I cannot begin to explain how angry this makes me, I’m not kidding when I say that I can feel the anger building up after reading this.  The FDIC, on a Friday afternoon with no vote, no say, no representation, from the people is socializing mortgages and making you and me pay for it.  I still live in America right?  It’s really beginning to feel like another country around here.

From the FDIC via Zerohedge:

As part of its loss-share agreement with acquirers of failed FDIC-insured institutions, the FDIC is encouraging its loss-share partner institutions to consider temporarily reducing mortgage payments for borrowers who are unemployed or underemployed. This program will provide additional foreclosure prevention alternatives to these borrowers through forbearance agreements that will give them an opportunity to regain full employment and avoid an unnecessary foreclosure.

“With more Americans suffering through unemployment or cuts in their paychecks, we believe it is crucial to offer a helping hand to avoid unnecessary and costly foreclosures. This is simply good business since foreclosure rarely benefits lenders and would cost the FDIC more money, not less,” said FDIC Chairman Sheila C. Bair. “This is a win-win for the borrower, who can remain in his or her home while looking for a new job, and the acquiring institution, which continues to receive payments on the loan. Ultimately, by reducing losses under our loss-share agreements, this approach helps reduce losses to the FDIC as well.”

The recommendation to loss-share partners applies where unemployment, or underemployment, is the primary cause for default on a home mortgage. In such cases, the FDIC is urging its loss-share partners to consider the borrower for a temporary forbearance plan, reducing the loan payment to an affordable level for at least six months. The monthly payment during this period should be established based on an affordable payment – given the borrower’s circumstances – and it should allow for reasonable living expenses after payment of mortgage-related expenses. The reductions in mortgage payments during a temporary forbearance period are not covered losses under the loss-share agreement with the FDIC, though losses incurred from subsequent permanent loan modifications are covered. If the home preservation efforts are ultimately unsuccessful, losses incurred in subsequent foreclosures or short sales also are covered losses.

Acquirers of failed insured institutions who agree to a loss-share arrangement with the FDIC must abide by the FDIC Mortgage Loan Modification program for assets purchased from the failed institution. The program’s objective is to modify the terms of certain residential mortgage loans to improve affordability, increase the probability of performance, allow borrowers to remain in their homes and increase the value of the loans to the FDIC and assignees. The program provides for the modification of “qualifying loans” – those that meet certain criteria – by reducing the borrower’s monthly housing debt to income ratio (DTI ratio) to no more than 31 percent at the time of the modification and eliminating adjustable interest rate and negative amortization features.

Zerohedge says it best:

o there you have it – yet another wealth redistribution program courtesy of a late Friday release by the administration. Money flowing from taxpayers, stupid enough to be responsible with their money (and, heaven forbid, to have dollar denominated savings that Chairman Ben wants to see dead not alive) end up funneling their money to the FDIC on three occasions: i) first to eat the bulk of the cost associated with any bank failure, while the good assets are covertly shifted over to “loss-share partners”, ii) to have these same loss-share partners not charge full mortgages of those individuals who, following the American dream, and the American max the credit card plan, are unable to afford living in a house, yet who find themselves in that 16.8% of unemployed or underemployed category, and iii) to foot the final bill when inevitably, after 6 months, these same individuals redefault once again.

[snip]

In a nutshell – socialism – FDIC style.

Exactly, socialism FDIC style.  Unbelievable.

Freddie Mac reported earnings tonight, from the press release:

Fourth quarter 2008 net loss of $23.9 billion, or $7.37 per diluted common share, compared to a net loss of $25.3 billion, or $19.44 per diluted common share, in the third quarter of 2008. Losses were driven primarily by net mark-to-market declines on the company’s derivative portfolio, guarantee asset and trading securities; increased credit-related expenses; and security impairments. The company also recognized an additional valuation allowance against its net deferred tax assets.

It must suck a lot to own a $0.42 stock in a company that has managed to lose 1,754% of the value of one share.  Amazing.

Full-year 2008 net loss of $50.1 billion, or $34.60 per diluted common share, compared to a net loss of $3.1 billion, or $5.37 per diluted common share, for the full-year 2007.

Net interest income of $2.6 billion in the fourth quarter of 2008, up $781 million from $1.8 billion in the third quarter of 2008. Net interest income for the full-year 2008 was $6.8 billion, up from $3.1 billion in 2007.

Don’t worry, they’re making it up in volume

Freddie Mac’s Conservator has submitted a request to the U.S. Department of the Treasury (Treasury) for an additional $30.8 billion in funding for the company under the Senior Preferred Stock Purchase Agreement (Purchase Agreement) with Treasury.

Come again?  You just lost $50 Billion, and now you want another $30 Billion of taxpayer money?

In 2008, Freddie Mac purchased or guaranteed more than $460 billion in mortgage loans and mortgage-related securities, helping to finance more than 1.7 million single-family homes and 620,000 units of rental housing.

While losing $50 Billion dollars….

Freddie Mac’s foreclosure-prevention efforts enabled approximately 88,000 borrowers facing financial hardship to stay in their homes or sell their properties in 2008.

