The mortgage news is breaking fast about the federal bailout and take over of Fannie Mae and Freddie Mac. Top Fannie and Freddie executives were summoned for lengthy meetings late Friday. The reports are that the top executives are being fired. Members of Congress have been asked for contact phone numbers to enable quick briefing over the weekend.

The Federal government is evidently moving to take over conventional mortgage lending this weekend.  The term that is being used is conservatorship. This is basically a guardianship, where financial and other decisions are made for the entity by a responsible party.

In this case the Fannie and Freddie Mac are being placed under the control of a guardian, so that the financial decisions can be controlled by a responsible person.

Hopes are that this will enable market stability, without the requirement for large upfront capital expenditures.

Losses have continued to mount in the mortgages backed by Fannie and Freddie. I have not hear if the losses are mostly in their A mortgage loans or if these losses are a direct result of their poor decision to venture into purchasing the riskier Alt A mortgage loans.

The A grade mortgage loans are made to the top credit tier home owners and generally involve strict guidelines as far as income and asset documentation and restrict loan to values on various different mortgage and property types.

The Alt A grade mortgage loans are made generally to good credit home owners, but have less stringent requirements for income and asset documentation and less restrictions on loan to values for the different mortgage and property types.

Additionally Alt A grade mortgage often allow for more riskier payment options, including interest only, negative amortization, and in some cases risky adjustable rate features.

Issues involved with the decision to take control of Fannie and Freddie include concern over the real issue of the ability to meet their obligated guarantees (having sufficient capital now for losses), concerns over the ability to raise future capital and concerns over investor willingness to buy future mortgage securities and bonds to investors.

These concerns are over real actual liquidity and over market perception and confidence.

My question is whether a federal takeover will further restrict lending guidelines or whether it will ensure sufficient liquidity to allow lending to open further.

Are the conventional loans that were made performing, as opposed to the Alt A loans that were purchased?

Are the majority of the losses a result of bad lending, bad management, or a bad economy?

Updated Alan Zibel of AP business just released a report indicating that Rep Barney Frank's office has confirmed the GSE shake up. This is the first non anonymous report that I know of, and it gives real confirmation that we will wake up Monday to a new world in the mortgage business.

Richard Smith
American Acceptance Mortgage, Inc
Toll Free 888-474-9920 Cell 423-280-0345
Home financing in Tennessee, Georgia, and Alabama.
Experience matters when it is your home loan.