Obama admin officials oddly not downsizing Fannie Mae/Freddie Mac like they proposed to do

posted at 1:21 pm on May 15, 2014 by Erika Johnsen

As recently of his State of the Union address this past January, President Obama was reaffirming the support he announced last August for bipartisan plans making their way through both chambers of Congress to drastically reduce and/or eliminate the two lending giants’ outsized footprint in the housing market, pressuring lawmakers to “send me legislation that protects taxpayers from footing the bill for a housing crisis ever again, and keeps the dream of homeownership alive” by shifting the market more toward private lending. Opposition to the plan’s practical implications from some highly interested parties in the housing sector, as well as the upcoming midterm elections, have put Congress’s legislative role in the Fannie/Freddie drawdown in fuzzy and protracted territory — so in what will doubtless be the long interim before we see any major Congressional action on that front, the Obama administration is now planning to use their regulatory authority to… ramp up their role in the mortgage market and basically promote more risky lending? What? Via the NYT:

The federal overseer of Fannie Mae and Freddie Mac on Tuesday announced a shift in policies intended to maintain the mortgage finance giants’ role in parts of the housing market, spur more home lending and aid distressed homeowners.

“Our overriding objective is to ensure that there is broad liquidity in the housing finance market and to do so in a way that is safe and sound,” Melvin L. Watt, the new head of the Federal Housing Finance Agency, said in a speech at the Brookings Institution in Washington. …

Mr. Watt’s changes would perpetuate the presence of the two government-sponsored enterprises in mortgage finance, rather than shrinking it. …

Mr. Watt laid out several specific measures. For example, rather than reducing current limits on the size of the loans they guarantee, as previously proposed by the former overseer, Fannie and Freddie would keep the current, relatively loose, limits in place. The two enterprises back about two-thirds of all new mortgages.

The White House, via Jay Carney, applauded “the Federal Housing Finance Agency for issuing certainty and clarity on the rules of the road for loans backed by Fannie Mae and Freddie Mac” on Tuesday, and as Bloomberg notes:

Watt’s policy decisions will play an increasingly pivotal role in the nation’s housing finance system as bipartisan efforts to wind down Fannie Mae and Freddie Mac appear to be stalling in the Senate.

The Senate Banking Committee is expected to vote Thursday on a measure that would replace the two companies with a reinsurer of mortgage bonds that would suffer losses only after private capital was wiped out. The bill doesn’t have enough Democratic support to advance beyond the committee and legislative efforts to remake Fannie Mae and Freddie Mac are unlikely to continue before next year.

Well. So much for that, and in the meantime, it looks like the Obama administration just couldn’t resist the urge to keep getting the federal government increasingly involved in the economy.

For what it’s worth, here’s what the former top regulator of the Federal Housing Finance Agency preceding Watt had to say on Fannie/Freddie at another event this week, via the WSJ:

A few hours later, his predecessor, Edward DeMarco, offered some parting reflections on housing policy at a banking conference in Charlotte, N.C. …

In his talk, Mr. DeMarco made an impassioned plea to abandon the housing-finance system dominated by Fannie Mae and Freddie Mac, the companies he oversaw as the FHFA’s acting director for the past five years. “Rather than striving to preserve a system that failed so spectacularly and in so many ways, we need to find our courage and our creativity to build a new system,” he said in prepared remarks. …

“Restoring Fannie Mae and Freddie Mac is not the solution. They failed and their business model failed,” he said. “Going backwards to an obviously failed model cannot be dressed up with some promise of higher capital or explicit rather than implicit guarantees.”

Mr. DeMarco pushed back against the idea, made repeatedly by critics of the House and Senate bills, that “something new is ‘risky’ or that we cannot do better than what we had,” he said. “Often you will find someone protecting an existing interest…in preserving the status quo.”

Finally, he warned against calls for the government to help unqualified borrowers buy homes. “A government effort to assist families with limited resources and poor credit history take on increased leverage seems a curious public policy,” he said.

 


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I have a selfish motivation on this one.

I own the stock – and I see a lot of upside.

Like I said – selfish motivation.

jake-the-goose on May 15, 2014 at 1:32 PM

“A government effort to assist families with limited resources and poor credit history take on increased leverage seems a curious public policy,” he said

…not when you are jockeying for another stimulus package!

KOOLAID2 on May 15, 2014 at 1:39 PM

I’m a mortgage broker. Until you tell me what will replace it and how a new entity will operate any differently, there is no need to replace Fannie or Freddie.

