Watch as New York City and the 9/11 Memorial commemorate the 12th anniversary of 9/11.

LiveWatch the 9/11 Anniversary Ceremony

Watch as New York City and the 9/11 Memorial commemorate the 12th anniversary of 9/11.

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Five Years Later, Fannie Mae, Freddie Mac Remain Unfinished Business

source: Wall Street Journal

Fixing the Mortgage Giants Remains the Largest Single Piece of Unfinished Business From the Financial Crisis

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  1. Some critics warn that the suggested replacements gloss over the private sector's role in producing lots of shoddy mortgages. "All of the proposals we're seeing have one thing in common: They would essentially give greater control over the market to the biggest banks that were key participants in the bubble," said Joshua Rosner, managing director of research firm Graham Fisher & Co. and a longtime critic of Fannie and Freddie before their collapse.

  2. Fannie Mae Chief Executive Timothy Mayopoulos is prodding Washington to make up its mind. He says he is concerned that continued calls for liquidating the company could send his best employees for the exits. They "have families to feed," he said in a May speech to officials from the nation's biggest banks.

  3. Mr. Mayopoulos didn't endorse a particular outcome in his May speech. But he reminded the bankers that 30-year, fixed-rate mortgages weren't a "naturally occurring phenomenon in financial markets." And there was "limited evidence," he said, that private capital was ready to return in large scale.

    "We fully appreciate that Fannie Mae should play a smaller role in a properly functioning market," he added, "and we are working to make that happen."

  4. Small banks worry that without the firms, they would have to sell more of their loans to megabanks like Wells Fargo & Co. that would turn around and sell other services such as checking accounts to those borrowers. "I would be handing my clients to them on a silver platter," said Mr. Sorrentino of ConnectOne Bank.
  5. Hedge funds and institutional investors that have bought Fannie and Freddie shares represent another unlikely ally. They say that rather than plowing the companies under, the government should instead place new curbs on their activities, subject them to higher capital requirements, and spin them off as private firms.

    "It seems like the lawmakers are hellbent on waging this sort of Don Quixote kind of battle against demons that are no longer there," said Michael Kao, chief executive of Akanthos Capital Management in Woodland Hills, Calif., which has invested in both companies since before their collapse.

  6. All of the alternatives being proposed in Washington "simply won't work," says Bruce Berkowitz, chief investment officer of Miami-based Fairholme Capital Management, which sued the Treasury in July to challenge the terms of the government's bailout. The lawsuit alleges that the Treasury is illegally expropriating the company's profits. A Treasury Department spokesman said, "We fully believe our actions have been lawful and appropriate."

  7. In a June letter to Treasury Secretary Jacob Lew, Rep. Michael Capuano (D., Mass.) called the current bailout terms "outrageous usury" and introduced a bill that would relax them, making it more likely that Fannie and Freddie could one day exit government control.

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Life Without Fannie Mae and Freddie Mac

source: The New York Times

Talk of doing away with Fannie Mae and Freddie Mac is still just that — talk. But as Congress considers whether and how to get rid of these agencies, consumers ought to be aware of how a substantial reduction in the government’s role in housing finance could affect their ability to borrow in the future . . .

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Happy Anniversary!!!

source: CNBC

This week marks the five-year anniversary of Fannie Mae and Freddie Mac's being placed into conservatorship. Bruce Berkowitz of Fairholme Capital Management explains why Fannie and Freddie shares should be returned entirely to the public market.

