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Michael Gracie

Fannie Mae debacle has no oomph

So lets give it some before the situation spirals even further out of control.

The Washington Post reports: Study Finds ‘Extensive’ Fraud at Fannie Mae.

I’ve hinted that where there’s fraud, there are usually bigger problems, and in the case of Fannie Mae I think there is a lot more to the story than just some greedy executives. Hiding writeoffs suggests that assets in the portfolio are simply not worth what someone thought they were worth. That means home loans, and in some (if not many) cases, the underlying assets. I’ll give some credit to the intrinsic portfolio devaluation – FM pays a premium for the loans, and that is after the money centers paid a premium from the regionals, and the regionals paid a premium from the mortgage brokers. And with rates rising, those spreads are shrinking. Nevertheless, you have to ask why those premiums were paid in the first place, and the answer is the perceived value of the underlying assets, which for a fine period of time was rising faster than brokers could close the loans. The cocktail party talk was all “I closed on my new condo, and I already made $5,000!”

Heh. Americans have bet their retirement on home values. Pension funds have bet their beneficiaries’ retirement on home loans (they buy Fannie Mae bonds, don’t you know).

Big wagers, incestuous ties, greed, and fraud. Sounds like a Robert DeNiro movie – and if I remember, people often wind up in shallow graves in those.

Newton’s Laws and Real Estate

I sold my house a while back, and right now I rent. I have heard every reason why I should be buying again, but still I rent. My friends and colleagues continue to invest in real estate, continue to say how their area is different than the rest of the country, and that appreciation is inevitable. My reasoning – house prices have been acting like bonds – interest rates went into a long decline, and Newton’s Third Law kicked in. And the external force that causes Mr. Gravity’s First Law to take affect are now on our heels.
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