Freddie Mac

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Nov 20, 2007 2:30 pm

I just got off the phone with a client who is a mortgage broker he was saying if freddie and fannie don't buy the loans how the heck is he going to get any loans done.  Back in 2005 when every real estate agent, mortgage broker or fix and flipper was telling me real estate never goes down, I was thinking about when it does they will see the need to invest with me.  Of course none of them have any money now.  It's amazing that people never believe that good times don't last forever and bad times don't last forever.  

Nov 20, 2007 3:06 pm

I question the viability of GMAC.  I was under the impression when the buyout of GMAC happened their credit rating would go up.  This in turn would allow the bonds to trade closer to par than 69/100, hasn't happened. 

Nov 20, 2007 3:34 pm

Spears.. I agree.. In our local paper here today they were discussing the possible downgrade and if that happens who knows how low the prices may fall...


 
Miss J
Nov 20, 2007 3:44 pm
bspears:

I question the viability of GMAC.  I was under the impression when the buyout of GMAC happened their credit rating would go up.  This in turn would allow the bonds to trade closer to par than 69/100, hasn't happened. 

 
It depends on how far GMAC goes to support it's residential mortgage unit. If GMAC walks on ResCap now or soon, no problem. If they pour billions in without righting the ship the potential for a sinking exists.
 
Strangely, over the past six months/year GM and GMAC have traded places in the risk universe.  GMAC now becomes the question mark while things are much more certain at GM.
Nov 20, 2007 3:46 pm

I'm thankful that my conservative nature had me start limiting GMAC maturities to 2-3 years in 2003 or 2004 (excuse my faulty memory...I just know it's been awhile).  I've got zero long GMAC paper and nothing at all (not even AAA munis)over ten years.  The risk/reward hasn't looked good to me for a long time.  Not to fan any flames, but this has been one of the things I really disagreed with the local Jones brokers on...I think Jones is way too aggressive on bond duration, even with the death puts considered.


On banks and mortgage companies, I'm clueless as to where the bottom is.  I've fished twice now and the falling knife has cut my hands but good.  It's a good thing I'm patient...looks like I'm going to need to be...

Nov 20, 2007 4:16 pm

Many who own GMAC purchased within the last few years understood they were taking a substancial risk. Of course many of those investors looked at the mortgage division as the salvation of the company. So the risk they took isn't the one they are saddled with today.

 
The conundrum is for investors who bought GMAC before all the problems started. These folks weren't taking a substancial risk when based upon the company's then investment grade credit rating. It is for these investors that GMAC has gone from problematic to nightmare. They've weathered one storm only to get caught in another.
 
Still, this is not to say that GMAC is going to roll over. Far from it. At this point, just a rough ride for long term holders.
Nov 20, 2007 4:43 pm
Nov 21, 2007 9:55 am

WSJ- has a nice or not so nice article on Freddie Mac today..

 
 
Nov 21, 2007 10:08 am

With clients, I never bought into the real estate boom. Too much divergence between the way Wall Street values real estate and how it's really evaluated on Main Street. That said, even with the collapse it probably would have been to early investor's benefit to participate in the bubble.

 
 
Nov 27, 2007 12:00 pm

GMAC under review for downgrade by Moody's. Moody's is reviewing GMAC's Ba2 rating due GMAC's support of ResCap.