"The taxpayers should make a very nice return on their investment, and then private capital, which put taxpayers before themselves, we're making sure that taxpayers are paid, in full, with a profit, before taking a penny. So as long as we're doing the right thing, we're doing what is right for homeowners, what's right for taxpayers -- Fannie and Freddie have accomplished their mission. They did it. Mission impossible--accomplished. So now it's time for them to be resuscitated, rehabilitated; let the equity build up in the companies and prepare for the next rainy day." --- Bruce Berkowitz


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Finance: Back from the bailouts

source: Financial Times

Five years after their rescue, Fannie and Freddie are posting robust profits of which investors want a share

US housing boom
Arizona dreaming: the US state was at the forefront of the housing crisis but Phoenix is now enjoying a boom

When Victor Vidales drives past the vacant homes that dot South Phoenix and Laveen, his concerns are now very different from two years ago. Instead of fearing irredeemable blight in the sprawling suburbs of the Arizona capital, he is wondering whose hands the houses are in and when they will put them on the market.


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Worthless Opinions on Freddie Mac and Fannie Mae : Freddie & Fannie Return to Stardome

This article was posted some time ago, and the numbers are from last quarter, but the truth always withstands the test of time.

Source: Small Cap Network

There are a number of articles being posted on Yahoo and Bloomberg and other sites concerning opinions on Freddie Mac and Fannie Mae that state these stocks are worthless. It should be stated that it is these opinions that are more worthless than three-dollar bills. Most of these analysts do not see the forest from the trees, so the following is offered to serious investors.

1. Both Freddie Mac and Fannie Mae are PUBLIC companies, the Federal government cannot close them without many investor lawsuits.

2. We still live in a democracy with a free trade system. The Federal government can not start taking over public companies. They do that in communist countries and dictatorships.

3. Both Freddie and Fannie are now earning significant sums of money, and technically the government has no right to continue taking the profits of these companies beyond the repayment of the money given to them plus interest.

4. The U.S. Federal government is treating the public companies of Freddie and Fannie different from other public companies like AIG, the auto companies, the banking industry, and brokerage firms which were lent significant sums of money by the government in the past. Taking Freddie and Fannie over or trying to liquidate them will not stand up in court against the public investors of Freddie Mac and Fannie Mae.

5. The Republicans want to liquidate Freddie and Fannie because they are sending significant monies to the Federal government thereby aiding the increase the size of government, which they are against. The Democrats want the government to keep all the money coming from these companies so as to help with the national debt and the sequester budget cuts. But when investors see massive monies being sucked out of these companies above what was given, they will be turning red, or should I say green, because investors lost lots of money due to their decline. Now they want to be restored.

6. Now if Freddie and Fannie were liquidated who do you think is going to be originating mortgage loans in the future since most U.S. residential mortgages are sold to them? Moreover, they return money to banks for further investment. If they are led to liquidity, the money for housing will dry up like water in a desert. It will sink the housing market and the economy when people can not find mortgages and builders can't find buyers. Boy, will that make lots of people happy. Furthermore, the banks, pension plans, and other financial institutions will not have their notes in which to invest their cash and that will make even more people unhappy.

7. Freddie Mac and Fannie Mae posted their second largest profits in their history last quarter. They were selling at $30, $50, and as much as $100 per share at one time and they were not earning such large profits as now. Really. So lets not forget money. These two companies have paid the Federal government about $132 BILLION over the past two years of the $188 billion that was given to them! That's a lot of greenbacks. Here we are talking BIG bucks.

8. The simple fix for Freddie and Fannie is to re-privatize them, and work out a simple repayment schedule like what was done for the other companies like AIG and GM and the banks. The government will be repaid quickly (by the end of this year or next).

9. Does anyone think big investors will take the government's continued dipping into the profits from these companies sitting down?? Doubt it. Double doubt it.

10. Freddie Mac and Fannie Mae were models for increasing home market sales and are still great models. They allow people to buy homes. We just need limit the amount of "variable" (sub-prime) mortgages they can buy from banks. There is no mechanism that can replace them unless you want the country to go belly-up.

11. Importantly, if Freddie Mac and Fannie Mae are senselessly liquidated it will be the Federal government that will take those "trillions" of dollars in mortgages onto our country's balance sheet. It will force the government permanently into the mortgage lending business. Nobody wants that. Besides, the risk of the national debt rising is considerable since more Federal spending would be required to shrink those huge mortgage portfolios.

