Fannie Mae, Freddie Mac might not be going anywhere after all

posted at 5:21 pm on October 16, 2013 by Erika Johnsen

In early August, in light of the slowly recovering housing market, President Obama announced some sweet new plans to push Congress to shutter the two federal mortgage giants to which much of the blame for the housing bubble and the bursting thereof belongs, and to which taxpayers so generously provided a bailout to the tune of more than $180 billion. To review:

In a speech Tuesday in Phoenix, Obama will call for transitioning the business model of Fannie and Freddie into a system where “private capital must be wiped out before the government pays on any form of catastrophic guarantee,” a senior administration official said. …

“So many Americans across the country view their own economic and financial circumstances through their homes and whether they own a home, whether their home is underwater, whether they feel like they have equity in their homes,” White House spokesman Jay Carney said Monday.

Senior administration officials said Obama would focus in Phoenix on shifting more of the burden for supporting the nation’s massive mortgage market to the private sector. A centerpiece of that effort is his support for winding down Fannie Mae and Freddie Mac.

The prospect of winding down the clock on the two federal entities is certainly a welcome one, with the very huge qualifier of determining precisely what it is the White House wants to replace them with — but Obama’s suggestion was evidently a mark of his support of a bipartisan Senate effort to put the entities on track for a five-year exit strategy, the exact details of which legislators are still hammering out.

The idea of dissolving/overhauling Fannie and Freddie has lately been gaining in momentum, but Bloomberg is reporting that — while the official position of the White House and the involved senators hasn’t changed — the consensus that the two companies should be dismantled is being greeted with some heady challenges in the form of opposition from hedge funds, regional banks, and others:

President Barack Obama and lawmakers from both parties have called for the two mortgage-finance companies to be replaced by a new U.S. housing system. While the official position hasn’t changed, a bipartisan group of U.S. senators writing legislation is grappling with how to ensure that changes to Fannie Mae and Freddie Mac don’t disrupt the recovering housing market. …

The changing atmosphere was reflected at a meeting today on Capitol Hill between congressional aides and representatives from the mortgage industry. Among questions on a list handed out by staff members of the Senate banking panel were whether parts of Fannie Mae and Freddie Mac should be spun off or sold to private investors instead of wound down, according to three people who attended. Participants were given until the end of October to respond in writing, said the people, who asked to remain anonymous because the meeting wasn’t public.
‘Renovating’ Fannie

Isaac Boltansky, an analyst with Compass Point Research & Trading LLC in Washington, said that until recently policy makers were engaged in a philosophical debate. Now they have to deal with the practical challenges, he said.

“The conversation is going to shift to whether it’s necessary to burn down the whole house just to rebuild it, or whether there’s merit in renovating it,” said Boltansky.

Of course, you knew that getting rid of Fannie Mae and Freddie Mac was never going to be that simple, because part of the very nature of big-government programs is that putting them in place is infinitely more simple than dismantling them.


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“hedge funds, regional banks, and others”

i.e. entities which benefit from the artificially-low interest rates and federal guarantees. Rent-seekers, in other words.

Kill ‘em anyway.

Mohonri on October 16, 2013 at 5:28 PM

n a speech Tuesday in Phoenix, Obama will call for transitioning the business model of Fannie and Freddie into a system where “private capital must be wiped out before the government pays on any form of catastrophic guarantee,” a senior administration official said. …

Except for largely Democratic strongholds, like Detroit.

BobMbx on October 16, 2013 at 5:28 PM

Shocker. I have to tell you that a company that has been hiring mortgage brokers hand over fist has had a massive lay off. I consider that a not to great insider message as to where the housing industry is going.

Cindy Munford on October 16, 2013 at 5:31 PM

It’s hard?

You mean like with destroying the wealth industry hard?

No… No it’s not.

Shut ‘em down. Let the government close the books and let the government get its income and pay off its debts.

I don’t see why that’s difficult? Oh yeah… Politicians in bed with lobbyists will lose their gravy train…

Skywise on October 16, 2013 at 5:33 PM

Let’s tie ERika’s partial truths here to the “misstatement” made by AllahPundit’s ‘Boehner’s not leaving’ post.

If he had followed “don’t blink” any further, it might well have meant hitting the debt ceiling and sparking a crushing new economic downturn for which the GOP naturally would be blamed.

.
While we are on the topic of RINO’s, the one of THE defining characteristics of a RINO is their willingness to promulgate the Democrats & Kneepad Media’s narrative – in this case, the part of AP’s quote in BOLD.

Rather than spending time recounting ALL the problems in the economy that persist 4.5 years after The Won’s anointing …

(because pointing out economic realities to the Hot Air editors is as pointless as shouting down a well)

… let’s focus on just TWO:

1) The Federal Reserve is pumping $ 85 billion/month into the economy which represents 5 % of the GDP. They have pumped over $ 1 trillion into the economy in the last 12 months.

