Real Estate Investment Consulting

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US Treasury takes over Fannie and Freddie: What does this mean?

This weekend we witnessed the biggest Govt expansion into the private sector ever.  I'm a free enterprise guy and personally, I don't like Govt involvement in the private sector.  Fannie and Freddie where designed as a publicly chartered agencies designed to operate in the private sector, and when things are going well you can make this work, but during down times you cant.  They have an internal conflict of interest because they're trying to serve the general public and also be profitable for investors and shareholders.   It's like having a non-profit company with shareholders.  You can't have it both ways.  Earlier this year the US Treasury bailed out Bear Stearns and now Fannie/Freddie.   Who's next GM or Ford?  My favorite French word is Laissez-faire, and we need to re-introduce this term to Washington.   

Having said that, I think the govt had to do this and they had no other choice but risk the entire US economy.  The catalyst for this surprise move was PIMCO's announcement that they won't buy anymore mortgage backed securities, (PIMCO is the largest buyer of mortgage securities from Fannie) followed by foreign investors also saying that they are pulling back.  Those statements left unattended would have ignited a wild fire in our economy that would have gone out of control.  Fannie and Freddie hold too much of our economy within 1 company.   A failure of either will crush the markets.  You may as well put a big for sale sign on the White house lawn. 

Can you say S&L Crisis?  This is almost a complete repeat.  Our Govt was criticized at the time for getting involved, but in hind sight it proved to be the right thing to do and the cost of the S&L bail out was recuperated through the R.T.C. in the years that followed.  By comparison, the Japanese didn't do anything to fix their banking industry and they continued into a 10 year recession.  

The Govt actions this weekend established a preferred bond of $200 billion to keep the 2 firms from becoming insolvent and thus renewing investor confidence.  The liquidity and investor confidence will keep money flowing and it will bring down interest rates (in the short term).  It won't fix the mortgage crisis, but it will make it cheaper to borrow money.  The cost to tax payers is yet to be determined, but taking a preferred bond position helps to ensure that the US will get its money paid back over time. 

The long term picture is very uncertain and the new administration will have to tackle this issue next year.  Secretary Paulson is pushing for down sizing of Fannie and Freddie to be no more than $250B in guaranteed mortgage securities. 

Time will tell.

What's you're take on this?

3 comments • Martin Rodriguez - Senior Loan Consultant • September 10 2008 02:48AM

Should Mortgage Brokers Consider Realtors Their CUSTOMERS?

Via Janet Guilbault, California Mortgage Expert:

Sometimes you get that jaw dropper comment on one of your posts. You know, the comment that is raw. The one that speaks volumes about our entire industry.

It is something laced with real emotion that spews out like hot lava from a smoldering volcano (that you assumed was dormant).

It is the kind of comment that I live for, because the truth is most often hidden in business communications. Usually we try to stay out of controversial territory.

But not always. The comment:

And do you not consider Realtors your customers, as well? It sure doesn't seem like mortgage brokers look at Realtors in this light.

I wonder if we in the mortgage industry have "trained" Realtors to think of us as their "customers"? After all, didn't we entice Realtors to do business with us by bringing donuts to sales meetings? By laying rate sheets on their desk? By showing up in their office with a bright shiny badge with the hope that we can "sell" them on the idea of doing business with you?

Don't Realtors hide when they see a mortgage broker coming? Sure sounds lika a classic salesman/customer realtionship to me.

My jaw dropped because I realized that if a Realtor believed that they are a customer of the mortgage broker, then this speaks volumes about the difficulty in establishing a rapport that will carry a real estate transaction smoothly to its close.

Why? Because that means we are starting on a different page. Coming from a different place. Confused about our roles, if not our goals.

You see, I don't think most mortgage brokers would consider themselves a "customer" of a Realtor. This leaves  the implied implication that mortgage professionals must "win" the satisfaction of the Realtor (winning the customer over), that the Realtor is never wrong (like a customer is "always right"), and that the mortgage brokers main goal in the transaction is to satisfy the Realtor (like having a "satisfied customer").

Wow. This is miles away from the way I think. I think of the Realtor as my teammate and our job is to win the most important game in the world.

It does not matter to me if a Realtor refers me a client, or if the client arrives in my office, contract in hand, saying "Call this Realtor. They are handling my sale." In all cases, I want to join forces with the Realtor to close the loan on time, and end up with a client who would be thrilled to do another transaction with Realtor involved, or with me.

Make no mistake. My first priority is NOT to impress a Realtor. It is to impress our mutual client. I figure if I do that, everything else will fall in place. If the client raves about how well things went, and the Realtor is impressed enough to refer me future business, then that is a bonus.

It is not the point.

Certain behaviors that I have witnessed by Realtors now make much more sense. I realize WHY it is possible to have an ecstatic client, who refers you business multiple times, but his Realtor remains, well.... a "customer" who did not get satisfaction.

Could it be that the ROLE of being a mortgage broker (the Realtor's customer) is not the same as GOAL of being a mortgage broker (a happy client)?

How ironic is this?

And should it be surprising that Realtors think this way when only a very short while ago, mortgage brokers were merely a commodity in the marketplace where oversupply was the rule?

You remember economics 101? When supply is high, the price goes down.

It might pay to remember that the supply has vastly shrunk, and the quality, by sheer necessity, has vastly improved.

 


Written by Janet Guilbault, Mortgage Lending Expert Based Out of the San Francisco Bay Area.

 

 

0 comments • Martin Rodriguez - Senior Loan Consultant • September 10 2008 12:28AM