12. To those in Congress, I suggest they stop talking about liquidating unless its their own seat in Congress they are thinking of giving up. Such stupidity will ensure they are NOT re-elected.

So in conclusion, do not believe these worthless opinions regarding these companies. People who go long term with them are going to earn lots of money several years down the line.

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The Real Reason the Corker-Warner GSE Bill Has Bipartisan Backing

source: AmericanBanker 

That the Obama Administration and Congressional Democrats now support the elimination of Fannie Mae and Freddie Mac would appear to represent a major policy reversal, but this support directed at the Senate's Corker-Warner GSE reform bill is contingent on the introduction of a new federal guarantor. Are we to believe that "This Time Is Different"?

The political change in heart isn't likely due to revulsion to Fannie Mae's and Freddie Mac's political patronage – now suspended in conservatorship – as the new system provides unlimited opportunities for that.

It isn't to foster more competition: there was a lot of competition between Fannie Mae and Freddie Mac and during the last decade from private securitizers as well.

It isn't to eliminate the inherent conflict of interest in the "originate-to-distribute" mortgage banking model, the foundation of the proposed origination system.

It isn't to eliminate the greed driving private label securitizers, the foundation of the proposed funding systems.

It certainly isn't to abandon political housing goals relating to continued support for fixed-rate mortgage lending, access to homeownership and affordable housing, the stated reason for Democratic support  and the affordable housing lobby, which is already ratcheting up demands even before the legislation gets off the ground.

The political response to a systemic failure in the financial markets is: first, admit no blame; second, avoid a future transparent public disaster easily traced back to politicians; third, please constituent groups to get "industry" support.

So what's new?

It is ironic that after five years of determined efforts to portray Fannie and Freddie as victims – only partly true - both political parties propose eliminating them now that the patronage has dried up in conservatorship rather than simply nationalize them. Wall Street and "too big to fail" banks – now one and the same – benefited greatly from Fannie Mae and Freddie Mac, even as the latter shared the profits of the public-risk-for-private-profit model. Corker-Warner eliminates two big competitors who were less reckless during the subprime lending debacle – admittedly due to charter restrictions – than their TBTF bank competitors.

Federal Reserve Chairman Ben Bernanke endorsed this scheme based on the switch from implicit guarantees to explicit insurance, arguing that policymakers could lay out "rules of the game" with details, for example, on how a potential government insurance fund would charge premiums to private-sector participants.

"If the government does play a role then it should be fairly compensated," Bernanke said. "Instead of having an implicit guarantee that it ended up having to make good on, like the [Federal Deposit Insurance Corp.] or some other similar institution it should receive some kind of insurance premium."

This Fed endorsement represents an about-face as the Fed had long argued that Fannie and Freddie guarantees posed systemic risk to the U.S. financial system  and, under Bernanke, expanded its guarantor role internationally in the aftermath of the financial crisis by bailing out "systemically important" too-big-to-fail financial institutions with no implicit or explicit guarantee contract and no cost transparency.

By pretending to treat the guarantee problem as actuarial rather than political, Corker-Warner can garner the support of all the traditional lending and housing lobbies that historically supported Fannie Mae and Freddie Mac. This is wrong on several levels.

First, federal government guarantees are the opposite of insurance. Insurable mortgage credit risks are those that can be mitigated with upfront loan underwriting with the remaining independent default risks actuarially priced based on the "law of large numbers." The implicit guarantee – implicit because it was inferred by Wall Street rather than granted by Congress – was really a market "assurance" that the federal government – primarily the Federal Reserve – would avoid macroeconomic catastrophes, such as housing bubbles, i.e., systemic risk.

