FOMC, Fannie, Freddie, mortgages:some more talk today about an "Aug Surprise";some more talk today about an "Aug Surprise" $FRE $FNM

FOMC, Fannie, Freddie, mortgages: 

· Fannie/Freddie + housing - some more talk today about an "Aug Surprise" - recall this talk was first around last week (see the Reuters article below that we sent around last Thurs Aug 5).  The market speculation has a few different flavors but involves two components: 1) FNM/FRE/FHA would automatically refi all the agency/FHA mortgages down to the prevailing market rates (so people who are current w/their mortgages but can't refi for some reason would be able to take advantage of the current low rates); 2) FNM/FRE/FHA would eliminate "negative equity" for those homeowners who have mortgages worth more than their house.  Recall that a bunch of press sources (inc. CNBC, DJ, etc) have downplayed the odds of anything this major happening (its not even clear if such a move would be legal).  Keep in mind that there is a big housing conf coming up next week (Aug 17) and some think that the White House/Treasury could launch a refi initiative around this event.  The White House made a very minor announcement on housing today (the Treasury will devote an incremental ~$3B towards providing housing relief for unemployed people) but this is a far cry from what is being talked about around Fannie/Freddie.    

· Is the Fed move from yesterday foreshadowing a move by Fannie/Freddie?  Given that the reinvestment decision wasn’t well telegraphed by Fed officials, there is some talk that it was done in anticipation of a massive refinance wave coming down the pipe as a result of a  Fannie/Freddie “August Surprise”.  A large uptick in refinancings would theoretically shrink the Fed’s balance sheet beyond what has been occurring currently from normal maturities – by making the decision to reinvest maturing MBS, Bernanke will offset the contractive effects of such a shrinkage.