Fannie and Freddie phase-out plan due

[coyotes_geek]

Fannie and Freddie phase-out plan due
(http://money.cnn.com/2011/02/09/news/economy/fannie_freddie_phase_out/index.htm)
By Ben Rooney, staff reporterFebruary 9, 2011: 8:20 AM ET

NEW YORK (CNNMoney) -- The Obama administration will issue a proposal later this week recommending the gradual elimination of government-sponsored mortgage backers Fannie Mae and Freddie Mac, a White House official said Wednesday.

The highly-anticipated "white paper," which is expected to be released Friday, will include three different options for reducing the role government plays in the mortgage market, the official said.

While the paper would mark an important development in the debate over what to do with Fannie and Freddie, a final decision by Congress is not expected any time soon.

After being rescued by the government in 2008, Fannie and Freddie have presented a major conundrum for policymakers in Washington.

The problem is that phasing out the two publicly traded companies could raise borrowing costs for homeowners and jeopardize the fragile housing market.

At the same time, Fannie and Freddie represent a major liability for taxpayers, who are on the hook for about $150 billion in federal aid the two institutions have received.

The issue has become politically charged, with some Republicans blaming Fannie and Freddie for contributing to the recent housing bubble. Democrats argue that the institutions help promote home ownership, especially among low- and middle-income Americans.

Given the political challenges involved and the threat to the housing market, any winding-down of Fannie and Freddie is likely to take place over a period of years.

A representative for Fannie Mae declined comment. Freddie Mac representatives did not immediately respond to a request for comment.

The three options in the administration's white paper were outlined in published reports Wednesday.

The most conservative of the three options would involve no government role in the mortgage market beyond existing federal agencies, such as the Federal Housing Administration, according to the Wall Street Journal.

The two other options relate to the government's place in the secondary mortgage market, previously filled by Fannie and Freddie. Under one option, the government would backstop mortgages during times of "market stress," while the other recommends that the government be involved at all times.

In addition, officials could also reduce the maximum loan limit for mortgages that Fannie and Freddie are allowed to buy, and encourage them to raise the fees they charge banks to guarantee mortgages.

Other options that could be discussed in the white paper are gradual increases in the minimum down payments on government-backed loans, and an accelerated reduction in Fannie and Freddie's loan portfolios.

-- CNN's senior White House correspondent Ed Henry contributed to this report.

****************

CG: At first glance of the headline I was prepared to give Obama & Co some credit for finally coming up with a plan about what to do with F&F. Then I actually read the article. Finding out that this "plan" is nothing more than saying we can either get rid of F&F entirely, or replace them with something that does pretty much the same thing, without offering a recommendation as to which one the administration prefers, is pretty underwhelming.

[boutons_deux]

Fannie's Scandalized, Freddie's Dead -- and the Next Financial Meltdown May Have Already Started

Here's an idea: Let's give hundreds of billions of dollars in government-backed guarantees to private banks so they make a fortune writing mortgages without any risk to themselves. Hey, what could go wrong?

The FCIC's recent report illustrated an important lesson from the economic meltdown: Privatization, not big government, ruined Fannie Mae and Freddie Mac. Running a government program like a private corporation leads to the worst excesses of executive self-indulgence. Fannie and Freddie didn't bring down the economy, as some have claimed, but they were destroyed by the same privatize-and-deregulate philosophy that led to the crisis.

Now we're learning that Washington may be preparing to take that destructive philosophy even further. Proposals to "reform" Fannie and Freddie by privatizing them even more aren't just bad, dangerous ideas. Worse, they suggest that we could be returning to the blind and mistaken ideologies of the past. If that's true, then it's only a matter of time until the next meltdown comes.

Doomsday

Mark your calendars. This may be remembered as the week our next financial crisis began, the moment when the Greenspan Republicans and Rubin Democrats who ruined the economy the last time around regained control... and the cycle began all over again. Only two short years after Wall Street's fraud and greed brought down the world's economy, a Beltway think tank is proposing to put taxpayers on the hook for mortgages written and administered by the same corporate miscreants.

And that's the Democratic proposal. The Republicans want to double down on a failed strategy of "privatizing" government mortgage financing, while at the same time cutting back on regulation and oversight. It all boils down to the same thing: bringing back the same sybaritic, taxpayer-backed greedfest that 's already shattered the economy more than once.

