Greenspan, Katrina and Fannie Mae

Greenspan recently warned that Fannie Mae and Freddie Mac are overextended, like the rest of America. What Fannie Mae and Freddie Mac do are to take US mortgages and bundle them and to sell them as securities. Greenspan warned that

"Greenspan warned that as Fannie Mae and Freddie Mac increase in size relative to the Wall Street firms that help them hedge risk, their ability "to quickly correct the inevitable misjudgments inherent in their complex hedging strategies becomes more difficult." Forbes.com, article by Virginia Citrano. See above link.

Econo-Girl's concern is with the attacks of Mother Nature on our Gulf shores, many people will not be paying their mortgages back. What effect would this have on Freddie's and Fannie's ability to provide low-cost mortgages to Americans? And what will that do, in turn, to the housing market?


The Lazy Iguana said...

I do not think the impact will be that great. Mortgages are usually long term deals, not 5 year car loans.

And the mortgage pools are national, not regional. This is why mortgage pools were created, by lowering the overall risk to the people who invest in the pools, mortgage rates can be kept as low as possible.

Not everyone will default. And not all the people who lost homes were homeowners. Renters and people living in government houses do not count when talking about the health of a mortgage pool.

As long as the rest of America keeps paying their mortgage on time, Fannie Mae and Freddie Mac will be ok.

lewis_medlock said...

I agree with the iguana.

The folks you saw on TV that stayed in NOLA do not have mortgages.
Those folks were renters, folks living in homes passed down to them or SECTION 8 recipients.

If you can get a mortgage (FICO score~550 or so) you can get a newer car.

while I feel sorrow and empathy for those folks who could not leave , I feel no sorrow nor empathy for those that could have left or did not have the resources to whether out the problem yet staye despite having been warned. ( i realize this is an OT rant...).
As far as Im concerned, those that did not provide for their own security when they in fact could have do not deserve our empathy.

Econo-Girl said...

But SOMEONE has the mortgages on those properties. And THEY are going to default.