Posted on 06/08/2016 10:01:22 AM PDT by Lorianne
Consider the persistent non-solution to the zombie-like status of Fannie Mae and Freddie Mac known as “recap and release.” The plan is to return the two mortgage-finance giants to their pre-financial-crisis status as privately owned but “government-sponsored” enterprises. That is to say, to recreate the private-gain, public-risk conflict that helped sink them in the first place. Their income would recapitalize the entities, rather than be funneled to the treasury, as is currently the case. Then they could exit the regulatory control known as “conservatorship” that has constrained them since 2008 — and resume bundling home loans and selling them, as if it had never been necessary to bail them out to the tune of $187 billion in the first place.
Congress last year effectively barred recap and release, at least for the next two years. Coupled with the Obama administration’s firm opposition, you’d think that would put a stake through its heart. But “no” is not an acceptable answer for the handful of Wall Street hedge funds that scooped up Fannie and Freddie’s beaten-down common stock for pennies a share after the bailout — and would realize a massive windfall if the government suddenly decided to let shareholders have access to company profits again. With megabillions on the line, the hedge funds have been arguing high-mindedly that their true concerns are property rights and the rule of law; they have also made common cause with certain low-income-housing advocates who see a resurrected Fan-Fred as a potential source of funds for their programs.
Left unexplained, because it’s inexplicable, is how the hedge funds’ arguments square with the fact that there wouldn’t even be a pair of corporate carcasses to fight over but for the massive infusion of taxpayer dollars and the public risk that represented.
(Excerpt) Read more at washingtonpost.com ...
Typical leftists bull crap.
Fannie Mae and Freddy Mac work great as long as the government is not FORCING them to provide high risk loans to low income (basically people that can not pay). The company and the stock holders should be compensated by the government for precipitating the mortgage crisis by those stupid forced regulations. I hear that they want to pass laws forcing them to give loans to people that would not normally meet the credit worthiness criteria.
What the Obama administration is doing is theft, every penny loaned by the government to Freddy Mac and Fannie Mae has been repaid, and now the government is stealing all the dividends that would normally be disbursed to the stockholders.
GET THE GOVERNMENT OFF the mortgage business!!
What? Is the author mad that some one took a big risk and gamble and bought the stock cheap? Ridiculous.. if that’s the case she should have bought some stock herself.
The problem is this. Although Fannie and Freddie both would have failed into bankruptcy if not for the massive government bailouts of the financial system, those bailouts did occur, and Fannie and Freddie never did actually fail.
So what that means is that they still exist. They are like Lady Stoneheart. They live and breathe, but they are changed. But they have equity shares that trade on exchanges, and they are wildly profitable now, thanks to the government bailing out the system.
The government is taking as thanks for that bailing out the right to claim all of the two entities’ earnings, which sort of seems fair, but also may be illegal. What right do they have to do this when the company never actually was declared bankrupt?
Fannie and Freddie weren’t really involved in the high risk loans. Their subprime loans were still conforming paper.
The exotic, dangerous stuff was being loaned out by their private sector rivals who were busily taking market share away from F&F because they would lend to anybody. Option ARMS, NINJA, No Down, etc.
Fannie and Freddie got burned because of their sheer size and Fannie in particular was undercapitalized. Everybody got burned when the bubble popped whether or not their loans had been conservatively issued or not.
Taxpayers were not legally obligated to backstop Fannie and Freddie. Shareholders could have been left holding the bag. The decision to bail out F&F’s investors was made by GW Bush and his advisors.
We really should go to the old British building society model for housing finance.
A person wanting a mortgage might put in a modest percentage of his pay for a number of years. The bankers grew to know this person as a human being, as an earner and as a person would could be depended on to make steady payments. After a few years, when the person wanted to buy a house, the person had set aside a large down payment and built a relationship and payment history that justified a mortgage.
Britain became a house-owning nation.
American savings and loans worked much the same way as British building societies until the inflation caused by Johnson’s Vietnam War destabilized them.