Last time I checked, the bond rating people that mislabeled the MBS leading up to the mortgage meltdown are still walking around free. How about putting a few of them in handcuffs and charging them with a crime??

Rich on May 15, 2014 at 1:39 PM

Obama admin officials oddly not downsizing Fannie Mae/Freddie Mac like they proposed to do

I would find it odd if the proposal was actually carried out.

hawkeye54 on May 15, 2014 at 1:45 PM

Yet another LIE!

rjoco1 on May 15, 2014 at 1:48 PM

I’m a mortgage broker. Until you tell me what will replace it and how a new entity will operate any differently, there is no need to replace Fannie or Freddie.

Rich on May 15, 2014 at 1:39 PM

I don’t want the US (my tax money) backing up loans. Or then using loan programs as social engineering. Let the private market make the home loans. I do realize we are not even close to a private market banking system. But that should be the long term goal.

I do agree with you on the bond trading people or the employees at Country wide that were committing fraud. It seems a lot of people got off the hook.

The government even regulates your compensation as a mortgage broker. Doesn’t that seems like a over reach to you.

Oil Can on May 15, 2014 at 1:49 PM

Oil Can on May 15, 2014 at 1:49 PM

You make good points – but there is no way to take this market back into the private sector.

jake-the-goose on May 15, 2014 at 1:51 PM

One dollar of capital.

Murphy9 on May 15, 2014 at 1:55 PM

Focus USA, focus.

Schadenfreude on May 15, 2014 at 1:56 PM

Yet another LIE!

rjoco1 on May 15, 2014 at 1:48 PM

It’s gotten to the point that if the truth were ever told, it still wouldn’t be believed.

hawkeye54 on May 15, 2014 at 2:00 PM

Corruption rears its mighty head in the White House and Legislature again.

Next mortgage crash and subsequent bailout on the horizon in 5 years or so.

Nothing learned from the last crash/bailout. Political greed wins again.

American people look the other way, noticing that cute squirrel over there.

s1im on May 15, 2014 at 2:00 PM

The Democrats were responsible for the last collapse; guess “the smartest man in the world” is so damned dumb, he wants to do it again.

GarandFan on May 15, 2014 at 2:01 PM

OT:

MLB announces Bud Selig to retire; forms 7 member committee to select next Commissioner.

I nominate Pete Rose.

BobMbx on May 15, 2014 at 2:04 PM

It’s gotten to the point that if the truth were ever told, it still wouldn’t be believed.

hawkeye54 on May 15, 2014 at 2:00 PM

Never seen a time like this in my adult life.

The world is more mean, and angry than I have ever seen it – on all sides.

jake-the-goose on May 15, 2014 at 2:05 PM

You make good points – but there is no way to take this market back into the private sector.

jake-the-goose on May 15, 2014 at 1:51 PM

That’s the outcome for practically every situation where state-managed capitalism removes opportunities from the private sector.

We’ll be seeing the same with healthcare in the next decade.

That’s the danger of allowing these types of policies to gain traction and be perpetuated.

lineholder on May 15, 2014 at 2:17 PM

The government even regulates your compensation as a mortgage broker. Doesn’t that seems like a over reach to you

Eff yah!! Not only that but every friggin little rule or reg put in by the CFPB for Consumer protection has basically made getting a mortgage that more expensive. They have removed the best ways I can help a consumer get the lowest closing costs and rates.

That what happens when people who dont know the industry ignore the people within the industry.

Rich on May 15, 2014 at 2:18 PM

That’s the danger of allowing these types of policies to gain traction and be perpetuated.

lineholder on May 15, 2014 at 2:17 PM

Yep

jake-the-goose on May 15, 2014 at 2:18 PM

The world is more mean, and angry than I have ever seen it – on all sides.

jake-the-goose on May 15, 2014 at 2:05 PM

The frustration is apparent and the pressure is building for an explosion of epic proportions. Which we may see all too soon.

Lock, load and keep your powder dry.

hawkeye54 on May 15, 2014 at 2:30 PM

The frequency and severity of financial systems failures are increasing.
1987-1999 12 years
1999-2008 9 years
2008-2014 6 years

What has been will be again,
what has been done will be done again;
there is nothing new under the sun.

Ecclesiastes 1:9

MichaelGabriel on May 15, 2014 at 2:40 PM

The frustration is apparent and the pressure is building for an explosion of epic proportions. Which we may see all too soon.

hawkeye54 on May 15, 2014 at 2:30 PM

I agree – I have no idea what issue will set us off – but I think you are correct – it’s is going to happen.

jake-the-goose on May 15, 2014 at 2:41 PM

Communists in action

Rush said today that 0bama had a big secret fundraiser in NYC last night… where he encouraged his billionaire Urban Elitist friends to establish residences out in flyover country, so they can increase Democrat voting in those benighted, backwards places, overcome the repubican voting power of the hicks and rednecks.

