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Fannie Mae, Freddie Mac to Send Billions More to Treasury
Reuters
Nov 6th 2014 9:20AM
Sherrod Brown Says Freddie Mac Revamp Won't Pass This Year Andrew Harrer/Bloomberg via Getty Images
By Lindsay Dunsmuir
Government-controlled mortgage finance firms Fannie Mae and Freddie Mac said Thursday they will pay U.S. taxpayers $6.8 billion after reporting a third-quarter profits that modestly rose from the second quarter.
Once they have made the latest payments in December, the two companies will have returned $225.5 billion to taxpayers in exchange for about $188 billion in taxpayer aid they received after being placed under the government's wing at the height of the financial crisis.
Fannie Mae, the bigger of the two and the nation's largest source of mortgage funds, earned a net income of $3.9 billion in the third quarter, up from $3.7 billion in the second quarter.
The increase was driven by higher net interest income, an increasing portion of which is derived from guaranty fees, and about $1.2 billion in settlement payments from Goldman Sachs (GS) and HSBC (HSBC) related to Fannie's investments in private-label mortgage securities sold by the two banks before the credit crisis.
Slowing home-price appreciation was a drag on Fannie's profit growth. Based on its own home price index, Fannie estimated that U.S. home prices increased just 1.2 percent in the third quarter and are up just 5.3 percent in the year to date, after gaining 8.2 percent in 2013.
On a year-over-year basis, Fannie's net income was down from $8.7 billion a year earlier.
Freddie Mac, meanwhile, generated net income of $2.1 billion versus $1.4 billion in the second quarter. Like Fannie, Freddie also posted higher net interest income and benefited from $1.2 billion in legal settlements in the same litigation, which had been brought by the U.S. Federal Housing Finance Agency, which regulates both companies.
Freddie's profit fell dramatically from a year earlier, when one-time tax benefits drove its net income to nearly $30.5 billion.
Neither Fannie Mae or Freddie Mac lends money directly to home buyers. Rather, the two companies buy mortgages from lenders and repackage them into securities they sell to investors with a guarantee.
Their businesses collapsed during the financial crisis and the two were seized by the U.S. government in 2008. Under their bailout terms, the two firms must turn their profits over to the Treasury as dividends on the government's controlling stake.
Fannie Mae's dividend to the U.S. Treasury was larger than the $3.7 billion it paid in the prior quarter, while Freddie's was up from $1.9 billion.
Sluggish Housing Market Impact
Those dividends swelled in early 2014 and late 2013 due to one-off events like legal settlements.
However, in a sign that the sluggish housing market is affecting its bottom line, Fannie Mae reported credit-related income of $836 million, the lowest since having negative credit-related income in the third quarter of 2012.
This was "due primarily to a slower rate of home price appreciation compared with the second quarter of 2014," Fannie Mae said in a statement.
Private shareholders in Fannie Mae and Freddie Mac have sued the government over the dividend policy, claiming Washington is expropriating the value of their preferred shares. A federal court dismissed a suit by one of the largest shareholders in September, but other legal challenges could drag on for years.
Fannie Mae and Freddie Mac have been a minor cash cow for the Treasury in recent years, paying back all their bailout funds and more. But their obligation to turn over all their profits to the Treasury has helped keep them undercapitalized, analysts say, and a severe downturn in the housing market could eventually lead them to require further bailouts.
The Obama administration has argued for replacing the firms with a new entity, but lawmakers might not address housing reform even after Tuesday's congressional elections, in which Republicans seized control of the Senate.
Republicans want to see less government support of mortgages, while some Democrats argue low-income borrowers should get more support.
http://www.dailyfinance.com/2014/11/06/fannie-mae-freddie-mac-repay-billions-dollars-treasury/
We all hope it will go up. We are relying on the opinion of the court. This is a distressed stock with unique circumstances. It will react to news from the government or news from the court. Earnings means nothing until then.
Everyone was hopeful of news since a freddy announced earlier that there would be a pr for earnings this week. Something that has not happened in recent history. Therefor expectations were high. Now the let down.
