Posted on 12/14/2011 2:22:08 PM PST by JNRoberts
The Fannie model worked for over 50 years. And the Freddie Model worked for decades.
I’ve been in the banking world for years and years, I know how it works. Without fairytale gov guarantees there won’t be any making of trillions in bad mortgages mandated by Congress. There’s nothing with a little bank demand driving up the interest paid on deposits, and the whole point of securitization is for risk to be better paid and managed, including the offsetting of interest rate risk.
Where did you come up with your loopy ideas?
Never said it did.
It would eliminate duplication of administrative costs, as well as significantly reduce the number of plum government jobs to be given out as gifts and sinecures to Democratic Party hacks.
Sure there is , and I'll give you one.
I would base the entire mortgage industry on REITs. REITs are Real Estate Investment Trusts, corporations with a special tax classification where the income is derived from real estate. For example, REITs include many of those large apartment complexes in many cities. Investors receive a return through dividends in the company, whose income is derived from rents, etc from the real estate.
A REIT can own homes and rent them out. It can also own mortgages. So lets build a housing model on that.
One of the fundamental flaws in the old mortgage industry is that no one involved in the entire chain of financing has any real interest or capacity to handle the underlying asset. The only people who want the houses are the people who bought the mortgages. So when houses get foreclosed, someone in the bowels of the financing industry gets stuck with a house they didn't want.
A REIT can fix this, because a REIT actually would have an interest in the home. If a person with a mortgage forecloses, they can simply move out and the REIT takes the house and rents it to someone else. Or, they could even keep the same person in the house, but take their equity and convert them to renters with maybe a lower rent. Finance become vastly simpler when the lender has a use for the collateral asset.
REITs can prevent bubbles. How? When a prospective homeowner works with a REIT to buy a house, the REIT would be lending money based on what they think they could get for the house in rent on the open market, not what they think the people in their office can pay, or what they can get by tossing it to the securitization machine at Fannie Mae. This puts a lid on speculation. If they person in their office forecloses, and the REIT takes possession, they need to be able to rent it out at near the same income. If some wanted to overpay for a house, they can, but it would be through a larger down payment, not through a larger loan.
So, this dramatically simplifies the industry, but still provides financing, and even keeps housing affordable, which was a Fannie and Freddie mandate, until they lost focus and fed the bubble.
In the mid-1980s, that legislation was repealed effective 1988. Ever since then, there have been no cross-ownership rules. Banks can go into whatever financial-services area they please, and they have since '88. All of Canada's major banks own trust companies, insurance companies and brokerage houses (full-service and discount.) It's been that way for close to a quarter century.
By “work”, do you mean by keeping housing prices inflated? Cheap and easy credit, combined with giving to unworthy borrowers prevents a necessary correction in the market.
Honestly; if the Fannie Freddie model hadn't been corrupted; it would still work.
It was a good way to to keep long term loans off the books of lenders who can't take in deposits with that length of time generally.
But Fannie Freddie shouldn't be holding those bonds, they should be held in the private sector.
Obviously the government could come along and by my $100,000 loan for $150,000 and the lender would happily sell. I guess my question for you based upon your original assertion was: would I otherwise have been unable to obtain my loan at or about the same (absurd) rate I paid then.
Now, BTW, I just refinanced this week. I didn't have a mortgage last time, and I don't have one now. It's just a "home equity" loan. Every month the bank just takes the payment out of my checking account. Is this being made to be resold too?
ML/NJ
Most home equity loans, AFAIK, are in fact “old fashioned” portfolio loans, I.e., lent straight off deposit funds and serviced and owned by the bank.
Until Fannie was started up, home ownership was well under 50%. Your community banker isn't going to loan money for 30 years because of the interest rate risk. The 30 year would probably disappear in favor of ARMs if GSE's weren't around..
>>>By “work”, do you mean by keeping housing prices inflated? Cheap and easy credit, combined with giving to unworthy borrowers prevents a necessary correction in the market.>>>
When you decide to read my entire post, including the part where Fannie and Freddie fianlly, after DECADES of a model that worked and did’t cost the taxpayers a dime, went wrong thanks to the Barney Franks who with their CRA legislation, forced the GSE’s to lend money to unworthy borrowers, ...when you read my entire post, I’ll answer you.