Second, the government has no inherent comparative advantage in the insurance business. It achieves monopoly status due to its implicit opaque subsidies, allowing it to dole out political favors. As a "federally sponsored" mortgage insurer the Federal Housing Administration, for example, is allowed to have a fraction of the capital of a private insurer, saving the cost of capital. As the private returns to capital are heavily taxed, FHA also receives substantial tax benefits. Moreover, federal monopolies can generally charge higher prices to new purchasers as FHA does whenever it gets into trouble in spite of these subsidies.

The biggest challenge since federal politicians first began offering protection in 1934 – limited deposit insurance to small depositors – has been to mitigate moral hazard. Guarantees – both as they apply to GSEs and banks – were the centerpiece of the public-risk-for-private-profit model that caused the last systemic failure of the mortgage system, and deposit insurance caused the prior failure of Savings and Loans.  

As a price for protection, politicians required widespread availability of cheap mortgage credit requiring tax and credit subsidies delivered opaquely by enabling extreme leverage, the primary source of systemic risk that caused the 2008 financial crash. Actuarially sound public insurance is an oxymoron.

Dodd-Frank virtually ignored the fundamental moral hazard problem, proposing only a 5% risk retention requirement for securitization intended as "first-loss" with an exemption for "qualified residential mortgages" with at least a 20% cash down payment, two protections already thoroughly politically corrupted.

The protections in the proposed Federal Mortgage Insurance Corporation in Corker-Warner – in investor coverage down to 90% (Fannie Mae and Freddie Mac historically had private mortgage insurance coverage down to 75%) and a minimum borrower down-payment of only 5% (Fannie and Freddie required a 20% cash down payment or private insurance) – are way too weak to actuarially price even with the proposed, but politically vulnerable 5% capital requirement.

This is change we shouldn't believe in!

Kevin Villani, chief economist at Freddie Mac from 1982 to 1985, is a principal of University Financial Associates and an executive scholar at the Burnham-Moores Center for Real Estate of the University of San Diego.

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Still No Appetite for Risk

source: USNews

Last week, I argued against Congressional proposals to "get government out of housing" by killing government backed mortgage firms Fannie Mae and Freddie Mac. Now comes fresh evidence that buttresses my view that the private sector just isn't ready to take up the slack if the two mortgage giants are eliminated.

This week, Redwood Trust, one of the largest issuers of private residential mortgages, released details of its latest securitization package. The good news is that it was Redwood's 11th deal of the year, which shows private investors are coming back into the mortgage market totally dominated by Fannie and Freddie over the past five years. The bad news: A close reading of the package shows that private investors are still looking for ultra-safe, plain vanilla loans to pool and sell as securities. And they're harder to come by.

No one doubts that since Fannie and Freddie were taken into conservatorship in 2008, private capital in mortgage markets has been scarce. Having lost billions when the housing bubble burst, private investors were in no hurry to resume lending. That's why Fannie and Freddie were forced to expand their lending, from roughly 40 percent of the market pre-crisis to 77 percent in 2012.

[See a collection of political cartoons on the economy.]

Everybody knows we won't return to "normalcy" in housing until their footprint shrinks and that of private investors expands. But House Republicans, who imagine that housing markets can get along just fine without the government guarantees Fannie and Freddie offer, might want to take a good look at Redwood's latest package. It offers insight into the current appetite of private investors for mortgage risk.

Redwood specializes in jumbo loans – loans typically taken out by higher-income families for amounts larger than Freddie and Fannie will guarantee. It steers clear of riskier loans where borrowers have lower credit ratings or less cash to put toward a down payment. For starters, Redwood's latest collection of mortgages was the smallest in loan volume of the year, even as the number of lenders in the pool rose. That suggests a dwindling pool of jumbo loans to low-risk borrowers.

One likely explanation is the recent spike in interest rates, which has slowed loan refinancing. In any case, two rating agencies, Kroll Bond Ratings and Fitch Ratings, gave the Redwood package AAA rating, indicating a low probability of default.

