The Story of Fannie and Freddie
Well it happened. The big question that loomed in the air on Wall Street last week, as sinking shares of Fannie Mae (FNM) and Freddie Mac (FRE) stole headlines from rising oil, was answered over the weekend.
For those who may have completely tuned out of and turned off all forms of financial and even mainstream news, the question was will the government step in with a bailout plan for the two GSEs (government-sponsored enterprise). In a word the answer is yes. The government is basically stating that while it does not believe Fannie and Freddie need the help right now, it is there for the two mortgage-backed securities (MBS) should they need it.
How will the Government Help Rescue Fannie and Freddie?
To paraphrase, Secretary of Treasury Henry Paulson announced that the Treasury asked Congress to increase the existing line of credit to Fannie and Freddie. The Treasury also asked Congress for the power to buy shares of Fannie and Freddie. Additionally, the Fed board of governors voted to open its lending discount window to Fannie and Freddie.
How Does One Play This Situation?
Well, there is no easy answer and of course no crystal ball. In the short-term, a pop is likely. So a short-term play may prove to be lucrative. What is the long-term outlook? The situation today, with the government stepping in, certainly looks better than last week's state of affairs.
More Investment Guidance
As with any investment, the best course of action is to do your homework. For help in researching the Fannie Freddie situation and making an informed decision on whether or not these two investments are worth holding right now, read Dirk Van Dijk's blogs: The Spanking of Fannie (& Freddie) and FRE -- Told You So.
Also, take a look at the latest research reports on Fannie and Freddie.
What are Fannie and Freddie?
For anyone considering putting money into either of the GSEs, he or she should know what comprises their potential investment.
Simply put, the creation of Fannie and Freddie has helped expand the availability of and accessibility to mortgages, particularly for lower to middle income individuals and families attempting to purchase a home.
Both GSEs purchase and guarantee mortgages, forming mortgage-backed securities (MBS) that are funded by issuing debt. They basically buy mortgages from lenders, pool them together and resell them in the open market. This process allows for better interest rates to those seeking a mortgage.
As an investor, one way to look at Fannie or Freddie is that you are buying shares of a company whose business is to execute this process of buying mortgages, pooling them and reselling them. The reason their shares have tanked lately has everything to do with the credit crunch and ailing real estate market. The reason their shares may reverse and soar higher will have a lot to do with the newly announced government bailout plan.
Additional Resources to Identify Excellent Shipping Stocks
Zacks Equity Research - Find out detailed stock information from Zacks analysts.
For those who may have completely tuned out of and turned off all forms of financial and even mainstream news, the question was will the government step in with a bailout plan for the two GSEs (government-sponsored enterprise). In a word the answer is yes. The government is basically stating that while it does not believe Fannie and Freddie need the help right now, it is there for the two mortgage-backed securities (MBS) should they need it.
How will the Government Help Rescue Fannie and Freddie?
To paraphrase, Secretary of Treasury Henry Paulson announced that the Treasury asked Congress to increase the existing line of credit to Fannie and Freddie. The Treasury also asked Congress for the power to buy shares of Fannie and Freddie. Additionally, the Fed board of governors voted to open its lending discount window to Fannie and Freddie.
How Does One Play This Situation?
Well, there is no easy answer and of course no crystal ball. In the short-term, a pop is likely. So a short-term play may prove to be lucrative. What is the long-term outlook? The situation today, with the government stepping in, certainly looks better than last week's state of affairs.
More Investment Guidance
As with any investment, the best course of action is to do your homework. For help in researching the Fannie Freddie situation and making an informed decision on whether or not these two investments are worth holding right now, read Dirk Van Dijk's blogs: The Spanking of Fannie (& Freddie) and FRE -- Told You So.
Also, take a look at the latest research reports on Fannie and Freddie.
What are Fannie and Freddie?
For anyone considering putting money into either of the GSEs, he or she should know what comprises their potential investment.
Simply put, the creation of Fannie and Freddie has helped expand the availability of and accessibility to mortgages, particularly for lower to middle income individuals and families attempting to purchase a home.
Both GSEs purchase and guarantee mortgages, forming mortgage-backed securities (MBS) that are funded by issuing debt. They basically buy mortgages from lenders, pool them together and resell them in the open market. This process allows for better interest rates to those seeking a mortgage.
As an investor, one way to look at Fannie or Freddie is that you are buying shares of a company whose business is to execute this process of buying mortgages, pooling them and reselling them. The reason their shares have tanked lately has everything to do with the credit crunch and ailing real estate market. The reason their shares may reverse and soar higher will have a lot to do with the newly announced government bailout plan.
Additional Resources to Identify Excellent Shipping Stocks
Zacks Equity Research - Find out detailed stock information from Zacks analysts.
