they had well more than required by law in liquid assets to be okay.
....and then there was today, Sunday....Treasury Secretary Paulson announced they would open the discount window to the agencies so they would have that liquidity if needed. Also they want the Treasury to be allowed to buy stock in the companies.
A quick refresher on mortgages...a lender provides the money to close the mortgage and then sells it to the GSEs who package them up with other like mortgages and convert them to bonds(or securities...same thing) THEN they are sold off to investors while a lender just services(collects the monthly payments) the loan for the investors and gets a fee.
However, the appetite for new bonds coming to market is weak, they are fearful of default, which to all of us lenders and agents out there we know they these securities are A+ and if the credit score is sub 719 without a huge down payment the GSEs are charging a decent sized risk premium.
These announcements are an added security blanket for the GSEs with investors, thus increasing their confidence.
Tomorrow Freddie Mac is scheduled to sell $3 billion in debt...I expect a strong sale of them and mortgage bonds to do well after their Friday afternoon sell-off.
In my opinion, the government dealt with this quite well.
The above Mortgage Market Update information was provided by Bryan Flynn of Wells Fargo Home Mortgage. Bryan can be reached at Bryan.K.Flynn@wellsfargo.com or by phone at 508.363.2223. Bryan has worked in the Central Mass and Worcester area for the past 6 years as a mortgage loan officer.
More than likely, this is one of the largest and most important financial transactions you will ever make. I have a desire to help people out and love my job. You might need a mortgage only four or five times in your entire life... but I do them every single day. It's your home and your future. It's my profession and my passion. I'm ready to work for your best interest.