This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

News Flash: Fannie, Freddie Kaput

Stocks in this article: BAC WFC

WASHINGTON ( TheStreet) - For the first time in almost two years, some actual news came out of Washington about Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB).

The Treasury Department held a press-and-policy-maker event on Tuesday to start the discussion about housing-finance system reform. High-profile experts representing the government, borrowers and various parts of the industry were featured speakers in panel discussions.

The crib notes are thus: The Fannie-Freddie model of housing-finance is kaput; the new system will almost certainly include (explicit) guarantees on certain types of residential mortgage-backed securities to help middle-class borrowers; and low-income borrowers will be incentivized to rent until they can afford to buy.

Wow.

These are the kinds of things that have been vaguely suggested by the power set in Washington and the bankers on Wall Street for the past couple years of uncertainty. But now they've nearly been said explicitly, and with the molasses-like speed of Capitol Hill progress, that's saying a lot.

"This is a test for Washington," said Treasury Secretary Tim Geithner, after his keynote speech. "The stakes are high."

Most of the official news on policy came from reading between the lines of Geithner's speech. The Treasury Secretary indicated that Fannie and Freddie will die -- albeit with an "elegant funeral" -- and their legacy portfolios will be wound down. While he didn't outline any explicit policy objectives, he said "I believe there is a strong case to be made for a carefully designed guarantee."

With widespread industry support for such a move, it's nearly certain that Fannie and Freddie will be replaced by a system that's similar but with important distinctions: No "hybrid" structure where shareholder gains are subsidized by taxpayer support; an explicit guarantee on debt, rather than an assumed one; pricing on guarantees that's more favorable to taxpayers; and capital requirements that give private players a chance to compete in the mortgage-buying space.

Beyond that, in group sessions after the main panel discussion, conversation was dominated by the various interests who have a stake in housing reform.

Representatives from Bank of America (BAC), Wells Fargo (WFC), JPMorgan Chase (JPM), PNC (PNC), Citigroup (C), U.S. Bancorp (USB), Morgan Stanley (MS), Blackrock (BLK), State Street (STT) and a variety of other firms were there to offer the "industry"'s side of the story. Then there were the buyers of mortgage bonds outside the banking industry, like Bill Gross , chief investment officer of Allianz's (AZ) PIMCO, who manages its most prominent bond fund; and Bill Irving, who manages a big fixed-income fund for Fidelity. The Chamber of Commerce was there to represent the non-bank industry side, which will see economic effects of major housing-industry changes as well.

"Main Street" was represented by a variety of officials from the Treasury, HUD, Federal Reserve, FDIC, legislative offices and consumer groups as well. Civil-rights advocate Marc Morial, who heads the National Urban League, took umbrage at the suggestion that low-income borrowers had played a key role in the housing downturn. He characterized them as victims who have been taken advantage of and suffered greatly, rather than as naïve or irresponsible borrowers.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs