Last Year afte the exposure of US financial crisis, while everyone were talking about this bank and that financial companies, I was asking around the impact on Gennie Mae and Fannie Mae. I know of these great mortage issuers in my study, although I don't really understand the detail. And especially the Gennie Mae, which is gauranteed by full faith and credit of the US Government, what if it also suffers huge losses?
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I was asking some of my friends who are in the financial sector, none got the answer. Well, that's because we are not knowledgeable enough. But now, it seems that my worries are not unfound.
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Business Times - 14 Jul 2008
Collapse of US mortgage bank piles on jitters for markets
Collapse of US mortgage bank piles on jitters for markets
(An excerpt)
By ANDREW MARKS
NEW YORK CORRESPONDENT
IT looks like even Wall Street's usually unflappable equities traders may have become unnerved.
But who can blame them after the week that they have been through. There was a run on and near melt-down of mortgage giants Fannie Mae and Freddie Mac, new record highs for oil prices, and most shocking of all, the collapse of IndyMac Bancorp, a mortgage bank based in California.
On Friday, US banking regulators took control of the assets of IndyMac after a run on the bank by panicked depositors forced it to the wall, precipitating one of the biggest bank failures in US history.
IndyMac, which is due to reopen today under federal supervision, specialised in mortgages that often required minimal documents from borrowers. It is the fifth US bank to fail this year as a housing slump and credit crunch strain the financial system.
'It's very difficult to remain calm and reasoned when you get into this cycle of constant shocks to the system, of getting hit in the gut with just how bad the credit market is just when you start thinking that maybe the worst is over,' says Mark Nolan, an equity trader and sales analyst at Garvin & Company, in a reference to the crisis at Fannie Mae and Freddie Mac. 'The sense of doom people are sunk in right now makes me think back to my high-school Shakespeare: 'These are the times that try men's souls.' It makes it tough to go to work in the morning,' he says.
Indeed, the huge losses at Fannie Mae and Freddie Mac - the nation's two largest mortgage issuers responsible for a combined US$6 trillion of mortgages - have sparked fears of an outright government takeover. Such a move would protect the mortgages, but would wipe out shareholder equity. Thus the massive sell-off on the two companies, which both saw their share prices plunge by more than 75 per cent in three days.
By ANDREW MARKS
NEW YORK CORRESPONDENT
IT looks like even Wall Street's usually unflappable equities traders may have become unnerved.
But who can blame them after the week that they have been through. There was a run on and near melt-down of mortgage giants Fannie Mae and Freddie Mac, new record highs for oil prices, and most shocking of all, the collapse of IndyMac Bancorp, a mortgage bank based in California.
On Friday, US banking regulators took control of the assets of IndyMac after a run on the bank by panicked depositors forced it to the wall, precipitating one of the biggest bank failures in US history.
IndyMac, which is due to reopen today under federal supervision, specialised in mortgages that often required minimal documents from borrowers. It is the fifth US bank to fail this year as a housing slump and credit crunch strain the financial system.
'It's very difficult to remain calm and reasoned when you get into this cycle of constant shocks to the system, of getting hit in the gut with just how bad the credit market is just when you start thinking that maybe the worst is over,' says Mark Nolan, an equity trader and sales analyst at Garvin & Company, in a reference to the crisis at Fannie Mae and Freddie Mac. 'The sense of doom people are sunk in right now makes me think back to my high-school Shakespeare: 'These are the times that try men's souls.' It makes it tough to go to work in the morning,' he says.
Indeed, the huge losses at Fannie Mae and Freddie Mac - the nation's two largest mortgage issuers responsible for a combined US$6 trillion of mortgages - have sparked fears of an outright government takeover. Such a move would protect the mortgages, but would wipe out shareholder equity. Thus the massive sell-off on the two companies, which both saw their share prices plunge by more than 75 per cent in three days.