Fannie and Freddie are "government-sponsored enterprises," or "GSEs." But ideologues have learned exactly the wrong lesson from the Great Recession. It was the "E" part of these companies, not the "G" part, that caused the problem. The real lesson is that it's a mistake to mix government programs with private-sector-style get-rich-quick incentives. The GSEs failed because they treated their Federal mandate as if it was the key to Fort Knox.


http://www.huffingtonpost.com/rj-eskow/fannie-freddie-and-privat_b_820593.html?view=print

======

Same ol' "private gain, taxpayer risk" scam.

[Winehole23]

The 7 Things Really Wrong with the Treasury’s GSE Reform Plan (http://www.nakedcapitalism.com/2011/02/15844.html)


As readers no doubt know, the Treasury Department released its overdue plan for reform of the Fannie and Freddie (http://www.treasury.gov/initiatives/Documents/Reforming%20America%27s%20Housing%20Finance%20Mark et.pdf), otherwise known as GSEs (for “government sponsored enterprise”) last Friday. We were surprised that some normally astute commentators, such as Mike Konczal (http://rortybomb.wordpress.com/2011/02/11/on-the-treasury-departments-gse-report-privatization-and-hybrid-models/) and Felix Salmon (http://blogs.reuters.com/felix-salmon/2011/02/11/judging-treasurys-housing-report/), were taken in by this thin and misleading document. As banking expert Chris Whalen said by e-mail, “The proposal is completely disingenuous. Read 180 degrees opposite what it says.”
What is particularly striking is it is not very difficult to difficult to see through the stage management. Throughout the document, the Treasury calls its proposal a “plan” when it is anything but. Putting some stakes in the ground and then offering three mutually exclusive alternatives and no timetable for resolution is not a plan.


The reason for this failure to put forward a real proposal is that Treasury is trying to present itself as a fair broker of a politically fraught process. But that’s bunk. The outcome, unless the public wakes up to this new effort at looting, is already clear.
The fix is just about in. Of the Treasury three proposals, the last is the same as one advanced byt the big guns, from the Mortgage Bankers Association (http://www.mortgagebankers.org/files/Advocacy/2009/RecommendationsfortheFutureGovernmentRole.pdf), the Fed (both the New York Fed and the Board of Governors), the Financial Services Roundtable and Mark Zandi of Moodys (http://www.economy.com/mark-zandi/documents/Mortgage-Finance-Reform-020711.pdf). This alternative preserves too many bad elements of status quo ante, in particular significant and largely hidden subsidies for banks, for anyone to hail it as reform. Although each proposal has some distinctive wrinkles, all call for the creation of “private” entities that would provide insurance to mortgage backed securities that would then be reinsured by the government, with a full faith and credit guarantee (note that this goes beyond the level of support that the GSEs had, since their securities offerings specifically stated they were not government supported but they were nevertheless widely understood to have government backing. And believing so turns out to have made it so).


The boosters of this idea contend that this would be much safer than the old Freddie and Fannie because the primary insurers would have higher capital requirements than the old GSEs and would also be required to pay into an FDIC-like insurance, which the government would turn to first in the event that the insurers had trouble meeting their commitments.


Despite the Treasury’s efforts to feign neutrality, the Administration’s true wishes are clear. The Center for American Progress (http://www.nakedcapitalism.com/2011/02/wall-street-co-opting-nominally-liberal-think-tanks-banks-lobbying-to-become-new-gses.html), one of the Administration’s pet think tanks, weighed in with a proposal virtually identical to that of the Mortgage Bankers Association.


So what in particular is wrong with the plan, meaning the general framework in the Treasury paper and the specific option that the Administration favors? Its most objectionable features:


1. The most pressing problems in the housing and mortgage finance market remain unaddressed. GSE reform appears to be a distraction from the much harder work of fixing what is really broken in our housing market. While the GSEs are now wards of the state, they were not the central part of the housing crisis. The bulk of the abuses and damage to the economy came out of the non Fannie/Freddie market. The plan gives lip service to some of the broader problems, such as mortgage servicing. There is no acknowledgment of, much the less an effort to deal with, hemorrhaging wounds such as the questionable role of MERS, the widespread failure to convey mortgage notes and liens as stipulated in pooling & servicing agreements, and foreclosure abuses.


We now have virtually no private securitization market because the investors wised up and aren’t about to buy private mortgage paper unless the mortgage industry cleans up its act. But instead of discussing that problem and focusing regulations and clearer civil and criminal penalties as the solution, Treasury wants to subsidize credit instead. If the large segments of the sausage industry were found to be in the business of making poison sausages, this Administration’s response would be to have stress tests to show how much poison the sausages could contain without posing a public menace along with government-funded insurance in case anyone got really sick. So why aren’t we cleaning up the sausage factories instead?