But in the meantime, if you think Fannie has kept housing prices inflated for the past 70 years.....(LOL!, they were charetered in 1938 genius).....then hey, it’s what you think. Foolish thinking I can’t control.
But I will say, from 1938 to around 2004, Fannie (and Freddie since 1970)....did a Pretty, pretty, pretty, good job in helping to ensure the ENGINE of our economy....HOUSING, was steady, stable, and the significant force behind creating the tens of millions of jobs related to Housing that you no doubt also benefited from for the past 70!....years.
And genius.....they never cost the taxpayers a dime until the last few years when the Dems forced them away from their original underwriting and qualification guidelines.
But hey, you know better and it shows.
>>>Until Fannie was started up, home ownership was well under 50%. Your community banker isn’t going to loan money for 30 years because of the interest rate risk. The 30 year would probably disappear in favor of ARMs if GSE’s weren’t around..<<<<
BINGO. Exactly. You are correct.
But you can’t beat ignorance. Ignorance will win every time.
>>>Most home equity loans, AFAIK, are in fact “old fashioned” portfolio loans, I.e., lent straight off deposit funds and serviced and owned by the bank.>>>
Yes, comparing a 30 year fixed rate $600,000 mortgage to a $25,000 (i.e. much smaller) Libor based ARM , many of which are nothing more than open lines of credit.....well?....just proves my point. You can’t beat ignorance.
Banks will keep those all day long. No interest rate risk, and minimal loan amounts.
>>>I would base the entire mortgage industry on REITs.>>>
I know what a REIT is and it was/is used in the nonconforming and multi unit and commercial markets.
There are alternatives but ALL of them will be more expensive and raise the cost of housing. As you know, A REIT can never match the Secondary Market execution of an agency MBS. Only a Ginnie Mae or Treasury can beat an agency MBS.
So if you want to go REIT, housing finance gets more expensive and that tradeoff might be ok and in fact, it may be the only type of option.
BUT my point is that the GSE’s worked just FINE for 70 years and 30 years until the Dems decided EVERYONE should have a house.
Name one person on this board, including the loudmouth ignorant fools that complained about the GSEs in the 50s, 60s, 70s, 80s, 90s and early 2000? Not a one. Because it worked.
Perhaps I should have said there is no comparative/equivalent alternative. And only those in the industry know it. The Michelle Bachmanns and Ann Coulters are just ignorant and you can’t beat ignorant. And they have no comparative alternative.
Even I am not that naive.
Most of the money comes from the Fed, which they created ex nihilo and lent to my bank at very low rates. Maybe my bank actually had to come up with six percent on the money lent out or actual deposits they held.
ML/NJ
Even I am not that naive.
Most of the money comes from the Fed, which they created ex nihilo and lent to my bank at very low rates. Maybe my bank actually had to come up with six percent on the money lent out or actual deposits they held.
ML/NJ
I am not sure what the solution is. If we weren't taxed into smithereens many would be able to handle a shorter term mortgage.
Some banks often borrow from the fed and some usually don’t.
>>>I am not sure what the solution is. If we weren’t taxed into smithereens many would be able to handle a shorter term mortgage.>>>
Well, it seems if a model worked for about 60 years and 30 years (Fannie and Freddie)....why not go back to the original model?
Qualify borrowers based on VERIFIED income, VERIFIED assets, VERIFIED employment. Require Private Mortgage Insurance on any loan with an LTV over 80%, heck even 75%. Max debt ratios at 28/36. Requires reserves, and a full appraisal.
This is pretty much what they did for decades. And then Barney Franks and Chris Todd and the Dems forced their hand to make loans and use documentation they never should have. And when you tell today’s American citizen that all he has to do is STATE is income and it won’t be verified....almost every single American Citizen will lie.
Because we teach kids in school that it’s evil to use gas lawnmowers and plastic bags. That’s the new evil. And we don’t teach them anything about telling lies.
And this is what we have. A society of liars and cheats. Liars and cheats who don’t litter and who want to save the environment.
Some banks often borrow from the fed and some usually don’t.
There are plenty of institutional investors who are willing to buy solid mortgages. The idea than only GSE's can do it is ridiculous.
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