← Money Rehab with Nicole Lapin
Money Rehab with Nicole Lapin
Wall Street News Roundup: Fannie Mae and Freddie Mac on the Path to IPO, Why Electricity Is Getting More Expensive and Good News on Interest Rates
00:16:20
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- [00:00]
Nicole Lapin
So one of my girlfriends fell in love with this house and she was sure she could afford it. She had the down payment, she had the income. But when it came to pull her credit for her mortgage, oh, it was a brutal wake up call. It sounds so obvious, but it hadn't really hit her until that moment. Her day to day spending habits weren't just keeping up with the Joneses, they were affecting her future. So she came over, we talked about it, we did some credit hygiene and if you need some of this too, I've got something that might help Chime With Chime's Secure Credit Builder Visa Credit card, you can build your credit history with everyday purchases and regular on time payments. There are no credit checks, no annual fees and no interest. Just a smarter way to build credit using the money you set aside. Plus you get access to credit tracking tools and personalized tips so the process feels way less overwhelming. Make everyday purchases count with Chime Secured Credit Builder Visa Credit Card get started today@chime.com MNN With Chime secured Credit Builder Visa Credit Card you can build your credit history with everyday purchases and regular on time payments. Just visit chime.commnn as in money News Network to get started.
- [01:10]
Morgan Lavoy
The Time Credit Builder Visa credit card is issued by the Bankrupt bank and Air Straight bank and a time checking account required to apply. Money added to Credit Builder will be holding your secure deposit account as collateral and your credit builder cards available to spend amount. This is money you can use to pay off your monthly charges out of network, ATM withdrawal and otc. Advance fees may apply. Late payment may negatively impact your credit score. Results may vary. Go to chime.com disclosures for details.
- [01:22]
Nicole Lapin
If you take only one thing away from today's episode, Money Rehabbers let it be this in my not so humble opinion, Public is the best brokerage investing in bonds, stocks, ETFs, options and even crypto. You can try it out for yourself and see why I love it so much@public.com Money Rehab Public is legit. The only platform I use to buy bonds. Before public, I used to buy government bonds the hard way. Slow websites, confusing interfaces, website designs straight out of the early 2000s. Just picture where fun goes to die. That was it. And then I found Public about five years ago and I have not looked back. I can now finally buy bonds without wanting to rip my hair out. Public makes it so easy to buy bonds. Whether you're into treasuries or corporate bonds. You can browse thousands of options right from your phone. But like I said. Public isn't just all about bonds. You can also find stocks and ETFs and they offer a high yield cash account with a 4.1% APY, which is higher than the national average. They even have retirement accounts. You can now open a traditional or Roth IRA or both right on public so your future self covered. And for a limited time you can earn a 1% match on all your IRA deposits, IRA transfers and 401k rollovers. If you want an investing experience that's both smart and simple, head to public.com money rehab one more time. Public.com money rehab this is a paid endorsement for Public Investing. Full disclosures and conditions can be found in the podcast. Description I'm Nicole Lapin, the only financial expert you don't need a dictionary to understand it's time for some Money Rehab.
- [03:00]
Morgan Lavoy
Foreign.
- [03:02]
Nicole Lapin
We have all right, it is time for a roundup of the biggest stories on Wall street and how they're going to affect you and your wallet. Today we're going to talk about what could be the most important IPO of the year. And it's not FIGMA or Core Weave. Next I'm going to tell you the unexpected reason electricity prices are up and then some good news on interest rates. First, let's talk about what could be one of the biggest moves in US housing finance since the 2008 crisis. The Trump administration is gearing up to take mortgage giants Fannie Mae and Freddie Mac public again. The plan could value them at a combined $500 billion and raise around $30 billion for the government. If that sounds huge, it's because it is. We're talking about what could be one of the largest stock offerings in U.S. history. But the question is, why now? Well, Fannie Mae and Freddie Mac are government sponsored enterprises created by Congress to keep the US Housing market liquid, stable and affordable. Let's double click on how they do that. So in the mortgage world, as we know, banks and other lenders make home loans to borrowers. Fannie and Freddie buy those loans from the lenders and then they bundle all the loans into mortgage backed securities. Mortgage backed securities are then sold to investors around. And that's how it works. A quality that makes Fannie and Freddie special investment wise is that they guarantee that investors will receive their payments even if homeowners default. So just to be clear, Fannie and Freddie don't lend money directly to home buyers. Their function is to basically act as the middleman between the primary mortgage market, where loans are made, and global investors. This keeps mortgage money flowing Even in tough times and helps stabilize rates around the country. So why is this important? Well, because this system keeps money flowing to banks so they can keep making home loans and it helps keep mortgage rates lower than they would be