(This was written right after the announcement.)

To our Clients, Colleagues, and Friends:

The U.S. Government has seized Fannie Mae and Freddie Mac this Sunday morning.

They will still be in business Monday, but with their existing shareholders no longer owning it.

We tend to think there will be minimal impact on the day-to-day selling of loans to them.

We can envision three things happening after there is a thorough review by the Treasury Department of all aspects of their operations.

• We would think that the two entities will cut way, ways back on underwriting waivers.

• We think they might also cut way back on offering lower Guaranty Fees in return for promised volume.  If this were to occur, it will suddenly be much more attractive to sell directly to them, as opposed to selling to the big aggregators who get lower “G” fees. Watch for this and get ready to become Fannie Mae or Freddie Mac approved.

• Because they will ultimately be required to hold more capital, and because capital is not cheap, they will not be as unrestrained in pursuing volume and growth as they have been in the past.  They could cut back on volume by raising rates as well as tightening underwriting standards.  We predict a little of both.

You should watch all of this carefully.

Interesting times, aren’t they?

Joe Garrett and Corky Watts  -   Garrett, Watts & Co.