2. The plan continues a bad pattern of using mortgage finance to achieve housing market goals. Laundering housing subsidies through the mortgage market is inefficient, makes it difficult to assess program effectiveness and establish accountability, and often has produced overinvestment in housing. If we want to encourage the development of rental housing, or find ways to promote greater homeownership among lower income borrowers, the policy mix whenever possible should favor budgetary allocations and tax breaks (including tax credit rather than mere tax deductions) over bank enriching and often difficult to target mortgage market gimmicks.


3. The Treasury document perpetuates a mortgage model for 1950s America. The Treasury document makes clear that it gives very high priority to preserving the “pre-payable, 30-year fixed-rate mortgage”. Every advanced economy in the world has a mortgage market that provides affordable loans to the middle class without GSEs or other large scale government guaranteed mortgage product. However, the Treasury uses their failure to provide a “pre-payable, 30-year fixed-rate mortgage” as the justification for creating a new variant on the Fannie and Freddie theme.


There’s no good reason to distort policy and refuse to learn from the experience of other markets to preserve a particular product, especially when there is good reason to think it isn’t as pro consumer as its advocates would have you believe. The big difference between the US and other markets is lenders here bear all the interest rate risk; for the most part, consumers have the option to repay with no or low penalties and can avail themselves of a fixed interest rate. That means when interest rates drop and the lender would enjoy the benefit of having a relatively high yield bond, investors can take it away from them by repaying. That also creates uncertainty for lenders as to how long the maturity of their bond is likely to be (repayments due to home sales are more predictable than prepayments due to refis).


Having consumers share some of the interest rate risk would allow them to borrow at lower costs, yet those options (such as mortgages with prepayment restrictions, or adjustable rate mortgages with interest rate floors and ceilings) are not widely offered (the subprime/Alt-A “adjustables” were teasers with rate resets or option ARMs, which both were products that presupposed a borrower refinancing).
More fundamentally, despite the document’s brave talk of the American Dream of homeownership, a long-dated mortgage no longer fits well with job market and household instability. It was created in the Great Depression as part of the cleanup of that era’s housing crisis, and it made sense then. Most home buyers stayed in the same community all of their adult lives, in a one-earner household. The profile of payments over the life of the mortgage amounted to forced savings during one’s peak earning years.



Now with job tenures short and most households dependent on two incomes, neither of which is assured (plus divorce rates are high), people who commit to 30 year mortgages really have no way of knowing what their incomes will be or where job opportunities will take them in five years, much the less fifteen or twenty five.


4. The Administrations’ preferred solution would keep in place the bad incentives and socialization of risk that got the GSEs in trouble in the first place. A document about why we need to do something different than the GSEs never mentions the real reason they got in trouble: their private/public structure, which led them to do greedy stupid things, namely put their investment portfolio in subprime loans.


Despite the Treasury’s claims that the new GSEs would not fall into the same bad habits as the old GSEs, there is nothing convincing in place to prevent that from happening The new GSEs are likely to become riskier over time. They will in aggregate have a huge amount of lobbying power just like the old GSEs. Think they aren’t gonna lobby together? Think they aren’t gonna seek variances so they can lever themselves up more? If you think otherwise, you need to revisit the history of the financial services industry since 1980.


5. The GSE 2.0 proposal is about propping up the housing market rather than helping consumers. A devastating little analysis by Dean Baker shows that even using Mark Zandi’s presumably pro-new-GSE assumptions, consumers would likely face higher all-in payments than they would under a purely private market system. So why prefer the other scheme? Because it is presumed to lead to higher housing prices, which happens also to be anti affordability. Yet most housing analysts argue that housing prices will eventually have to revert to long-standing relationships between incomes and rental prices. If the officialdom thinks it needs to attenuate the adjustment to buffer the impact to the economy, there are much simpler and cheaper ways to do it.


6. The GSE 2.0 plan has the new GSEs playing the same roles that Fannie and Freddie did, namely making credit decisions and providing liquidity, when the two are in conflict. . Making good credit decisions depends on maintaining standards; maintaining market liquidity requires bucking the judgment of private market investors who have retreated to the sidelines. Some may have done so due to a misreading of actual market conditions, but to the extent that their reading is accurate, the liquidity provision function involves taking credit risks at times when it in fact may turn out to be a bad credit bet, because underlying economic conditions are deteriorating.



Moreover as Raj Date points out, (http://www.rooseveltinstitute.org/sites/all/files/Fannie%20and%20Freddie.pdf) the liquidity function ultimately depends on the Fed, so why have private actors stand in the middle and pull out fees for no ultimate value added?