otherwise. Fannie and Freddie got a big shakeup back in 08 when they got caught up in the housing bubble and they got in hot water for buying and guaranteeing too many risky loans. So if you got bad vibes when I said Mortgage backed securities or MBSS, they that is your 2008 PTSD talking. Before 2008, Fannie and Freddie were both publicly traded companies. They each had their own stock ticker, FNM for Fannie and FRE for Freddie. Shares traded on the New York Stock Exchange and investors could buy and sell them just like any other corporate stock. When the market collapsed in 2008, so did Fannie and Freddie. The government then swooped in with a $187 billion bailout and put them under cons. Basically means Uncle Sam took control. I know when we hear conservatorship we think about Britney Spears. But companies get conservators too. And in the case of Fannie and Freddie, Washington effectively took control of their operations, dividends and most of their profits. Technically they still are public companies, just in a very unusual state. Their common stock still exists, but it was delisted from the NYSE because the share prices had collapsed. Trading then moved to the over the counter markets under new tickers and FNMA for Fannie and FMCC for Freddie. Getting banished to the over the counter markets is kind of like investing in the Twilight Zone. That's a topic for another episode, but still, some people invested that way with the thesis that this news could come one day and if that was you, good on you net net. You can still see and even buy shares of Fannie and Freddie today. But they represent a very limited ownership interest because the government owns the board, bulk of the economic value and controls the companies. I will say that Fannie and Freddie have been profitable for years and have paid back more in dividends than the bailout cost. But they have stayed under government control with treasury owning about 80% of their stock through special warrants. Now Trump wants to change that. The administration's plan is to sell between 5 and 15% of the government's stake in an IPO. Part of the motivation, as you probably guessed, is to raise money to pay down the national deb. It's forecasted that a Fannie and Freddie IPO could raise roughly $30 billion. Not enough to pay off the projected $1.7 trillion deficit, but helpful nonetheless. There's still a lot, though, up in the air. Like will they IPO Fannie and Freddie separately, or will they combine them into one mega mortgage company? And will they remain under conservatorship even after the sale? And most importantly, will the government keep guaranteeing their debt? That last point is huge, by the way. Right now, investors buy Fannie and Freddie mortgage backed securities with the assumption that the government will back them if things go bad. Take that away or even make it a little more fuzzy and you risk pushing mortgage rates higher by as much as a percentage point, according to some economists. And higher mortgage rates, well, that means higher monthly payments, fewer people qualifying for loans, and a weaker housing market at a time when affordability is over, already in crisis. Then there's politics. Hedge fund billionaires like Bill Ackman and John Paulson have been sitting on big stakes of Fannie and Freddie for years now, betting that the government would eventually give them up. If this IPO happens, those bets could pay off in the billions. Wall street banks advising on the deal could also make millions in fees. And for Trump, this would be a headline grabbing financial victory, especially if it happens before the end of the year. So if you're thinking about buy or if the IPO happens, remember, this is not your average corporate ipo. Fannie and Freddie's future earnings depend heavily on government policy. And while President Trump has said he'd keep the implicit guarantee, no one's really explained how that would work or how permanent it would be. And if you're a home buyer or a homeowner, the risk here is that the government's support is weakened or seen as uncertainty. Then mortgage rates could rise. Even half a percentage point can add hundreds of dollars to your monthly payment, or tens of thousands of dollars over the lifetime of the loan. We have seen this movie before. Big financial institutions taking big risks with the housing market. And just like last time, the fallout, good or bad, will land on taxpayers, investors and homeowners alike. So if you're on the fence about buying right now, this is just one more reason to keep a watchful eye on was and not just the Fed, but more on them later. Next, let's talk about electricity. Electricity is like most commodities in the us the price is affected by supply and demand. And in recent years, there has been a major spike in demand from the power grid, thanks to one type of user, the AI Data center. Or should I say the AI Data Center's plural, because there are Things. Thousands of these in the United States and more being built. Now here's the context. AI data centers are so power hungry that a single one can take more electricity than an entire city the size of New Orleans. There's a new AI data center plan for outside Cheyenne, Wyoming, so massive that once it's built, it will use more electricity than every single home in the entire state combined. Now, to be fair, Wyoming is small, but still, this facility will use 1.8 gigawatts of electricity with the ability to scale up to 10 gigawatts. And to put that into plain English, 1 gigawatt can power 1 million homes. So this data center will need a whole lot of electricity. The concern here, naturally, is that these data centers will dramatically increase all of our electricity