Chris Isidore, CNNMoney.com senior writer is confused. In his overheated article The Trillion Dollar Mortgage Time Bomb he claims that Fannie Mae and Freddie Mac “back” loans when in fact they serve as clearinghouses. “Backing” implies some sort of insurance or guarantee, like FHA’s. Additionally, he claims that conforming loans are characterized by “large down payments.” In fact, here is the entire ill-considered sentence: “Fannie and Freddie primarily back so-called conforming loans, those made to borrowers with good credit and large down payments.” Then he continues with the florid and frightened prose: “Among the nightmares lurking around the corner for the already battered housing and credit markets would be a meltdown at mortgage financing giants Fannie Mae and Freddie Mac.” God, I’m shaking in my shoes…
When a “senior writer” for a financial news site can’t even get it right it’s no wonder the general public is so confused… This kind of ignorant hysteria is what makes people so afraid of buying homes or borrowing money these days. We can only hope that cooler heads will eventually prevail. CNN should pick up writers like Dan “The Mortgage Reports” Green or Liz Freeman “The Daily Pick” if they don’t have anyone more knowledgeable than this guy on their staff.
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5 responses so far ↓
1 Chris Johnson // Apr 21, 2008 at 8:37 pm
Y’know…I’m sorta doubting that this will happen.
2 Matt Carter // Apr 22, 2008 at 10:10 am
Fannie and Freddie are more than clearinghouses — they guarantee the payment of principal and interest on the mortgage-backed securities they issue.
That is why they suddenly find themselves with more than 75 percent of the market — investors aren’t buying private label mortgage-backed securities the way they used to because they have lost confidence in them.
Fannie and Freddie also hold about $1.5 trillion in mortgages and MBS as portfolio investments. Together, they posted $6 billion in fourth quarter losses.
The CNNMoney article was based on a “worst case” scenario run by Standard & Poor’s — not generally regarded as a hotbed of “ignorant hysteria” (although it may take the rating agencies some time to regain the trust of investors after so many AAA-rated MBS issues went south).
If you don’t trust the media, maybe check out what OFHEO and Standard & Poor’s have to say about the risks Fannie and Freddie face. They are real.
http://www.ofheo.gov/media/annualreports/ReporttoCongress2008.pdf
http://www2.standardandpoors.com/portal/site/sp/en/us/page.article/2,1,1,0,1204835059249.html?vregion=us&vlang=en
3 Gina Gardner // Apr 22, 2008 at 10:58 am
Conforming loans can have down payments as low as 3% and credit scores can be less than 620. See Fannie’s latest matrix.
https://www.efanniemae.com/sf/refmaterials/llpa/pdf/llpamatrix.pdf
According to The Economist Fannie Mae receives no direct government funding or backing. Fannie Mae securities carry no government guarantee of being repaid. This is explicitly stated in the law that authorizes GSEs, on the securities themselves, and in many public communications issued by Fannie Mae. Despite this, there is a wide perception that these notes carry an implied government guarantee, and the vast majority of investors believe that the government would prevent them from defaulting on their debt. Whether the federal government would bail out Fannie Mae in the event of insolvency is a hypothesis that has never been tested. Fannie Mae’s investors will be in the same boat as everyone else who bought mortgage-backed securities, there’s no magic here.
4 Gina Gardner // Apr 22, 2008 at 11:42 am
That being said I failed to differentiate between government backed and privately guaranteed, my booger, should not have put it that way — especially if I was going to get rude about it. I do stand by my objection to the tone of the article (worst case scenario is usually unrealistic and invoked to hook readers not impart facts) and the characterization of conforming loans which was wholly inaccurate.
5 VA Refinance // Apr 22, 2008 at 1:38 pm
Gina I agree with you the wost case is never very accurate. the Articel just alike most articles comeing from CNN are to scare the consumer. Im sure that it did its jub however the good thing is that the article came from CNNMoney which mean (I would hope) not alot of people saw the artivle.
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