The second source of the GSEs’ power to backstop liquidity is their portfolios. Because the GSEs are able to obtain debt financing from investors who fully expect a taxpayer bailout in a crisis, their ability to maintain, and even grow, an investment portfolio of mortgages and MBS can defy free-market gravity: their assets can climb as others sink.


This is a real benefit. But it is not additive to what the government can already accomplish, through the “official” lender of last resort, the Federal Reserve. During this financial crisis, for example, the Fed opened its funding to an unprecedented range of financial institutions, and both purchased and advanced loans against a wide range of assets — including GSE and private-label MBS.9 And when the Fed puts taxpayers at risk through such liquidity mechanisms, it is, ultimately, taxpayers that benefit if circumstances turn out well. With the GSEs, by contrast, considerable upside is captured by a number of private parties aside from taxpayers — GSE equity holders, GSE management, and GSE bondholders.
7. These new GSEs will be too big to fail. They will all have the same business model. The various proponents of this scheme argue that it will have better risk buffers, and therefore not blow up, but giving private actors a government guarantee via reinsurance is like giving a kid a loaded gun. Just because you handed it to him with the safety on is unlikely to mean that bad things will not happen.


The GSE 2.0 advocates also contend that we still need not worry, since the authorities will have the authority to wind them down. But putting one in receivership would lead spreads on all the rest to blow out. A sudden increase in financing costs is a death knell for a highly leveraged company that is in the market on a regular basis (roll film showing fates of the monolines, Bear, Lehman, AIG, the GSEs, and the near death experiences of numerous US and Eurobanks). The government will bail anyone who gets in trouble out rather than risk cascading liquidity crises across the guarantors. The most likely approach is not an embarrassing rescue but a gunshot merger into one of the other GSEs, probably with some extra subsidies to make the deal more attractive.


So what exactly have we done here but rearrange the deck chairs on the Titanic?
http://www.nakedcapitalism.com/2011/02/15844.html

[Winehole23]

double post

[coyotes_geek]

Good read WH. It's a bunch of crap. F&F get replaced with a "new and improved F&F", only it gets called something different so that the politicals can say they "did something about F&F". Such BS.........

[TeyshaBlue]

Agreed, cg. *sigh* How utterly predictable.

[RandomGuy]

http://www.nakedcapitalism.com/2011/02/15844.html

Intesting bit. I will take a further read at some point today.

[RandomGuy]

Good read WH. It's a bunch of crap. F&F get replaced with a "new and improved F&F", only it gets called something different so that the politicals can say they "did something about F&F". Such BS.........

Certainly seems that way. I wish I could say I was surprised.

[boutons_deux]

I'm sure the guvmint/Fed put this new GSE plan together in complete isolation from, and complete disregard for, the profits of Wall St.

Stinks like Same Ol' private gain, taxpayer risk.

And some of you think Matt Taibbi's articles about the financial sector are unfair, incorrect, over the top? GMAFB

America is so fucked and so unfuckable, just like the VRWC has plotted for decades.

[Winehole23]

And some of you think Matt Taibbi's articles about the financial sector are unfair, incorrect, over the top? GMAFBNo one said so in the thread.

[Winehole23]

http://1.bp.blogspot.com/_jreu_FldnSw/TQ-aiVDaEcI/AAAAAAAAABc/XtWfqZPI2GM/s1600/jeremy-fish-ahab.jpg

[boutons_deux]

No one said so in the thread.

I didn't say they did.

[Winehole23]

You're a mindreader then?

[boutons_deux]

There's More Threads in Political Forum Than Are Dreamt Of In Your Philosophy.

[Winehole23]

Quoting by heart, so to speak?

[Winehole23]

Is that a nascent acronym? What's with the capitalization?

[TeyshaBlue]

boutons is wearing the "Cloak of Inscrutability" this morning.

[Winehole23]

Those allergy pills can spin you out hard.

[boutons_deux]

Spurstalk: "Alex, for $1000 I'll take Shakespeare."

Alex: "What did Hamlet say to Horatio about Horatio's philosophy?"

Spurstalk: (silence)

[Winehole23]

Quoting the bard.

That's your explanation for capitalizing? How peculiar.

[coyotes_geek]

Spurstalk: "Alex, for $1000 I'll take Shakespeare."

Alex: "What did Hamlet say to Horatio about Horatio's philosophy?"

Spurstalk: (silence)

Spurstalk would have been better off taking "people who don't know how the game show jeopardy works" for $600.

"Who is boutons?"

[Winehole23]

http://www.marketwatch.com/story/payroll-tax-law-may-starve-reform-fannie-freddie-2012-01-17?dist=countdown

[boutons_deux]

who would guarantee mortgages, a major gift to lenders, if F&F didn't?

no guarantee? would be a huge blow to the r/e markets.