bills. States and utility companies are now looking for more ways to offset the massive electricity demand coming from AI data centers. One idea has been to raise rates specifically for the new data centers. But according to a recent report from an analytics firm, those targeted rate hikes wouldn't even generate enough revenue to cover the cost of building just one new natural gas power plant. In other words, if utilities can't recover the full cost cost from the data centers themselves, they'll spread these costs out across the entire customer base. Meaning everyone's electricity bill could go up, not just the data centers. This is, by the way, already happening. In the Mid Atlantic alone, one study found that 70% of the recent increase in energy costs could be traced directly to the demand from data centers. Now I'll be honest, I love AI, I really do. But let's just find a way to offset higher utility bills for everyone and the environmental impacts. Please and thank you. Plus, as anyone from a fire prone area can tell you, our power grid isn't exactly in tip top shape. To meet this new demand, power companies have to upgrade their facilities. And guess what? Those costs are also getting passed on to us, the users. Which is wild when you think about it, because these data centers are owned by some of the wealthiest companies in the world. Between tariffs and data centers passing costs onto us, the consumers are becoming the song of the summer. And honestly, I am not into it. Lastly, inflation numbers just came in for July. And if you're hoping for lower interest rates, this is the update you've been waiting for. Here's the big headline. Prices overall rose 2.7% year over year, but basically flat from June. On a month to month basis, inflation rose 0.2%, which is a slowdown from the prior month. But the Fed's favorite Yardstick core inflation, which strips out food and energy, ticked up 0.3% in July, the fastest pace in six months, pushing annual core inflation to 3.1%, the highest since February. Now, this probably sounds very confusing, but higher inflation typically means higher interest rates. But the market still thinks rate cuts are coming soon. Futures are now pricing in an 86% chance of a cut at the Fed's September meeting, with more likely in October and December. Why? Because the inflation story is more complicated than one number one category. Shelter makes up 30% of the Consumer Price Index, or CPI, which is our biggest inflation metric. That means if rent inflation slows, it drags the whole CPI down, even if other categories stay sticky. And this month, shelter inflation cooled to 0.2%. Small but meaningful given its weight. The government's way of measuring shelter is a little bit laggy. The Bureau of Labor Statistics uses a survey asking homeowners what their house could rent for something called owner's equivalent rent. This figure moves slowly and it tends to reflect housing trends from six to 12 months ago. Real time rent trackers like Zillow have shown cooling for months. Now the official CPI is finally catching up. That sets the stage for more downward pressure on inflation readings ahead. And this echoes the laggy data story that we talked about last week. The most recent jobs report revisions showed that we've been adding fewer jobs than originally thought. July Payroll gains were just 73,000 with downward revisions for prior months, wage growth was subdued, unemployment ticked up, and the labor market looks less overheated. For the Fed, this checks the slowing economy box, making it easier to justify cutting rates without fearing a wage price spiral. So what is next? Well, the Fed's job is to keep inflation in check and to keep employment healthy. Right now, inflation is steady to slowing, jobs are cooling, and growth is under pressure from tariffs. That combination points to rate cuts starting in September. So what does this mean for you if you've got credit card debt, adjustable rate loans, or if you're house hunting? Rate cuts will lower borrowing costs over time. But that's not great news for savers. Lower interest rates mean that that yields on savings accounts and CDs may drop. So lock in rates now if you can. Historically, early Fed easing without a recession fuels stock market rallies. That is why Wall street is watching these CPI prints so obsessively. For today's tip, you can take straight to the bank. With utility prices rising, let's work smarter, not harder. Most people think about lowering their electric bill by turning things off, but you can also save money by shifting when you use power. Many utilities are quietly offer time of use pricing where electricity is cheaper during off peak hours, so often late at night or early in the morning because demand is lower. If you schedule high energy appliances like dishwashers, washing machines or even EV chargers to rendering those off peak windows, you are paying less for the exact same amount of electricity. Bonus Some smart plugs and appliance apps let you automate this. So set it once and keep saving without even thinking about it again. Money Rehab is a production of Money News Network. I'm your host Nicole Lapin. Money Rehab's Executive producer is Morgan Lavoy. Our researcher is Emily Holmes. Do you need some Money Rehab? And let's be honest, we all do. So email us your money questions moneyrehaboneynewsnetwork.com to potentially have your questions answered on the show or even have a one on one intervention with me. And follow us on Instagramoneynews and TikTokoneyNewsnetwork for exclusive video content. And lastly, thank you. No, seriously, thank you. Thank you for listening and for investing in yourself, which is the most important investment you can make.