Zack-Considering what did in fact happen to WM and City National, would you like to recant your sarcastic comments?

I do not think "National City Bank has CD rates at 5.25%" implies the bank has problem because I just checked the website and see this is just a teasing rate. Why? it only gives that rate for $2,500 to $10,000.

Give me a bank that will give my friend Helen's $5m CD at 5.25%, then you will know the bank may have to be watch out, but still, if you put $100,000 CD in the bank, you are still protected by FDIC. Btw, FDIC has sufficient fund, more than enough, and out of 8500 banks, only about 100+ at FDIC's watch list, and only 10+ really fail this year. FDIC to a bank is like Fed to F Mae and F Mac, can be deem very reliable.

I believe soon or later Helen's $5m will come out to buy condos as she did in 90's. Now, you can tell the difference between real expert than just "paper expert" on real estate. The real gain for the riches is the "depreciation" of the investment property.

For example, $265,000 2br condo rented $1,700 with 26.5 year depreciation, each year got $10,000 depreciation!!! CD will not be able to give you that. Sit down to figure out all you already know and then finally add this $10,000, then you know what you missed!!! Apparently, you miss the real world experience...

Apparently Zach is not familiar with the real estate in Greater Edison/Piscataway area. Look at what CNN Money magazine said, Edison ranked #35 of Top 100 Best Place to Live in America http://money.cnn.com/magazines/moneymag/bplive/2008/snapshot… and Piscataway ranked #23 of Top 100 Best Places to Live in America http://money.cnn.com/magazines/moneymag/bplive/2008/snapshot… That's why it is out of your experience (or just all of your experience) that many condo communities like Edison Hollow South http://raspberryct.blogspot.com/ SOLD OUT!!!

and our points here are that many people now bought condos in the area with CASH due to two reasons, one is the low rate of CD's, and another one is due to the takeover effect of F Mae and F Mac that suspend on dividend of their preferred stock hundreds of small banks bought for their capital reserve and dividend, may end up fail the banks.

Last winter when I saw this $1.789m house at Warren, the listing agent Judith asked me if she should buy Citibank stock which many of her millionaire friends told her due to the drop of the stock price, I told her that if she had the cash, she should just buy the house. Then C dropped to $18 from $36. I do not think any real estate could drop 50% in a few months. She mentioned my comment to the owner, do you know what happened? The owner decided to keep the house and rent it out to collect great rent!

You will see more and more later the years to come that:

1. Interest rate will NOT go up at all. Well, it just can NOT. why? China got too much US dollars to loan yout to buy US Treasury bonds.
2. Rent will continue to go up, as inflation will make everything goes up, especially, if lookers do not buy, they still have to live, so they rent. So, as investors, you will just increase their rent...
3. So, people with huge CD's will not only suffer low rate, but also suffer the "risk" of bank fail, so they will have to put no more than $100,000 CD in each bank, so they will end up have 50 statement to handle each month if they have $5m, for example.
4. Eventually, people will realize investing condos or even apartment building in cash is the best way to keep their money safe and income jump.
5. As US Dollars devalue, government will jump the toll, bus fare, ...etc, and that's the time you see rent will eventually jump, therefore the value of condo come back up again...

I'll just give an opinion on what I think will be the effect of the takeover......

Keep in mind that Fannie/Freddie guarantee a secondary market for conforming mortgages to be bought and sold. Non-conforming (jumbo) mortgages have no such luxury and are subject to supply (in absundance on many banks/funds balance sheets in various forms) and demand (none). Although jumbo limits had a revision in 2008 as part of the economic stimulus plan, they're typically set at 417K. If most buyers were well qualified (i.e. income, credit, assets) and had enough equity to only require a conforming mortgage, then things would look rosier. But that's pollyanna thinking.

In the end, Fannie/Freddie will recover and continue to provide the neccessary services they've provided for decades. They will restore investor confidence in MBS products by offering transparent and credit worthy debt. Banks will issue mortgages to only those who can afford it. And buying a house will no longer be as easy as buying a car. You will most likely never see in our lifetime another unchecked, drunken sailor credit binge like we saw in the past 4 years. It was a fun party, but the hangover is just too difficult to deal with....

"National City Bank has CD rates at 5.25%, so do their higher rates mean that they are "in trouble"?"

Sharon, isn't it obvious! Having high CD rates automatically means near bankruptcy!!!! RUN NOW PEOPLE! I'm kidding if that isn't obvious. The answers to this question have gone from slightly misinformed to totally ludicrous. Although everything Cheng write is ludicrous so that sorta goes without saying. My favorite is still the few times he's posted that top high school students will now be attending community college. Anyway...