[Winehole23]

Freddie bets against homeowners:


Freddie Mac, the taxpayer-owned mortgage giant, has placed multibillion-dollar bets that pay off if homeowners stay trapped in expensive mortgages with interest rates well above current rates.


Freddie began increasing these bets dramatically in late 2010, the same time that the company was making it harder for homeowners to get out of such high-interest mortgages.


No evidence has emerged that these decisions were coordinated. The company is a key gatekeeper for home loans but says its traders are “walled off” from the officials who have restricted homeowners from taking advantage of historically low interest rates by imposing higher fees and new rules.


Freddie’s charter calls for the company to make home loans more accessible. Its chief executive, Charles Haldeman Jr., recently told Congress that his company is “helping financially strapped families reduce their mortgage costs through refinancing their mortgages.”


But the trades, uncovered for the first time in an investigation by ProPublica and NPR, give Freddie a powerful incentive to do the opposite, highlighting a conflict of interest at the heart of the company. In addition to being an instrument of government policy dedicated to making home loans more accessible, Freddie also has giant investment portfolios and could lose substantial amounts of money if too many borrowers refinance.
http://www.propublica.org/article/freddy-mac-mortgage-eisinger-arnold

[Winehole23]

Yves Smith says Pro-Publica/NPR got it wrong:


ProPublica is not necessarily wrong to say that Freddie has a conflict of interest, but it is hardly a secret: it is between minimizing losses to taxpayers and saving struggling borrowers. It is fair to question whether it is balancing those interests correctly. Critics allege that the GSEs are taking very aggressive measures to maximize their short term profits in order to deliver lower losses to taxpayers, and that in turn is leading to policies that a lot of critics are deeming to be short-sighted. For instance, New York Fed president William Dudley said in a speech earlier this month an analysis by his staff showed that taxpayers would get better returns longer term from having the GSEs do more principal mods (http://www.nakedcapitalism.com/2012/01/ny-fed-president-dudley-crosses-swords-with-gses-and-board-of-governors-on-housingmortgage-mess.html), and we’ve separately argued multiple times that principal reductions are in many cases better solutions than foreclosures (which the GSEs have been pursing aggressively) or refis (which typically offer lesser payment relief and still leave most borrowers underwater).


So that begs the question: why does one Scott Simon from PIMCO charge, at the top of the article, that he was “shocked” that Freddie was engaging in the well established, common practice of retaining inverse floaters, and seemed stunningly unaware of the fact that the GSEs have always engaged in hedging strategies to manage their prepayment risk? One is forced to conclude that he either does not know this space or has some reason to run a disinformation campaign. We’ve heard that the Administration is deeply frustrated with FHFA head DeMarco’s resistance to slowing foreclosures and taking other measures to throw the GSEs’ full weight behind saving the housing market. And the people who have the most to lose from the GSEs doing more refis are not the holders of inverse floaters, but the holders of high coupon Fannie and Freddie bonds from 2006 to 2009. So perhaps Pimco has decided to do the Administration a favor by supporting an anti-GSE line, or perhaps has shorted those high coupon bonds, anticipating that the GSEs would be made to step in to rescue the housing market, and are upping the pressure to make that trade works out.



But no matter what the explanation is, ProPublica does not have a smoking gun, and it’s embarrassing to see them get this one so wrong.
http://www.nakedcapitalism.com/2012/01/propublicas-off-base-charges-about-freddie-macs-mortgage-bets.html

[Winehole23]

http://bottomline.msnbc.msn.com/_news/2012/02/29/10539705-fannie-mae-asks-uncle-sam-for-46-billion-more

[Winehole23]

http://online.wsj.com/article/SB10001424052970204571404577253574168952032.html

[boutons_deux]

F & F absolutely must cram back down the toxic mortgages that the banks, etc conned them with.

(but they won't, because it would bankrupt the crammed-downers)

[coyotes_geek]

http://bottomline.msnbc.msn.com/_news/2012/02/29/10539705-fannie-mae-asks-uncle-sam-for-46-billion-more

More money down the rabbit hole.........

[coyotes_geek]

F & F absolutely must cram back down the toxic mortgages that the banks, etc conned them with.

(but they won't, because it would bankrupt the crammed-downers)

There is complete bipartisan agreement amongst our elected leaders that this is the taxpayer's shit sandwich to eat.........