Schadenfreude on May 15, 2014 at 2:41 PM

Here we go again. The definition of insanity wins again, with the ‘losses’ paid for by whatever taxpayers are left, along with the fools who loan this reprobate gummint one red cent.

vnvet on May 15, 2014 at 2:57 PM

Now you know why the White House went on a jihad against Ed DeMarco and forced him out at FHFA. And installed liberal stooge Mel Watt as his replacement.

There is a very unholy alliance of progressive housing advocates, Realtors, homebuilders, and Wall Street hedge funds that want Fannie and Freddie to go right back where they were. And the unfortunate truth is that if they did go away they would be replaced by….the big banks. If you think those banks are “too big to fail” now, wait until they all have a trillion dollars of home mortgages on their books.

A lobbyist from one of the mega-banks told me 10 years ago that their ultimate goal was to blow up Fannie and Freddie so they could get all their business. I really don’t think that goal has changed. This is one of the big banks that remained healthy through the 2008 crisis and is in extremely good position to become the purchaser and securitizer of a huge percentage of mortgages if the GSEs go away.

We really screwed all this up in the 1980s when we let the old savings and loan system go. But that toothpaste can’t be put back into the tube now. All we can do is decide how we want the risk assigned to the taxpayers – directly through a restored Fannie/Freddie system, or indirectly through 6 big banks.

rockmom on May 15, 2014 at 3:01 PM

Watt’s policy decisions will play an increasingly pivotal role in the nation’s housing finance system as bipartisan efforts to wind down Fannie Mae and Freddie Mac appear to be stalling in the Senate.

The Senate Banking Committee is expected to vote Thursday on a measure that would replace the two companies with a reinsurer of mortgage bonds that would suffer losses only after private capital was wiped out. The bill doesn’t have enough Democratic support to advance beyond the committee and legislative efforts to remake Fannie Mae and Freddie Mac are unlikely to continue before next year.

As Rahm Emanuel said, don’t let a crisis go to waste. Model future policy on past policies that created a crisis, create a new crisis, then sell yourself as the solution to the new crisis. It’s the Democrat way. (This method has already been used successfully by French Socialists).

Steve Z on May 15, 2014 at 3:46 PM

Obama admin officials oddly not downsizing Fannie Mae/Freddie Mac like they proposed to do

Shocked.

Surprised.

Speechless.

/Sarcasm.

Dr. ZhivBlago on May 15, 2014 at 4:04 PM

MLB announces Bud Selig to retire; forms 7 member committee to select next Commissioner.

I nominate Pete Rose.

BobMbx on May 15, 2014 at 2:04 PM

I like the way you think.

crankyoldlady on May 15, 2014 at 4:47 PM

The top 25 banks in the U.S. now hold $304 TRILLION in notional derivatives value. The top 5 banks are as follows:

JP Morgan: $70.4 TRILLION
Citigroup: $63.5 TRILLION
Bank of America: $55.7 TRILLION
Goldman Sachs: $53.5 TRILLION
Morgan Stanley: $46.7 TRILLION
TOTAL Derivatives Exposure for Top 5 Banks in the U.S.: $290 TRILLION

The RED line is the GDP line (quarter-to-quarter change).

The BLUE line is the DEBT line of all sectors, both public and private (again, quarter-to-quarter change).
The GREEN line is the GDP line MINUS the DEBT line.

Why did KD add that GREEN line, which nets the RED and BLUE lines together? Because, if it takes more than $1 of new debt to create $1 in GDP growth, then your economy is NOT GROWING, it is CONTRACTING. Thus, when the GREEN line is below zero (in the shaded zone of the plot field), your economy is actually in a CONTRACTION, BEING PROPPED UP AND GIVEN THE FAUX-APPEARANCE OF GROWTH BY THE BLOWING OF A MASSIVE DEBT BUBBLE.

http://www.barnhardt.biz/wp-content/uploads/2014/05/DebtGDPchange.png

Murphy9 on May 15, 2014 at 4:54 PM

Why are you claiming that the private sector can’t perform the necessary functions?

blink on May 15, 2014 at 4:06 PM

Only because it doesn’t want to.

jake-the-goose on May 15, 2014 at 5:06 PM

Everybody can see that this is going to end badly. But we still have to wait while the play unfolds.

David Blue on May 15, 2014 at 5:24 PM