How much has the GDP grown over the last 12 months? ~ 2.5 %

Sharp students will note the NEGATIVE return the Federal Reserve is getting from increasing its ASSET holdings.

RINO’s & Democrats will have to have it pointed out that the goal of putting 5 % in is to get 5 % or better out. A NEGATIVE return indicates a failed policy that SHOULD be abandoned.

Instead, Obama has nominated Uber-Stimulator Janet Yellen to be the next head of the Federal Reserve.

Prepare for a LOT more money to be WASTED.

2) Impatient economic illiterates (i.e. RINO’s & Democrats) are starting to say the profoundly stupid comment,

“That money hasn’t been wasted, it’s been invested.”

HorsePuckey!

Our second economic reality is the fact the GAAP practice of “mark to market” has been DISCONTINUED for going on FIVE YEARS now.

“Mark to market” REQUIRES every asset to be listed at what it ACTUALLY could be sold for rather than it’s nominal face value.

It was discontinued to keep the Too Big Too Jail banks from having to declare bankruptcy.

It remains dicontinued because if it was reinstated EVERY ONE of the Too Big Too Jail banks would immediately have to declare bankruptcy.

AND … all those Mortgage Backed Securities on the Fed’s Asset listing would have to be MARKED DOWN to LOSS values.

Summary: ANYONE saying ANY nonsense about a “crushing new downturn” is LYING to you. We are STILL in the same OLD crushing downturn we have been for the last FIVE years.
.
And not a little extra TRUTH for Erika’s post:

a bipartisan group of U.S. senators writing legislation is grappling with how to ensure that changes to Fannie Mae and Freddie Mac don’t disrupt the recovering housing market.

.
The RINO endorsed ‘recovering housing market’ myth IGNORES that 60% of existing homes sales are to 100% CASH BUYERS.

How many people do YOU know who pay for their house in CASH?

Another bit of TRUTH – there are MILLIONS of homes banks have foreclosed on but have NOT placed on the market.

They don’t HAVE to put them on the market because they are NO LONGER required to “mark to market” these “assets” (see above on this topic). The banks just declare WHATEVER value they want on these foreclosed homes.

If the banks had to “mark to market” and PUT these homes on the market?

Well, the whole fantasy world RINO’s & Democrats peddle every day would be exposed as one big Orwellian LIE.

PolAgnostic on October 16, 2013 at 5:36 PM

loot loot loot

rob verdi on October 16, 2013 at 5:44 PM

We should replace them with Government Mortgage Exchanges.

oldroy on October 16, 2013 at 5:44 PM

They don’t HAVE to put them on the market because they are NO LONGER required to “mark to market” these “assets” (see above on this topic). The banks just declare WHATEVER value they want on these foreclosed homes.

In a technically legal interpretation, these “homes” are in the same class as bank branches, and can literally be owned by a subsidiary and leased back to the parent for “$0.00″ per annum.

The only thing they’re on the hook for is local property taxes and somebody to cut the grass once a month.

Banks and mortgage lenders have collectively become the DeBeers of real estate, releasing reserve inventory only when there is a buyers market. Since they control both the supply and demand (through mortgage lending) of homes, there are no free market forces at work in this recovering economy.

And it will remain so until the secret inventory of homes is depleted. We’ll know when is happens because thats when interest rates will start climbing as the Fed does its part of the scam.

BobMbx on October 16, 2013 at 5:49 PM

PolAgnostic on October 16, 2013 at 5:36 PM

Lighten up Francis.

WitchDoctor on October 16, 2013 at 5:50 PM

If they go away, where will the Dems send their loyal minions to rake in the big bucks for a few years. Franklin Raines, please call you office….

iurockhead on October 16, 2013 at 5:59 PM

PolAgnostic on October 16, 2013 at 5:36 PM

Can you give us credible cites for these two claims of yours? I have worked in the industry for nearly 35 years.

The RINO endorsed ‘recovering housing market’ myth IGNORES that 60% of existing homes sales are to 100% CASH BUYERS.

How many people do YOU know who pay for their house in CASH?

Another bit of TRUTH – there are MILLIONS of homes banks have foreclosed on but have NOT placed on the market.

I am in a very active real estate market in northern New England that includes many waterfront and ski area vacation properties. The percentage of cash sales here-over all ranges of market values-is nowhere near “60%”. Not even close!

Likewise, we still have a very active REO market here. The assorted lenders here are certainly not sitting on their foreclosed properties.

Lighten up Francis.

WitchDoctor on October 16, 2013 at 5:50 PM

Well put!

