Market Review > Oct. 1

Fannie Mae and Freddie Mac Placed into Conservatorship by the Government
On Sept. 7, 2008, an historic event took place in the mortgage industry when the Federal Housing Finance Agency (FHFA) and the U.S. Treasury announced a plan to place Fannie Mae and Freddie Mac under government control to ensure they remain viable.

“Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe,” U.S. Treasury Secretary Henry Paulson said in a Sept. 7 speech. “This turmoil would directly and negatively impact household wealth: from family budgets, to home values, to savings for college and retirement. A failure would affect the ability of Americans to get home loans, auto loans and other consumer credit and business finance. And a failure would be harmful to economic growth and job creation.”

The new plan is designed to achieve three critical objectives:

• Provide stability to the financial markets
• Support the availability of mortgage finance
• Protect taxpayers by minimizing the near-time cost and setting policymakers on a course to resolve the risk in the current government sponsored entity structure

The chief executives and boards of directors for both companies were dismissed. Herbert M. Allison, former chairman of TIAA-CREF, now leads Fannie Mae. David M. Moffett, a senior adviser at the Carlyle Group and former U.S. Bancorp CFO, leads Freddie Mac.

Fannie Mae and Freddie Mac play important roles in the secondary mortgage market. It is important to ensure that a strong secondary market exists to provide a stable supply of affordable mortgage credit. We are an affiliate of Wells Fargo Home Mortgage1, and Wells Fargo supports these recent actions and will continue to be engaged in the roll out of these new developments. Wells Fargo is are also aligned with the Financial Services Roundtable and its Housing Policy Council that there should be a thorough debate on the long-term structure and role of Fannie Mae and Freddie Mac.

As the Market Tightens, More Banks Added to FDIC Problem List
The Federal Deposit Insurance Corporation (FDIC), which guarantees savings and checking deposit up to $100,000 per customer, recently raised the number of banks on its problem watch list to 117 (see chart). This is up from 90 banks at the end of the first quarter, and the highest number on the watch list since 2002.

The FDIC does not disclose which banks are on the list. So far in 2008, 11 lenders have failed.

Wells Fargo is a leading lender of choice for consumers. An Aug. 25 American Banker article noted: “Their performance this year has established it as one of the industry standouts with respect to consumer credit quality. Wells Fargo & Company Chief Executive Officer John Stumpf recently said, ‘We come from a culture where bigger is not better. You get bigger by being better, you don’t get better by being bigger.’”

A “Buyer’s” Market for First-Home Purchases
The current glut of housing inventory may soon experience relief as opportunities for first-time homebuyers begin to shift. Historically, first-time buyers have spurred housing activity, creating a domino effect that begins with new homeowners and extends to those eager to upgrade their homes.

According to the National Association of REALTORS® (NAR) the July resale of existing homes was 5 million, the highest level in five months. Eager to unload their current inventory of homes, some builders are offering incentives such as finishing basements or providing upgrades. And, people trying to sell their current homes also are providing inventive ways to make a sale – such as updating or replacing appliances, carpet, and making exterior improvements.

Since foreclosure and short sale properties now account for roughly one-third of recent transactions, according to the National Bureau of Economic Research, there are good deals in many communities across the country. Home prices have significantly declined from a year ago – most notably in eight markets: AZ, CA, FL, IL, IN, MI, NV and OH. According to NAR, the median existing family home price nationally was $206,500 at the end of the second quarter, or 7.6% below what it was in the second quarter of 2007.

New legislative relief also has ignited the first-time homebuyer market. Between now and the middle of 2009, about 2.5 million first-time homebuyers are expected to take advantage of the $7,500 tax credit recently passed through the Housing and Economic Recovery Act of 2008. Homes purchased on or after April 9, 2008 and before July 1, 2009 may be eligible.

Finally, interest rates remain relatively low, below 7%, peaking in July and then gradually decreasing (see chart on this page). In comparison, for example, in August of 2000 the average 30-year fixed-interest rate was 8.16%, according to HSN Associates Financial Publishers Fixed Rate Mortgage Indicator. In 1990, the average 30-year fixed rate was 10.17%. At the time of publication, mortgage rates were improving significantly with Fannie Mae and Freddie Mac being placed into conservatorship.

It may very well be a great time for qualified first-time homebuyers to finance a home. Rates remain relatively low, inventory levels are high, and sellers are seeking unique ways to provide incentives to buyers. We offer pre-approvals and extensive products to help clients realize their goals of homeownership.

With programs such as our money-back Close On Time Guarantee, customers trust us with their financing needs.

¹ Wells Fargo & Company is a diversified financial services company with $595 billion in assets, providing banking, insurance, investments, mortgage and consumer finance to more than 23 million customers from almost 6,000 stores and the internet (wellsfargo.com) across North America and elsewhere internationally.