SOURCE: Bellwether Report

Bellwether Report

June 17, 2010 08:34 ET

Is Recovery the Theme of the Moment for Mortgage Investment Industry?

JOHANNESBURG, SOUTH AFRICA--(Marketwire - June 17, 2010) - -- For the last five and half months or so, recovery has most probably been the one key word that has dominated most media talks, federal and government gibberish, financial-related articles posted online and thoughts of the Wall Street community in the market and beyond. In the mortgage investment industry there has been talks of recovery and more talks of recovery. This is one industry that is still walking the wire and one of the main reasons is that it has been at the center of not just one financial crisis, but it has taken bashing blows from two different financial meltdowns, one when the sub-prime defaults went out of control and the second one when financial markets went into deep red territory pulling the whole of the economy. The resulting effects of the financial turmoil are still lingering throughout the U.S. economy like an old man suffering from arthritis. Big names in the space have seen their descent to hell up close and personal.

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Freddie Mac (NYSE: FRE) and Fannie Mae which were the two domineering giants of the mortgage investment industry went from quasi-private to government sponsored status in 2008. The government initiative to take control of both these companies was at that time estimated to be in the tens of billions of dollars; costs U.S. taxpayers were to bear. On September 7, 2008, taxpayers' sleepless nights were about to begin. "A few days back, it was disclosed that so far the two companies have already leeched a staggering $145 billion from their credit line... but wait for it, Wall Street now believes that FNM and FRE losses could eventually climb as high as a disconcerting $1 trillion U.S. dollars... and disconcerting is just an understatement. In this particular case, talks of recovery look ridiculously out of context but Congress will have to start producing concrete recovery ideas now before this becomes the next market implosion," commented George Turner, senior analyst and stock researcher at

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George Turner of continued on saying: "It would be fair to state that recovery is still at the early stages of work-in-progress for the mortgage investment industry. We do not believe it will follow the recovery trend of the overall market or the economy for that matter. The industry will definitely be the last one to come out of this crisis, and how long it will take for the industry to come close to full recovery is still open to debate. However, small pockets of recovery are bubbling up in this space with the first private-label issue of bond backed by jumbo mortgage loans announcement made in the last two years. This announcement came from Redwood Trust Inc. (NYSE: RWT)."

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