As Megan Hopkins reports on Housing Wire, the Redwood deal is very similar in risk characteristics (re: super conservative) as previous pools of mortgages it has packaged over the last two years. However, there is a slight uptick in loans that have less equity, yet are still considered quite safe. In other words, Redwood has had to give up a little safety to find enough loans to securitize.

Moreover, the Fitch report shows that jumbo loans that the private investors Redwood needs are willing to invest in are concentrated in just a few states. California was the largest state in this last pool and the one before that, with its share increasing to 46.9 percent from 40.9 percent, according to the HousingWire article. Fitch also noted that the pool was entirely comprised of 30-year fixed rate mortgages. Even among affluent homebuyers, and despite historically low interest rates, the good old 30-year fixed is still the favorite. (While Redwood shows fixed rates can be made available by private lenders on a smaller scale, this is yet another reason we still need the GSEs.)

[Read the U.S. News Debate: Should the Federal Government Provide Support to the Mortgage Market?]

If private lenders are willing to take on more risk and issue loans the government won't, what's the problem? The characteristics of the borrowers in the Redwood Trust transaction show you may be able to replace some of the loans that the government guarantees with private capital right now. And to be sure, pending regulatory actions (for example, on the qualified residential mortgage rule) and the prospect of abolishing the GSEs are also holding private capital back. That's why it's at best premature, and at worse an ill-fated idea, to eviscerate the two mortgage giants.

So let's applaud private lenders like Redwood and a few others for venturing back into mortgage markets. But the bottom line is these jumbo loans mirror the loans currently being guaranteed at the GSEs, and those pose zero systemic risk. Swapping private lenders for loans the GSEs are currently making at the high end of their market doesn't really accomplish anything. Even in a jumbo market that doesn't compete with the government to take on a little more risk; we are far from opening the doors to expanding more credit outside of pristine, ultra safe mortgages which are already being made.

What we need is for both private capital and Fannie and Freddie to start taking on more appropriate risk – to deliver credit to middle class borrowers with lower but still responsible credit scores and less money to put down. The pendulum swung too far, and the market has plenty of room to take some risk without creating a new bubble.

Jason R. Gold is director of the Progressive Policy Institute's "Rebuilding Middle Class Wealth Project" and senior fellow for financial services policy. Keep up with his work at PPI here and follow him on Twitter at @PPI_JGold.

Fannie Mae,
Freddie Mac,
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Please share your story with us

Restore Fannie Mae is looking to contact those who had purchased Fannie Mae or Freddie Mac (common or preferred)  shares before the 2008 conservatorship and (preferably) still hold these securities today.  The goal is to help articulate and share the painful, human story that resulted from the conservatorship.   If you, or someone you know, fits this profile, please let us know the best way to contact you.

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Inside Mortgage Finance Poll 

Two major GSE reform bills have surfaced on Capitol Hill this summer. Both call for closing down Fannie Mae and Freddie Mac in relatively short order. But only one proposes a replacement entity that would continue to provide a government guarantee on conventional mortgages that are securitized. What do you think? 

It’s a good idea to replace Fannie Mae and Freddie Mac with some sort of government MBS program that provides catastrophic insurance coverage. 

Fannie Mae and Freddie Mac should be dissolved but not replaced with any new government program. The private sector can fill any gap in mortgage financing. 

It’s a big mistake to eliminate Fannie Mae and Freddie Mac given their current importance to the mortgage market as well as the fact that they are paying billions of dollars to the Treasury. 

What should be done to “reform” Fannie Mae’s and Freddie Mac’s position in the mortgage market? 

Wind the two GSEs down as quickly as possible while setting up some new government guarantee program for conservatively underwritten conventional mortgages.

Let the two GSEs continue to funnel money to the Treasury while developing a plan to take them out of conservatorship as private companies. 

Do nothing since the housing market is too dependent on the two GSEs and Congress is unlikely to agree on a major change in the status quo anytime soon. 

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