[Winehole23]

http://www.ft.com/intl/cms/s/0/289c1214-8318-11e1-929f-00144feab49a.html?ftcamp=published_links/rss/world_us_economy/feed//product#axzz1rwNV3YhM

[Winehole23]

http://www.telegraph.co.uk/finance/financialcrisis/9195844/IMF-urges-authorities-to-consider-debt-forgiveness-to-restore-growth.html

[CosmicCowboy]

Home prices still predicted to rise 5% a year in San Antonio. Not bad when you can borrow at 3.5%-4%

[Winehole23]

http://www.bloomberg.com/news/2014-02-19/people-really-didn-t-like-fannie-mae-and-freddie-mac.html

[Winehole23]

have Fannie and Freddie been nationalized?


“I just don’t think there’s any precedent for the government nationalizing two privately owned companies in the way that it has,” says Chuck Cooper, an attorney representing the Fairholme mutual fund family and a group of insurance companies that own millions of preferred shares of Fannie Mae and Freddie Mac.


So Fairholme is suing the government, as are several other funds, insurance companies, and tens of thousands of individuals in a dozen or so suits now pending in at least five federal courts across the country. The cases allege that the U.S. government illegally or unconstitutionally took, without just compensation, Fannie and Freddie—two Fortune 50 companies. (They rank 17 and 42, respectively, on the 2015 Fortune 500 list.) The money at stake here—$33 billion worth of preferred shares and almost $130 billion in diverted dividend payments—places these cases among the highest-valued lawsuits in history.


“A conservator has one constant accepted responsibility,” says Cooper, of Cooper & Kirk in Washington, D.C., who is handling two of the cases and advising on a third. “That is to rehabilitate the entity under conservatorship. Rehabilitate it. Not to hold it in perpetual captivity to harvest its profits for the benefit of the conservator itself. That’s the very antithesis of a conservator.”

http://fortune.com/2015/11/13/fannie-mae-freddie-mac-nationalize-housing-finance/

[boutons_deux]

A Revolving Door Helps Big Banks’ Quiet Campaign to Muscle Out Fannie and Freddie

A behind-the-scenes effort of Wall Street banks to take over the mortgage market is driven by advocates who switch between roles in Washington and the private sector.

Seven years after their dubious lending practices helped push the United States economy to the brink of disaster, the nation’s largest banks are closing in on a long-sought goal: to unseat Fannie Mae (http://topics.nytimes.com/top/news/business/companies/fannie_mae/index.html?inline=nyt-org) and Freddie Mac (http://topics.nytimes.com/top/news/business/companies/freddie_mac/index.html?inline=nyt-org), the mortgage finance giants, and capture their share of the profits in the country’s $5.7 trillion home loan market.

Taking place largely behind the scenes, the movement to take over the mortgage market has been propelled in part by a revolving door between Washington and Wall Street, an investigation by The New York Times has found.

While the big banks’ effort to enshrine their vision into law has failed so far, plans to replace Fannie and Freddie — which have long supported the housing market by playing a unique role as so-called government-sponsored enterprises, or G.S.E.s — are still very much alive. The Obama administration has largely embraced the idea, and government regulators are being pushed to put crucial elements into effect.

A review of lobbying records, legal filings, and internal emails and memorandums, as well as housing officials’ calendars and White House and Treasury visitor logs, illuminates the banks’ effort. Assisting in this work, the documents show, is a group of high-level housing finance specialists who have moved back and forth between public service and private practice in recent years.

The charge began under Michael D. Berman (https://www.linkedin.com/in/michael-d-berman-a92a24a), who has served not only as chairman of the Mortgage Bankers Association, one of the industry’s most influential lobbying organizations, but also as a senior adviser to Shaun Donovan, who was the secretary of Housing and Urban Development from 2009 to 2014.

Conversely, Mr. Berman recruited David H. Stevens (https://www.mba.org/who-we-are/management/david-stevens) — who was one of the lead architects of the Obama administration’s proposal to phase out Fannie and Freddie — to the mortgage bankers group, where Mr. Stevens is now president and chief executive.

Many in Congress believe Fannie and Freddie contributed to the collapse of the housing bubble, :lol and they still rest on a shaky financial foundation, largely because of actions taken by the Treasury and the companies’ regulator.

http://www.nytimes.com/2015/12/07/business/a-revolving-door-helps-big-banks-quiet-campaign-to-muscle-out-fannie-and-freddie.html?partner=rss&emc=rss

BigFinance will make all mortgages more expensive AND stop sending F&F's $50B+ annually into the general fund

America is fucked and unfuckable.

"Many in Congress believe" ... whatever TF their paymasters pay them to "believe"

[Winehole23]

A December 2010 memo to Mr. Geithner from Jeffrey A. Goldstein, undersecretary for domestic finance, referred to “the administration’s commitment to ensure existing common equity holders will not have access to any positive earnings from the G.S.E.s in the future.”