S&Ls made America a house-owning nation.
A nation where the majority of the voting population has an fully-earned stake in their houses tends to be a society that allows wealth to be created on a large scale.
The British building society/American S&L models were local, so global money couldn’t be used to make a housing market overheat.
FDR’s Fannie Mae made it possible for large housing markets like California’s to overheat, causing misery for millions and locking out young people from the housing ladder.
“government-sponsored” enterprises
An entity that was founded in 1934 is now 82 years old.
Uncle Sam needs to let go of FDR’s baby with the firm understanding that Uncle Sam will not be providing further financial babysitting of any kind whatsoever in the future.
“Fannie and Freddie weren’t really involved in the high risk loans.”
Why they only needed a $187 billion bailout.
“recapitalize”
Basically, when you make a $500,000 loan on a house that should only cost $125,000 (Think California) there is actually a $375,000 risk.
The physical climate may be lovely in LA, but the bosses of LA businesses don’t want to a pay their workers four times what the work done justifies.
It wasn’t for high yield loans, they dealt only in conforming paper.
Cant find what I read before about being forced to lower their FICO guidelines, but their 2008 financial statement, page 15 indicates that they were forced by the HUD to meet a goal of providing 55% of their loans to ‘Low and moderate-income housing’, 38% to ‘Undeserving areas’ and ‘25%’ to ‘Special affordable housing’. See link:
“Goals are expressed as a percentage of the total number of dwelling units financed by eligible mortgage loan purchases during the period”
Then in 2009, in the midst of the disaster, they complain that now they are also forced to provide loans for three “underserved markets”:
“The Regulatory Reform Act restructured our affordable housing goals and created a new duty for us and Freddie Mac to serve three
underserved markets—manufactured housing, affordable housing preservation, and rural housing. With respect to these markets, we are
required to “provide leadership to the market in developing loan products and flexible underwriting guidelines to facilitate a secondary
market for mortgages for very low-, low-, and moderate-income families.” Both the restructured goals and the new duty to serve take effect
in 2010.”
More food for thought:
http://phx.corporate-ir.net/phoenix.zhtml?c=108360&p=irol-secAnnual&control_SelectGroup=Annual%20Filings
“Since 1993, we have been subject to housing goals, which have been set as a percentage of the total number of dwelling units underlying
our total mortgage purchases, and have been intended to expand housing opportunities (1) for low- and moderate-income families, (2) in
HUD-defined underserved areas, including central cities and rural areas, and (3) for low-income families in low-income areas and for
very low-income families, which is referred to as “special affordable housing.” In addition, in 2004, HUD established three home
purchase subgoals that have been expressed as percentages of the total number of mortgages we purchase that finance the purchase of
single-family, owner-occupied properties located in metropolitan areas.”
“The current housing goals and subgoals for our business require that a specified portion of our mortgage purchases during each calendar
year relate to the purchase or securitization of mortgage loans that finance housing for low- and moderate-income households, housing in
underserved areas and qualified housing under the definition of special affordable housing. Many of these goals and subgoals increased
in 2008 over 2007 levels. These increases in goal levels and recent housing and mortgage market conditions, particularly the significant
changes in the housing market that began in the third quarter of 2007, have made it increasingly challenging and expensive to meet our
housing goals and subgoals.”
I’m not a fan of HUD at all and would like to see it abolished. That said, it doesn’t appear that those low-income loan targets require F&F to make non-conforming loans to fulfill what HUD is ordering them to do. AFAIK F&F continued to deal only in conforming paper even when the client was a subprime borrower.
A study by one of the Wall Street firms found that conforming mortgages had the lowest default rate when the bubble popped, which is why conforming paper had always been the standard before the craziness of the bubble. The exotic, high-risk high-yield stuff was produced by F&Fs private sector rivals, who were taking big chunks of market share away from the two GSEs. That stuff was driving the bubble because virtually anyone could get a loan. Some of those borrowers began defaulting with their second payment. The collapse began there.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.