We strive to provide the highest level of client satisfaction, and handle each request with the utmost importance. We expect to respond to each request we receive within one business day of receipt.
Please note that trades cannot be processed via e-mail for security reasons. If your inquiry requires immediate assistance, please call us at
1-800-821-5129 (8:30 a.m.-6:00 p.m. EST, Mon-Fri).
Thank you for contacting Lord Abbett. A member of our staff will contact you between X:XXpm EST and XX:XXpm EST [today OR XX/XX/XXXX]. A confirmation has been sent to your email address.Close
Use this form to give us your feedback or report any problems you experienced finding information on our Website.
* Indicates Required Fields
Thank you for providing feedback.
Up until Fannie and Freddie collapsed in 2008, these so-called government-sponsored enterprises (GSEs) served as the main support for the U.S. mortgage market and, thus, the country's housing market as well. The GSEs brought substantial capital and expertise as they worked with private lenders to securitize pools of mortgages and sell them to investors. Until this system failed, it seemed to work well on the basis of three assumptions, now obviously erroneous: one was the widespread belief that real estate was a secure investment with limited downside risk. A second relied too heavily on diversification, contending that a variety of mortgages backed by a variety of properties all but eliminated default risk, even when many borrowers had dubious credit. It was on the basis of this false assumption that the credit rating agencies glibly gave triple-'A' status to pools of subprime mortgages. The third erroneous assumption was that the two GSEs offered implicit, if not explicit, government guarantees.
When all these comforting assumptions proved false in 2008 and the GSEs failed, the Treasury took them over, putting taxpayer monies at risk. At the last accounting, that risk amounted to $137 billion, though recent gains in the housing market have improved both Fannie's and Freddie's cash flows, hinting that the loss ultimately may not be so severe.2 Even if in the end an improving real estate market erases the entire loss—a dubious prospect to be sure—it is clear that the nation cannot return to the old arrangements. After much delay, this latest report from a bipartisan group of former senators and housing officials is the most definite and comprehensive set of proposals yet.
The report reaffirms the need to support low-cost, 30-year mortgages in this country.3 To avoid the pitfalls of subprime buying, it also emphasizes the need for an active rental market for lower-income people. It would encourage rental development primarily by preserving and expanding the government's existing Low Income Housing Tax Credit Program. The group would phase out Fannie and Freddie gradually over a period of five to 10 years and replace them with a single entity, more efficient, the report claims, because it could combine the separate operations of the two predecessor GSEs. Rather than buy and bundle mortgages, as Fannie and Freddie have, this new consolidated GSE would attract needed capital to the mortgage market through an insurance scheme. It would explicitly guarantee the mortgage-backed securities issued by private lenders. To support more needy parts of the market, it would only back pools of smaller mortgages, less than $300,000. To protect the taxpayer, it would insist that issuers seek private insurance and would pay on its guarantee only after private insurers had exhausted their resources.
The proposals still leave questions unanswered. Among them is how the insurers, private and government, would assess risk. The record of 2007–08 certainly shows how Wall Street misjudged risk wildly. There is little indication to date that techniques or insights have improved. Any such failure to price risk properly in the new scheme could lead to unplanned premium hikes or catastrophic failures or both. Questions also remain about lenders gaming the new system, pooling their mortgage loans, for instance, to just fit within federal insurance guidelines, much as they did prior to 2008 to secure high ratings from the credit evaluation agencies.4
Even with such unanswered questions, mortgage lenders and homebuilders have welcomed the proposals. Though the premiums on the proposed insurance, the report estimates, would add some 25 basis points to the average mortgage rate,5 they welcome the prospect of continued government support and, after this long hiatus, something definite out of Washington. A typical response is that of Frank Keating, president and chief executive officer of the American Banking Association. He referred to the report as "strong," lauded the course it "charts," and gave special praise for its effort to make government involvement "explicit, paid for and limited." Official Washington has been more reserved. Typical here are remarks from Senator Bob Corker (R-TN) and member of the Senate Banking, Housing and Urban Affairs Committee. He described the report as "headed in the right direction," implying that matters were far from complete. He dispelled any hope that those proposals would be adopted wholesale by thanking those who produced them for "their contribution to the conversation." He expressed only a "hope" that Congress would produce "long-term reform this year."
So, the wait for a definite structure will go on, and uncertainty will linger in the interim. Chances are that elements of these proposals should find their way into the final reform legislation. After all, the report's emphasis on rental housing for the lower end of the income distribution mirrors White House remarks of two years ago, as does the plan to phase out Fannie and Freddie. The scheme also has the appealing quality of offering the taxpayers some protection. While market participants wait, perhaps for a still-long interim, they will have to rely for support on the Fed's willingness to keep interest rates and particularly mortgage rates artificially low.
The opinions in the preceding commentary are as of the date of publication and subject to change based on subsequent developments and may not reflect the views of the firm as a whole. This material is not intended to be legal or tax advice and is not to be relied upon as a forecast, or research or investment advice regarding a particular investment or the markets in general, nor is it intended to predict or depict performance of any investment. Investors should not assume that investments in the securities and/or sectors described were or will be profitable. This document is prepared based on information Lord Abbett deems reliable; however, Lord Abbett does not warrant the accuracy or completeness of the information. Investors should consult with a financial advisor prior to making an investment decision.
Investors should carefully consider the investment objectives, risks, charges, and expenses of the Lord Abbett funds. This and other important information is contained in each fund’s summary prospectus and/or prospectus. To obtain a prospectus or summary prospectus on any Lord Abbett mutual fund, contact your investment professional or Lord Abbett Distributor LLC at 888-522-2388 or visit us at www.lordabbett.com. Read the prospectus carefully before you invest.