Did I mention that they just lost $50 Billion dollars…. For those that are staying in their homes, approximately 36% of them will be adding to the 2009 losses.  We like to lose taxpayer money twice!

Full-year 2008 total administrative expenses declined by 10 percent from 2007 as the company took actions to reduce spending.

That’s good, at least we saved $169 million in administrative expenses.  God forbid we’d lose $50 Billion in a broken business or something terrible like that.

Well, I’m pretty sure that a $.42 cent stock isn’t going to crash the market overnight, but this doesn’t help anything.  Lets just keep ringing up the tab for the housing bailout disaster.

When does the madness end? These horribly broken half government have private entities are a mess.  Something has to be done, and more government isn’t the answer.

Lately the biggest news on television has been about the Real Estate market and the sub-prime mortgage mess that our country is currently in.  Given that the “American Dream” is to own a home, and that most average homeowners have a vast amount of there net-worth and personal financial wellbeing tied to their homes, I figured this would be a nice topic to start discussing.

First, let’s get some things straight.  I own a home; in California.  In fact, my home is only 20 miles or so away from the foreclosure capital of the entire United States, Stockton.  The market value of my house has fallen like a rock over the last few years and it currently shows no sign of stopping.  Thank God.

What? You might be screaming to yourself, you’re happy that the value of your house is plummeting? Well, I’m not happy about it, but I’m happy that the market is beginning to correct itself.  Just a few years ago, I was talking with some co-workers about the median income in my city and how the current home prices were simply unsustainable.  We did some quick back of the napkin math and figured that most people could choose to either 1. buy a home and starve to death, or 2. rent and eat plenty.  Over the long term, the reality is that option 1 just isn’t going to cut it.

Now, I’m no central banker, or hard core economist.  I’m just a guy who happens to understand some of the basic economic principals out there and can add 2+2 to get 4.  When you only make 40K a year, and your about to  (when your 0% down option ARM resets) have to pay 28K a year in mortgage obligations, the math just doesn’t work – period.

Since the math doesn’t work, the prices must fall, or buyers must “dry up” – again basic economics here, no buyers  = lower prices – supply and demand at work.  Right now, my house is bleeding about $1,000 a day.  I don’t expect that rate of “burn” to continue, simply because foreclosures are accelerating the price decline.  Most of the folks that I know who have normal mortgage payments as a percentage of their income are not planning to sell at all in this market.  Supply and Demand will begin to turn once the foreclosure inventory is worked through.

Anyhow, back to why I’m happy.  The market has to get real in order to continue to appreciate.  Seriously, do you really think that it is healthy to have the appreciation of your home be 2x your annual salary on a year over year basis?  That is not sustainable and must be corrected.  The quicker the correction – the better.  When prices can move back down to a level were there are strong numbers of buyers, we will be close to a bottom.  The cheap inventory can be worked off, and then supply and demand will take over again.  Prices will begin to move up and that will be a fantastic thing.

Personally, I think the market is getting very close to a bottom.  Inventory is moving and prices are beginning to show some signs of stabilization.   I wouldn’t be supprised if there were another 6-12 months of weakness, but after that I think we wil be in very good shape.

So, what does this mean to an existing home owner?

That depends… Ideally you were purchased a house with some equity and didn’t buy at the peak.  If you don’t have equity, or you bought at the peak you might simply be out of luck and will just need to wait the market out.  This is healthy.  It sucks, but it is healthy – repeat that to yourself every night

If you happen to have a home that still has some equity in it, you might have a fantastic opportunity in front of you. Over the next year or so there are going to be some fantastic deals out there.  Bank owned homes that are out there for the taking will be all over the place.  If you can work together to put together a solid down payment and can part with your home at an emotionally “low” price, you may be able to take advantage of the market and
“move up” on the cheap.

If you’re like me, you pretty much aren’t going to do anything.  In fact, I’m going to be renting my place out while I go to Chicago for Grad School.  Why?  Because the market sucks and I am not prepared to sell my house for its current “market value.” Just a few years ago I was saying – there is no way I’d pay that much for my house… Based upon the current “market value” I’m saying there is no way I’d sell for that little.  We are in the process of swinging the pendulum back and forth, eventually it will come back to the middle and it will be time to sell and move to a new home.

If you’re in the market… Please, please, please, please, please…. Don’t buy a with a stupid mortgage.  ARM’s are not horrible, you just have to understand what they are and what the risks are.  I happen to have an ARM, it is a 7/1, I like it a lot and am VERY pleased with it.  Even in this market, I’m not worried one bit.  Make sure that you have enough equity to purchase, preferably 20% down.  10% will work with an 80/10/10 setup, but do the math and make sure you’re not going to be house poor.

A side note to current homeowners and those looking to purchase.  YOUR HOUSE IS NOT YOUR ATM.  Use that equity wisely.  Do not buy Starbucks Coffee or new shoes with it.  If you are going to tap your home equity (assuming you still have any left), do so with careful consideration, please

Things will get better… It just takes time.  Markets are very efficient.  Buyers and Sellers are not stupid and this whole process will work itself out.  Ideally the government won’t meddle to much and screw things up.  A true bottom needs to be found so that price stability can return and the market can begin to appreciate.