It is impossible to predict how the judges overseeing the shareholder lawsuits against the government will rule on the Fannie and Freddie matters. But some investors are hopeful.


Joseph “Woody” Woodruff is a longtime Fannie Mae shareholder who was elected to the state circuit court in Tennessee last year after practicing law for decades.


“The federal government entered into a legal arrangement with the G.S.E.s that contained certain undertakings and fiduciary obligations,” Mr. Woodruff said, stressing that he was speaking as an investor, not as a judge.


“Then it unilaterally rewrote the terms of the relationship and began in a very lawless manner sweeping the profits and transferring them to the Treasury,” he added. “What’s up with that?”

http://www.nytimes.com/2015/12/13/business/fannie-and-freddies-government-rescue-has-come-with-claws.html?_r=0

[Winehole23]

Documents show that as early as June 2011, more than a year before the profit sweep, the Treasury had been told the companies were improving and that their tax assets could generate significant value.


That discussion occurred in a private meeting with a group of restructuring experts, from Blackstone, the financial services giant, and Skadden, Arps, Slate, Meagher & Flom, a New York law firm.


According to that presentation, Fannie and Freddie were “showing improved financial performance and stabilized loss reserves.” It noted that Fannie and Freddie could build up their capital from “the reversal of loan loss reserves.”

[Winehole23]

The administration’s dealings with Fannie and Freddie reflect its stated desire to wind down the companies. And for years after their rescue, the companies were political pariahs because of the size of the taxpayer bailout. Some experts say that phasing out the government-sponsored mortgage lenders could ultimately make the housing finance system safer and sounder.


But the administration, by law, cannot put Fannie and Freddie out of business. That job rests with Congress, which would have to revoke the companies’ charters. In the meantime, the 2008 Housing and Economic Recovery Act directs the companies’ conservator to “preserve and conserve” their assets and property.


Two legislative efforts to eliminate Fannie and Freddie have failed to pass in Congress in recent years. During the same period, the Treasury and F.H.F.A. made a series of decisions that have pushed Fannie and Freddie to draw more money from the government’s coffers.


The dividend rate the companies were required to pay in the bailout, for example, was 10 percent — twice that required of the banks receiving money under the $700 billion Troubled Asset Relief Program.


Another disparity: The Treasury provided monetary incentives to the big banks to help cover their costs of modifying borrowers’ mortgages, but Fannie and Freddie received no such funds.


Fannie and Freddie paid another price after the bailout. They had sued many banks over toxic mortgages that were resold to the mortgage giants during the housing mania, and it looked as if they would receive billions of dollars in recoveries. Instead, the money went to the Treasury: $38.5 billion in 2013 and 2014, according to F.H.F.A. (http://1.usa.gov/1NnlfSv)

[boutons_deux]

The Continuing Fight Over Fannie and Freddie, and the Real Problem of US Mortgages (http://www.nakedcapitalism.com/2015/12/the-continuing-fight-over-fannie-and-freddie-and-the-real-problem-of-us-mortgages.html)
http://www.nakedcapitalism.com/2015/12/the-continuing-fight-over-fannie-and-freddie-and-the-real-problem-of-us-mortgages.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capi talism%29

[Winehole23]

new mortgage bonds transfer risk to private investors:


Fannie and Freddie don't make loans. They buy them from lenders, wrap them into securities and guarantee to make investors whole if the mortgages default.


In practice, that has meant that investors have taken on the risk of losses if interest rates rise, but have left the government with the risk if borrowers default. The new securities—along with other methods Fannie and Freddie use to lay off risk—mean that the government is increasingly transferring that default risk to private investors as well.


Read more: http://www.nasdaq.com/article/fannie-and-freddie-give-birth-to-new-mortgage-bond-20151229-00057#ixzz3viviflog

[Winehole23]

The sales are especially notable because issuances of private-label mortgage-backed securities, which also give private investors mortgage exposure, are still moribund.

[CosmicCowboy]

Considering how politicized Fannie and Freddie have become investors would be nuts to assume that risk.

[Winehole23]

with hedge funds tanking and stocks, bonds and cash all going more or less sideways, investors will seek better yields wherever they can find them, even if the risk isn't well understood.

[Winehole23]

15 years of Federal Reserve financial suppression has caused serious malinvestment and will continue to.

[RandomGuy]

with hedge funds tanking and stocks, bonds and cash all going more or less sideways, investors will seek better yields wherever they can find them, even if the risk isn't well understood.

