Thursday, March 20, 2008

Freddy and Fanny yeterday

I have a long business day planned today but I wanted to mention this housing related item that came out yesterday. Fanny and Freddie's capital requirements were reduced by US regulators yesterday from 30% down to 20% to provide a boost to the housing market.

This extra liquidity can now be invested into the mortgage market. This is expected to allow Freddie and Fanny to do an addditional $200 billion in additional loans.

My take:

This should help but if housing is too expensive and people cannot qualify for the loans due to tighter lending standards does it really matter? Both companies added that you could see an additional 13-17% reduction in home prices.

With these expectations my guess is both companies will be very conservative with what kind of loans they do and the requirements will be quite stringent in order to qualify. The last thing Fanny and Freddie want to do is an additional $200 billion in bad loans. Their current loan book is a mess and I think these new loans will be done with old scool lending standards.

This means 10-20% down depending on the market and what prices are doing, plus documented income and excellent credit. They also may use some of this capital to shore up their balance sheet to protect themselves against all of the bad loans they did in the past.

Bottom line is this is just another band-aid that will do little to stop housing from dropping like a rock. Stay tuned.

Some morning news:

Credit Suisse announced about 3 billion in writedowns today. More good news. Rumor is out their that UBS may take a $ billion dollar hit. Since the market is closed tomorrow does anyone want to hold stocks going into the weekend? Could ge another red day in the stock market.

No comments: