Burbank Real Estate Agent Ana Connell

Sunday it was announced that the government, through the Federal Housing Finance Agency, was making the landmark, although not altogether unanticipated, decision to take over the Federal National Mortgage Association (FNMA-Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac).

After suffering from the biggest number of mortgage defaults in 30 years, the two giants are in serious danger of failing and delivering a major blow on the already stressed housing market . In a nutshell, they're worried the mortgage market will fall apart. The end goal is to restore confidence, mainly abroad and at home, for those financial institutions that hold these companies' securities.

Fannie Mae and Freddie Mac together own or guarantee about $12 trillion in mortgages or about half of the US mortgage market. FNMA was formed after the great depression, as part of FDR's New Deal, to provide liquidity to the mortgage market. Freddie Mac was created in 1970 to expand the secondary market for mortgages.

Here are some details of the takeover:

• It's anticipated it could cost as much as $100 billion for each company
• The Treasury will receive $1 billion in preferred stock, warrants totalling about 79.9% of Fannie and Freddie
• The Treasury will start with a $5 billion purchase of mortgage-backed securities
• Both companies will be placed under a conservatorship, both CEO's will be replaced, but remain as consultants
• All dividends will be suspended
• The takeover is "temporary" until a future operating or restructuring plan is hammered out
• Common stock holders will remain, but be last to receive any compensation
• Interest and principal payments will continue to be made on outstanding debt
• All lobbying efforts by both companies will stop immediately

If you have followed this story you may already know that when problems first started to surface we were all assured that everything was fine and that government intervention was not necessary. Problem is that the accounting methods used by these companies overstated the value of their securities and due to the mounting losses it was paramount that they raise more capital.

FNMA is required to have $37.5 billion on hand to meet capital requirements and it had fallen in less than 2 months from $47 billion to $7.6 billion......scary. Freddie was down to $3.3 billion from $33 billion.....again, scary.

It was decided that without a takeover the risk was simply too great for taxpayers for the government to keep infusing capital. From where I'm sitting it does not look good any way you dissect this thing, although the alternative of doing nothing could be far worse.

Many critics, including Steve Forbes and Alan Greenspan believe these companies have been mismanaged and need to be split and sold off. Many in the mortgage industry see this as a positive step in shoring up the sagging mortgage market, while some worry it may not be enough. In the short term long term mortgage rates could dip by as much as 1%, if certain mortgage pundits are correct.

Some lingering questions include:

What happens next? While the goal is to"preserve and conserve" the value of these companies, no end date or time frame exists for ending the conservatorship.

Will key benchmarks or the Treasury plan be met and will that be enough to stabilize the mortgage market?

Will the people who need to be helped get that help?

More to come on this story.........

Month to month average sale price is down $45,281, year over year, average sale prices are down by $150,000 or 22.83%.

Average days on market, year over year are up 27 days.

Number of sales is up 16%.

These numbers are reflecting several factors……

• Year over year, you have many more short sales and REO or bank owned properties on the market.

• For comparable properties the bank owned properties tend to be priced lower than the short sales or regular sales reflecting the fact that the bank owned properties need more repairs.

• The fact that days on market are longer makes sense when you consider that negotiations tend to take much longer with short sales and bank owned properties.

• Sales are up because prices are becoming more affordable and buyers are seeing good deals.
  

Qualified buyers are out there as I’m seeing multiple offer situations on well priced properties. This is all a function of market stabilization. While I'm not sure that we've hit bottom I think we're close. We won't really know until we look back a year from now.

For more information, check out Burbank Foreclosures and Short Sales or Burbank Real Estate Expert.

* Leading Indicators, inched up .1% trying to suggest that the economy will not officially dip into a recession.(Monday)

* Producer Price Index .2% increase seems tame following the 1.1% surge last month. (Tuesday)

* FOMC Meeting Minutes the Fed lowered it’s forecast for economic growth and indicated that it was pausing in it’s interest rate strategy for a while. They believe that while growth is contracting in the first half of 2008 it will rebound in the latter half of the year.(Wednesday)

* Jobless Claims came in at 365K which seems to suggest a stabilization in the jobs market.(Thursday)

* Exisiting Home Sales dropped by 1% in April and inventories rose from a supply of 10 months to 11.2 months.(Friday)

* Bonds…2 year 2.45%, 5 yr. 3.15% and the 10 yr. 3.85%….so far as market has not closed on the day yet, but will close early for the Memorial Day Holiday.

* Crude oil has been the big story this week hitting record highs, right now it’s sitting at $132.82 per barrel, below the record of $135 it hit yesterday.

Of note this past week:

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Here is the report for April and as you can see sales can vary greatly by area.

One thing is clear, however, money is still tight and sales are down. Latest forecasts have the turnaround starting later this year and into 2009. The recovery does hinge on access to loans and in many cases buyers are not qualifying under the current banking standards. A record 62% of banks reported tighter lending standards for prime mortgages and 72% have tighted subprime mortgage requirements(no surprise here).

Fixed mortgage rates are expected to rise to 6.2% later this year and 6.3% for 2009.

To keep things in perspective.....home prices in Los Angeles/Long Beach/Orange County areas increased 6.2% over the last 5 years.

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* Pending Homes Index fell 1% in March and is looking to be coming in at 20% year over year declines. Again the real story is when you look at specific markets. For example the Northeast did better, up 12.5%, so these numbers are somewhat meaningless unless you are looking for an overall trend, which currently is still down. Individual neighborhoods can be an entirely different story depending on where you are looking and at what price range. Tight money is still in play which means buyers are still finding it difficult to obtain loans.(Wednesday)

* Jobless Claims, came in at 365,000, lower than last week.

Chain Store Sales reported the best numbers since January, good news for retailers.

* Bank of England (BOE) Announcement, as expected came in at maintaining it’s key rate at 5%. The message here is that it still sees inflation as a real threat. * International Trade -The US trade balance shrank, which is good news for the dollar. Only bad news here is that less imports points to a weak economy.(Friday)

* Bonds…2 year 2.22%, 5 yr. 2.95% and the 10 yr. 3.76%.

* Crude oil finished at $125.96 per barrel, and some are now predicting $200 per barrel by Christmas.

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