Barry said: "
BEFORE TAKE OVER
-In order for Freddie and Fannie to lend money by law they had to have a certain amount of cash in reserves
-That cash had been depleted which caused them to tighten the ropes so to say (underwriting Guidelines)
- The Rate was higher because they have been trying to rebuild those reserves.

AFTER TAKE OVER
- Unlimited supply of reserves
- Relaxed underwriting Guideline
- Lower rates because the reserve fund is not in question any more
"
---This is part of the misinformed answers. Fannie and Freddie still have to have cash reserves, that has not changed. The fed is letting them grow their balance sheet by about 10% initially, but then, starting in 2010 they will have to start cutting it massively. To paraphrase what I wrote in another thread recently, what helped mortgage rates come down is a couple of things. With the US gov't takeover there is considered no counterparty risk with fannie and freddie. They have not cut fees or relaxed their guidelines. Here is a link to a CNN article that talks about these two points specifically. http://money.cnn.com/2008/09/08/real_estate/high_credit_scor…

Mortgage rates are most commonly tied to the 10 yr treasury yields as the duration of a mortgage is closest to those products. Recently yields on the treasuries have come down, along with the government taking over the entities, so these combos have given us about a 50 bp drop in mortgage immediately.

"The FDIC doesn't have much more money to pay to insured depositors, so they will need to borrow from the treasury most likely. This is a very large problem!" ---This is ludicrous, the deposit insurance fund had 52 bln at the end of last year, while IndyMac's collapse will cost ~8 bln, there is still plenty of money and IndyMac was a very large collapse. The smaller banks collapse are barely a drop in the bucket.

"Mortgage rate came down and CD rates will come down too. $203,000 in CD getting 2% is much worse than buying a condo like the one above in cash and collecting rent ... No wonder many condo communities in the area SOLD OUT! " ---Usual Cheng nonsense. Yeah, um, just compare rent percentages to CDs, ignore those pesky things like taxes, maintenance, common charges, fees to buy/sell, mgmt fees, or you know, anything. Also, the news is awash with all these problems with sold out condo communities. Oh, wait, that's barely sold condo communities that are having problems meeting their monthly expenses with all the vacant units. I get those confused a lot.

Curt wrote, "Hi Joe, just to give you some numbers, last week rates were in the mid 6% range. I received an email first thing this morning, 30 fixed rate down to 5.625%. It means the market feels safer investing in mortgage backed securities and rates drop. How long and how low remains to be seen. Hope this helps." --- No, the market doesn't feel safer investing in mortgage backed securities, although in a lot places they probably should. It means that the US Govt is now explicitly backing FNM and FRE and that they will not fail so the banks are assure mortgage applications they approve today can still be sold to FNM and FRE in 2 months, and they won't be bankrupt. That and the treasury yields falling is all that accounts for the drop in rates. If the market for MBS was getting better, wall street would be in a lot better shape.

It will most defiantly have a positive increase have you seen the rates lately

BEFORE TAKE OVER
-In order for Freddie and Fannie to lend money by law they had to have a certain amount of cash in reserves
-That cash had been depleted which caused them to tighten the ropes so to say (underwriting Guidelines)
- The Rate was higher because they have been trying to rebuild those reserves.

AFTER TAKE OVER
- Unlimited supply of reserves
- Relaxed underwriting Guideline
- Lower rates because the reserve fund is not in question any more

National City Bank has CD rates at 5.25%, so do their higher rates mean that they are "in trouble"?

This is off topic, but to add to Cheng's response, when banks raise their CD's to higher levels than the competition, such as Washington Mutual is doing right now, it is because they need to attract as much cold hard cash as possible. It is a strong indicator that that a bank is in desperate need, which means they are close to going under. WM just fired their CEO as well, which is a bad sign.

The FDIC doesn't have much more money to pay to insured depositors, so they will need to borrow from the treasury most likely. This is a very large problem!

Why wealthy people with millions of CDs now come out to buy condos in cash? because after Fed took over F Mae and F Mac that they may not pay dividend of the preferred stock that hundreds of banks based on, and that may imply those banks will have great chance to fail!!!

e.g. Washington Mutual (WM) dropped 29% today http://finance.google.com/finance?q=NYSE:WM and hundreds of people I know put over $500,000 CDs in WM just because the rate is higher, 5%, and Chinese TV Channel 20 every night at 11pm play huge ads to bring them in. That is to say, many will get out their money and buy condos for investment.

FDIC only insured up to $100,000, so ...

Yes, and, as you can see the mortgage rate collapsed!!! http://www.bankrate.com/brm/graphs/graph_trend.asp?product=1… and there will be many more properties sold, and many owners refinance to get much lower monthly payment...

And, there will be many more people bought condo or townhouses in cash. e.g. 1935 Raspberry Ct Edison NJ 08854 1br 1ba condo sold in one day, and buyer paid cash, and just rented at $1,400 ... why?