Del Dolemonte on October 16, 2013 at 6:05 PM

Banks and mortgage lenders have collectively become the DeBeers of real estate, releasing reserve inventory only when there is a buyers market. Since they control both the supply and demand (through mortgage lending) of homes, there are no free market forces at work in this recovering economy.

And it will remain so until the secret inventory of homes is depleted. We’ll know when is happens because thats when interest rates will start climbing as the Fed does its part of the scam.

BobMbx on October 16, 2013 at 5:49 PM

The Fed really doesn’t have much to do with setting mortgage rates. Mortgage rates are at best just a faint reflection of the interest rate environment that the Fed has to compete in. All lenders compete using their investors money, and the money they get from reselling the mortgages to other investors, not by using the Fed’s money. The Fed does not buy mortgages. That is the only way they could “set” rates.

There is a lot of Bank owned homes that are sitting, but regardless of the changes, banks do have to get rid of them. Houses that set get stripped, get leaky roofs, etc., you either sell them, or eventually they are worth nothing. Maintenance on bank owned homes used to be less than adequate just a few years ago. Now it’s almost non-existent.

What really needs to happen is condemnation of nuisance abandoned bank owned homes.

Fannie and Freddie did serve a purpose once. But they were wrecked. There will be more efficient mechanisms, secondary markets, bundlers etc. that will take their place – but only if and when we have a real job market again.

The fundamental ingredient to the housing market is jobs with good wages and salaries. When that is in place it won’t matter if there is a “Government” mortgage bundler/guaranteer or a private one.

Without a strong job market, nothing matters.

oldroy on October 16, 2013 at 6:09 PM

The RINO endorsed ‘recovering housing market’ myth IGNORES that 60% of existing homes sales are to 100% CASH BUYERS.

PolAgnostic

Oh. Where did this come from?

oldroy on October 16, 2013 at 6:11 PM

The Fed really doesn’t have much to do with setting mortgage rates.

Oh yes they do. The Fed sets the Prime rate, which is currently around 0.0%. If it ticks up 1%, everything goes up 1%.

Credit card interest rates are directly tied to the prime rate (“Your interest rate will “Prime + 12%”). Auto loans, mortgages, etc. all are based on the prime rate.

BobMbx on October 16, 2013 at 6:18 PM

Fannie Mae, Freddie Mac might not be going anywhere after all

No way are they going away, these are big retirement money stops for Democrats and yes even Newt made a little money there.

RJL on October 16, 2013 at 6:25 PM

Syndicalism/Fascism. how else are they going to control to population?

Murphy9 on October 16, 2013 at 6:34 PM

Oh. Where did this come from?

oldroy on October 16, 2013 at 6:11 PM

.
Here’s the first one that came to hand, there are other sources as well.

http://www.doctorhousingbubble.com/cash-buyers-real-estate-all-cash-buyer-percent-of-market/

FYI, a lot of existing home sales NEVER go anywhere near a realtor. They have been done as direct transactions between the banks and “highly liquid buyers” (i.e. hedge funds, etc.)

PolAgnostic on October 16, 2013 at 6:38 PM

Del Dolemonte on October 16, 2013 at 6:05 PM

.
If I have to document “mark to market” for you … you are very out of touch with with the financial world and are a mass consumer of places that peddle hope and sunshine.

Go talk to accountants, CPA’s, etc – the absence of “mark to market” is a prime reason so many companies are “hoarding cash”, it makes the perfect buffer to offset companies having to return their financial statements to reality.

I’ve provided the first link that came to hand in my resposns to old roy on the 60% number. As I noted to him. the BULK of properties are never entered into the “real estate market”.

So … you have not seen any evidence of hedge funds, etc buying homes in buld for conversion to rental property in your neck of the woods?

PolAgnostic on October 16, 2013 at 6:54 PM

Can’t dismantle Fannie and Freddie?
Why, did the government run out of C4?

Another Drew on October 16, 2013 at 6:58 PM

The REB will shut down Fannie and Freddie the way he is shutting down Guantanamo.

slickwillie2001 on October 16, 2013 at 6:59 PM

Oh yes they do. The Fed sets the Prime rate, which is currently around 0.0%. If it ticks up 1%, everything goes up 1%.

Credit card interest rates are directly tied to the prime rate (“Your interest rate will “Prime + 12%”). Auto loans, mortgages, etc. all are based on the prime rate.

BobMbx on October 16, 2013 at 6:18 PM

Uh. No. They don’t. Credit cards and mortgages are two different things. There are some adjustables that are “prime +x”. Biggest fallacy in lending. The Fed does not purchase new mortgages. That is the only way they could affect rates. The total interest rate market that the Fed participates in can affect mortgage rates, but it is not a direct “setting” of rates in any way.

