Mortgage Rate News

It seems a little counter-intuitive that the government insurance agency would take over a failed bank and then continue its practices. But that’s just what the FDIC did back in 2001 when it took over Superior Bank FSB. As new information comes to light about the mortgage market crash, there are questions about the way the FDIC runs the banks it takes over. Instead of cleaning up some of the subprime mortgage lending practices, the FDIC continued on with Superior’s policy of approving subprime loans to homebuyers — some of which were obviously unqualified.

When the FDIC takes over a bank

When the FDIC takes over a bank, it basically operates the bank until it can find a buyer. The FDIC manages the day to day banking transactions, and allows people to withdraw their money from the bank if they wish. Indeed, IndyMac is a prime example of what happens when the FDIC takes over a bank. Most operations are moving forward, including the acquisition of some of the real estate and mortgage sections by Prospect Mortgage.

The problem is that sometimes it can take months to find a buyer. With Superior, the FDIC decided to keep on providing loans to homebuyers. Unfortunately, the FDIC decided to follow the trend back in 2001, rather than evaluating the lending practices. As a result, quite a few of the foreclosures we are seeing with the current mortgage market mess were given by the government — using some of the same shoddy (and even predatory in some cases) lending practices that caused the downfall of the housing market.

One hopes that everyone can learn from the current mortgage mess: lenders, government regulators and homebuyers alike. But until then, one hopes that we don’t receive any more revelations like those regarding the FDIC’s subprime mortgage lending practices.

Tags: subprime mortgage, FDIC, home mortgage loan, mortgage loan blog,
subprime mortgage, IndyMac

There has been plenty of partisan wrangling over the housing relief bill currently making its way sluggishly through Congress. And there has been disputes between Congress and the White House. Now, though, a solution may have been found. Fannie Mae and Freddie Mac may actually get the housing relief bill through weeks ahead of when it could reasonably be expected otherwise. The Los Angeles Times reports on how the recent debacle with Fannie and Freddie may influence the housing relief bill:

The mortgage initiative unveiled Sunday by the Treasury Department and the Federal Reserve — which is designed to bolster confidence in home-loan giants Fannie Mae and Freddie Mac — requires approval by Congress. To expedite the legislative process, it is being attached to the larger housing bill as an amendment.

And, since no one wants to be accused of holding up the Fannie-Freddie package, differences are being swept aside over the larger measure to help some homeowners threatened by foreclosure.

In an election year, with the economy and the US financial system practically in ruin, nobody wants to hold this up. The collapse of liquidity for Fannie Mae and Freddie Mac could bring about the complete dissolution of the mortgage industry — that’s how influential the two government chartered institutions are. And how much money goes through them.

Besides, after Ben Bernanke’s testimony before Congress this morning, legislators are probably chomping at the bit to do something that they can claim will set the economy on the road to recovery. Bernanke gave is most pessimistic speech yet, turning directly from his optimistic statements weeks ago that the worst was over for the US economy. Now he’s all about uncertainty and expressing worries that there are hurdles he didn’t foresee to economic recovery.

Tags: Ben Bernanke, Housing Relief Bill, home mortgage loan, Fannie Mae,
Freddie Mac, mortgage loan blog, economy

In order to allow more people to get home mortgage loans, the government chartered two mortgage lenders and gave them the ability to buy home mortgage loans from other lenders. These companies are Fannie Mae and Freddie Mac. They used to be heavily regulated. But in the days when de-regulation was in vogue, Fannie Mae and Freddie Mac found themselves sidled with fewer and fewer restrictions.

Indeed, the two government chartered companies had enough freedom to become the largest buyers of home mortgage loans — and expose themselves to what became the subprime mortgage crash. And now, despite the rosy outlook of several people over the last few months that the worst was over, serious talks are underway about what might happen if Fannie Mae and Freddie Mac actually fail. Fortune’s Daily Briefing reports on the Fannie Mae and Freddie Mac issue:

Even though the discussions have been ongoing for months and are described as part of the Treasury Department’s normal contingency planning, the newspaper says talks have become more serious as the stocks of both companies continue to fall. On Wednesday, shares hit their lowest closing prices in more than 15 years after plummeting Monday. Freddie and Fannie shares were down more than 19% and 10%, respectively, in afternoon trading Thursday.

Those contingency plans may have to be put into practice sooner rather than later. William Poole, the former president of the St. Louis Federal Reserve, says that the two government chartered mortgage lenders are already insolvent. He also doesn’t think that taxpayers should be on the hook for a bailout. (But we’ve already bailed out Bear Stearns. We’re bailing out homeowners. What’s one more bailout?)

At any rate, the Bush Administration is wondering whether or not the bailout point is really the issue. After all, Fannie Mae and Freddie Mac are the largest buyers of home mortgage loans in the country. This means that if these two companies fold, serious problems could ensue.

Fannie Mae and Freddie Mac aren’t just in trouble themselves. They are plunging so dramatically that the rest of the financial sector is coming with them. And bringing the stock market along for the ride.

Tags: stock market, Fannie Mae, home mortgage loans, Freddie Mac,
subprime mortgage, mortgage lenders, Bush Administration