But one analyst remains more cautious
In this Bloomberg interview, former Fed Reserve Chairman Paul Volcker, tells the interviewer that he wants the mortgage finance system becomes more independent of taxpayer’s money.
Surprisingly, this wasn’t viewed as easy to carry out by Guy Cecala of Inside Mortgage Finance. In his interview with the Huffington Post, Cecala thinks it’s impossible for Fannie May and Freddie Mac to be in such situation as he states, “It certainly can’t change in 2010. It’s like saying we’re going to make some improvements in the Titanic after it’s hit the iceberg. Fannie Mae and Freddie Mac were not a good idea in the first place. This hybrid public, private thing sooner or later was going to get you in trouble—and it sure got us in trouble big time. I hope we don’t go back to that model.”
Call me a pessimist but Cecala has driven a strong point. The two home funding sources are very debt-ridden and they couldn’t coalesce from its battered state within the next two years. In other words, Volcker is taking a shot at the moon and we wonder why the guy has to release such ambitious statements.
But to give Volcker the benefit of the doubt, some positive signs were seen on Fannie Mae last February 16. Bloomberg News reports, “Spreads on Fannie Mae’s two-year corporate debt against similar-maturity Treasuries narrowed 0.01 percentage point today to 0.1 percentage point, Bloomberg data show. That’s down from 0.14 percentage point on Feb. 9, reflecting investors seeing the company as likely to raise the cash it needs to buy mortgages from its home-loan bonds mostly through sales of its shortest- term paper and by allowing its portfolio to run down, rather than by increasing longer-term funding.”
Still, I remain dubious. As of this writing, yields on Fannie Mae and Freddie Mac mortgage securities fell down to a 25-year low. Now, Volcker should think about that.