Lenders compete based on what their investors will buy. And their investors will buy mortgages that offer competitive returns. Some mortgages are purchased as large blocks, some are not even sold and are held by lenders when they think they can play a downward trending interest rate market and sell for a better return.

The Fed does purchase blocks of older MBS’s to help keep some lenders out of trouble. They have done a lot of that in the past few years. But not so much in previous years.

Here’s the first one that came to hand, there are other sources as well.

http://www.doctorhousingbubble.com/cash-buyers-real-estate-all-cash-buyer-percent-of-market/

FYI, a lot of existing home sales NEVER go anywhere near a realtor. They have been done as direct transactions between the banks and “highly liquid buyers” (i.e. hedge funds, etc.)

PolAgnostic on October 16, 2013 at 6:38 PM

I don’t buy that premise. No investor buys a house to let it sit. Banks don’t foreclose on the hopes that a property will sit. “Institutional” investors are terrible at renting to make a profit, let alone maintaining a home for eventual profitable resale.

How Goldamn Sachs records and calculates all of these “private” sales would be beyond me – and I’ve been around both sides of this business for some time.

If there is that much of a liquid market for investors buying homes directly from banks, don’t you think the banks would just sell they homes directly to a regular Joe that would use the house as a home AND WOULD PAY A HIGHER PRICE FOR THE HOME IN THE FIRST PLACE? And if there is such a liquid market for bank owned homes, why are most banks desperate to find some schmuck agent to “market” their homes for them. In my market, there are probably 30 agents that represent banks and each have from a few to a dozen bank owned listings.

It doesn’t add up.

oldroy on October 16, 2013 at 7:12 PM

If you shut it down there will be no job for Obama Administration hacks to go to in 2016.

In Fact, Rahm Emmanuelle was there already. Democrats got on the board there and collected millions. Jamie Gorelick, Franklin Raines…do you remember the Clinton crowd that needed something good like $100 on cattle futures, but that was used already.

Fleuries on October 16, 2013 at 7:20 PM

Here’s the first one that came to hand, there are other sources as well.

http://www.doctorhousingbubble.com/cash-buyers-real-estate-all-cash-buyer-percent-of-market/

FYI, a lot of existing home sales NEVER go anywhere near a realtor. They have been done as direct transactions between the banks and “highly liquid buyers” (i.e. hedge funds, etc.)

PolAgnostic on October 16, 2013 at 6:38 PM

I read a few of your guy’s articles. I can’t find a single link citing where his statistics came from. It seems that he is citing stats from Las Vegas, not from the US as a whole. In addition, the Goldman Sachs charts are “estimates” never with any hard source of where the data came from and which market(s) it applies to.

I agree it is probably true that some homes are being held back from the market. When you have an asset and you think that it is gaining in value and may gain still more in a better real estate market than we have seen for 5 years, you hold on to some until you feel it is the right time to sell.

oldroy on October 16, 2013 at 7:35 PM

I agree it is probably true that some homes are being held back from the market. When you have an asset and you think that it is gaining in value and may gain still more in a better real estate market than we have seen for 5 years, you hold on to some until you feel it is the right time to sell.

oldroy on October 16, 2013 at 7:35 PM


Wow! Goldman Sachs is too tenuous a source?

Go Google pieces by Diana Olick (who gets to write the truth every so often even though she is on CNBC), Gretchen Morgenson, and “zombie” & “vampire foreclosures” for a start.

Here’s a freebie from an INDUSTRY source:

http://www.nationalmortgagenews.com/dailybriefing/vampire-reos-zombie-foreclosures-threatening-housing-recovery-1039201-1.html

The mortgage rate is based of the 10 Year Treasury – I WON’T Provide a link to that though Google should give you about a million hits to prove it.

PolAgnostic on October 16, 2013 at 7:53 PM

The mortgage rate is based of the 10 Year Treasury – I WON’T Provide a link to that though Google should give you about a million hits to prove it.

PolAgnostic on October 16, 2013 at 7:53 PM

Nope. 30 year fixed rates have nothing to do with treasuries. Your source says that these are estimates from Goldman. So yeah, if they don’t show their work, or link to their sources, I don’t buy it as Gospel truth for the whole country. Real estate markets are localized. What happens in Vegas doesn’t happen elsewhere.

oldroy on October 17, 2013 at 6:23 PM

oldroy on October 17, 2013 at 6:23 PM

.
SAND
*********
Your Head

Whatever floats your boat, fella. Obviously research is impossible when you are not willing to do it.

If you think the rest of the world ignores Goldman Sachs, you make the average Obama Low Information Voter look like Einstein.

PolAgnostic on October 17, 2013 at 6:53 PM