Fannie Mae-No Politics (FNMA)

[NobodyFromNowhere]

Trivia Question: How Many Fixed Rate Mortgages will Banks Hold on Balance Sheet?

In a rising and volatile interest rate environment?

Answer: Zero

Look forward to investor conference calls with WFC and BAC this quarter end. It will be a lot of fun and will show that the mortgage markets do not function without the TBA market and Fannie MBS.
They will explain how they now only hold 3/1 ARMs on balance sheet, for the best credits that have deposits and other relationship accounts.

Another reason Corker and Warner so wanted the timing of their bill passage to come sooner. They are dead with rising rates and a long term bond bear market.

The fair weather bankers true colors will be bright and shiny as credit spreads widen.

Right now, the Fed and regulators are actually recommending that banks package and sell seasoned 15 and 30 yr mortgages that they are holding --- to none other than Fannie and Freddie. They want them to get them off their balance sheets. There is a basic math problem for community banks when the Fed Funds rate goes back to normal at 4% if they are holding 4% 30 year mortgages. Their entire mortgage portfolios go under, and you have a S&L crisis all over again. The only survivors would be large diversified banks like JPM with other sources of earnings.

This is going to get real fun as rates rise.