Mortgage rate came down and CD rates will come down too. $203,000 in CD getting 2% is much worse than buying a condo like the one above in cash and collecting rent ... No wonder many condo communities in the area SOLD OUT! Don't believe? then call your realtor to see if you can get a chance to buy one at Edison Hollow South http://raspberryct.blogspot.com/

Another one is near by Starpoint at Piscataway http://starpointatpiscataway.blogspot.com/ also sold all 3br units just now, and all 3br townhouses SOLD OUT!

To oversimplify:
In the short term, the market's confidence will grow and rates will come down. In the long term, as the feds are requiring both FNM and FRE to reduce their portfolios by 10%(a year I believe) starting in 2010, the market will tighten up and there will be less money available (as Fannie and Fredie are the big time backers of mortgages). That means fewer mortgage loans in the future.

Hi Joe, just to give you some numbers, last week rates were in the mid 6% range. I received an email first thing this morning, 30 fixed rate down to 5.625%. It means the market feels safer investing in mortgage backed securities and rates drop. How long and how low remains to be seen. Hope this helps.

This is also like a lost job tenant now the landlord still want to take their personal check for rent payment, except that the landlord gives a, say, $5,000 credit, to the laid off tenants, saying, as long as your personal checks amont to pay rent not exceed $5,000, I will not cash. When it does, I will cash the most out dated checks. But this is only good for, say, one year.

Then, all of a sudden, the tenant family happy and do not need to worry about being evicted, or looking for next place to move ...etc and can focus on looking for a job to bring in income.

They are taken over by Fed is like a bank taken over by FDIC. Everything would be the same, except the credit and safety of the new orgs would much stronger, therefore rate lower. Of course, the shareholders would be like those of failed banks, lost everything. The securities holders just like CD holders of bank, safe, no change.

The stronger the finanancial, the lower rate can give, just like Bank of America has strong finance, so lending rate is lower, but if you are going to shop for CD's, their rate is the lowest too.

The only thing that matters is if investors in MBSs like the take-back. So far global markets have rallied on the news. For rates to come down, investors must be confident enough in the take-back to buy MBSs at lower yields than have been demanded over the past few months.

On a side note, hundreds of small community banks may be ruined by the move since many hold significant portfolios of FNMA & FHLMC stock for dividend income. As part of the takeover, dividends are cancelled and the stock may be worthless.

According to MSNBC this will free up more mortgage money, probably at lower rates (quotes from 5.5% to 6.0% were mentioned. ) It was also stated that it may be easier to get mortgage money--needing less down and lower credit scores than have been necessary in the last few months.
This was just one analysts opinion.
The effect on the housing market should be positive with more mortgage money available at lower rates is always a plus for the housing market.

Let's start at the beginning....Freddie Mac and Fannie Mae were originally created by the US Congress in 1938 to free up money for mortgages. Both of these companies were privatized in 1968, but the implication has always been that the federal government was backing them up. The two companies together hold about 50% of the nations mortgages worth trillions of dollars.

How does this effect you, the consumer?

The government thinks that the takeover will bring down interest rates...the theory being that investors will feel more confident about buying mortgage backed bonds...which ultimately increases availability and lowers the costs of mortgage financing.

Who invests in these mortage bonds?

Consider this: Ten percent of China's gross national product is invested in mortgage giants Fannie Mae and Freddie Mac. Investors are out there. It's now up to the government to convince investors that their investments are safe.

Without it there will be more chaos than there is now.
Excerpt from huffingtonpost:
http://www.huffingtonpost.com/2008/09/07/government-takes-ov…

"Treasury Secretary Henry Paulson is betting that providing fresh capital to the two firms will eventually lead to lower mortgage rates, spur homebuying demand and slow the plunge in home prices that has ravaged many areas of the country."

"Under government control, the companies will be allowed to expand their support for the mortgage market over the next year by boosting their holdings of mortgage securities they hold on their books from a combined $1.5 trillion to $1.7 trillion."

See this recent analysis online from Forbes http://www.forbes.com/2008/09/07/fannie-freddie-mortgage-biz… to give you a more broader view of the impact. If you are in the market now to buy, I encourage you to either talk with a lender or follow up with your lender to find out how your buying power will change with either new regulations, restrictions or fees. This is not a time to delay those conversations. Interest rates remain at historic lows, what the market will do next will in part depend on buyer, seller and investor behavior. Good luck. Emily Medvec

If it meant that banks would start loaning out more money it would be great. banks are not loaning money even to the good people with good credit and a money to put down and that is limiting sales and keeping the housing market down. Fannie and Freddie need to use better judgement in the upcoming years however by shutting out good borrowers no one is being helped. Use the bonusses and mega salaries of the ceos and use that to help the people they have hurt.