Bingo. All sorts of cash is squishing out through the edges.

[CosmicCowboy]

Yeah, junk bond yields have been stupid low. Bunch of lower tier oil related companies are gonna be defaulting soon and people are gonna be wondering why the hell they took those risks for sub 10% yields.

[Winehole23]

there are lots of odd wrinkles in this tale (and even more the Obama Administration wishes to keep private,) but this caught my eye. Matt Taibbi in Rolling Stone:


In fact, it's a little-known subplot of the financial crisis that bailout-era Fannie and Freddie was turned into a kind of garbage facility for other Wall Street institutions, buying up toxic mortgages that private banks were suddenly desperate to unload.


As early as March of 2008, then Treasury Secretary Hank Paulson was advocating using Fannie and Freddie to "buy more mortgage-backed securities from overburdened banks."


Read more: http://www.rollingstone.com/politics/news/why-is-the-obama-administration-trying-to-keep-11-000-documents-sealed-20160418#ixzz46I1I3Jio

[boutons_deux]

there are lots of odd wrinkles in this tale (and even more the Obama Administration wishes to keep private,) but this caught my eye. Matt Taibbi in Rolling Stone:



Read more: http://www.rollingstone.com/politics/news/why-is-the-obama-administration-trying-to-keep-11-000-documents-sealed-20160418#ixzz46I1I3Jio




I remember some talk about the the GSEs, who apparently gave the sellers the benefit of the doubt, forcing the sellers to accept getting the toxic assets crammed down throats.

The Fed also took toxic shit off BigFinance's books, while BigFinance went on to steal Ms of fraudulenty foreclosed homes.

[Winehole23]

Gretchen Morgenson with the goods:


When Washington took over the beleaguered mortgage giants Fannie Mae and Freddie Mac during the collapse of the housing market and the financial crisis of 2008, it was with the implicit promise that they would be returned to shareholders after being nursed back to health.


But now, with the unsealing of documents this week that were produced as part of a lawsuit filed against the government, new evidence is coming to light on how intimately the White House was involved in the Treasury’s decision in August 2012 to keep all the companies’ profits for the government. That move effectively maintained Fannie’s and Freddie’s status as wards of the state.


The newly released documents go beyond previous disclosures in the case and make clear that the Obama administration never had any intention of restoring Fannie and Freddie, which enjoyed implicit backing from the government before the takeover, to their status as stand-alone entities.


An email from Jim Parrott, then a top White House official on housing finance, was sent the day the so-called profit sweep (https://www.treasury.gov/press-center/press-releases/Pages/tg1684.aspx?version=meter+at+12&module=meter-Links&pgtype=article&contentId=&mediaId=&referrer=http%3A%2F%2Fwww.realclearpolitics.com%2F %3Fstate%3Dnwa&priority=true&action=click&contentCollection=meter-links-click) was announced (https://www.treasury.gov/press-center/press-releases/Pages/tg1684.aspx?version=meter+at+12&module=meter-Links&pgtype=article&contentId=&mediaId=&referrer=http%3A%2F%2Fwww.realclearpolitics.com%2F %3Fstate%3Dnwa&priority=true&action=click&contentCollection=meter-links-click). It said the change was structured to ensure that the companies couldn’t “repay their debt and escape as it were.”

http://www.nytimes.com/2016/05/22/business/how-freddie-and-fannie-are-held-captive.html?smid=tw-share&_r=0

[Winehole23]

The documents also show the Treasury moving to modify the terms of the mortgage finance giants’ $187.5 billion bailout shortly after a July 2012 meeting when the Federal Housing Finance Agency, Fannie’s and Freddie’s regulator, learned that they were about to enter “the golden years” of profitability.


Since then, Fannie and Freddie have returned to the Treasury over $50 billion more than they received in the bailout. But the amount they owe to the government remains outstanding.


The new materials cast further doubt on arguments made in court by government lawyers that the profit sweep came about because Fannie and Freddie were in a death spiral and taxpayers needed protection from future losses. Documents unsealed (http://www.nytimes.com/2016/04/13/business/fannie-mae-suit-bailout.html?_r=0&version=meter+at+12&module=meter-Links&pgtype=article&contentId=&mediaId=&referrer=http%3A%2F%2Fwww.realclearpolitics.com%2F %3Fstate%3Dnwa&priority=true&action=click&contentCollection=meter-links-click) last month also served to undermine that legal stance.

[Winehole23]

The unsealed documents indicate an intense desire to get rid of Fannie and Freddie as independent entities once and for all. They do not show any concern among Treasury officials that their actions on the profit sweep might violate the law.