FnF need to recapitalize to some degree.
I would just be happy if the net profit sweep suspension or cancelation or 4th amendment or some ending is announced. Until then a good quarter will make the Treasury very happy.
Gold, Economic Theory and Reality: A Conversation with Alan Greenspan
By The Gold Report, on November 5th, 2014, 3:00 am in Expert Interviews
Gary Alexander: You said that when you were named to the position of Federal Reserve chair you left the world of theoretical economics philosophy and entered the arena of action. You moved beyond the role of pamphleteer on the sideline to being part of the action. In what way did your objectivist teaching from your time with Ayn Rand and your belief in the gold standard influence the people around you? How did you convince people to see things your way or did you feel that most of the compromise went the other way?
Alan Greenspan: When I wrote a paper on how agricultural subsidies made no sense to the farmers in the long run, two Republican senators from Nebraska taught me the reality of actually implementing the values we hold as best we can in the context of a political environment. I never changed my fundamental views because they were rational. President Ronald Reagan advised that other than your core beliefs, which are protected by the Constitution, sometimes you have to compromise. We learned to change the world bit by bit.
GA: When you took office in August of 1987, the gold price was $460 an ounce ($460/oz) on your first day. It peaked at $504/oz in December of 1987. Over the next 12 years, it was cut in half to $252/oz by August of 1999. Many believe that during that time, the Fed must have been selling gold or manipulating the market in some way to push the price of gold down. Was anything like that happening?
AG: No. Some central banks were major sellers of gold in that particular period. We were very concerned about that. If all the central banks sold gold at the same time, it really would have brought the price down. So they set up a partitioning scheme—some called it a cartel—where individual central banks were given quotas of what they could sell at certain times. The United States abstained from that group.
In my new book, I cover the role of gold and why the U.S doesn’t sell all of its gold. If it’s a barbarous relic, as some say, and it earns nothing and it costs money to store it, why are central banks holding so much of it?
GA: That’s a question I was going to ask you. Ron Paul asked Ben Bernanke in Congressional testimony that simple three-word question “Is gold money?,” which got a one-word answer, No. What do think?
AG: It’s currency, of course. Gold, and to a lesser extent silver, are the only major currencies that don’t require a third party credit guarantee. Gold is inbred in human nature. Gold is special. For more than two millennia, gold has had virtually unquestioned acceptance as payment to discharge an obligation. Remember, Germany could not import any goods in the last part of World War II unless it paid in gold.
Today, China is beginning to convert part of its $4 trillion ($4T) foreign exchange reserve into gold as a partial diversification out of the dollar. Irrespective of whether the yuan is convertible into gold, the status of the Chinese currency could take on unexpected strength in today’s fiat money, floating international financial system. It would be a gamble for China to try to buy enough gold bullion to displace the United States’ $328 billion of gold reserves as the world’s largest holder of monetary gold. But the cost of being wrong, in terms of lost interest and cost of storage, would be quite modest.
If China embarks on a gold accumulation program, global gold prices will rise, but only during the period of accumulation.
GA: One of your statements in your book is that even though the gold standard was not practical, you still believe in the theory of the gold standard.
AG: A return to the gold standard in any form is nowhere on anybody’s horizon.
GA: The Fed has now been around for a hundred years. Would the Fed be considered a successful manager of the value of the dollar over the last century?
AG: Remember, what the Fed does is what Congress requires of it. When the Fed started out, U.S. currency was still on the gold standard. It was set up largely in response to the panic of 1907 as the lender of last resort. The gold standard was abandoned in 1933 because it appeared to be depressing the general price level and inhibiting recovery out of the Great Depression. More important, the restrictive nature of gold undermined the fiscal flexibility required by the New Deal’s welfare state. Some blamed gold for the depression, but the problem wasn’t convertibility to gold, it was a problem with the people pricing it.
What followed was fiat money price inflation. Between 1933 and 2008, prices for personal consumption increased more than thirteenfold. Central banks were then ceded the role of controlling the supply of money, and hence prices. The goal became keeping the rate of inflation down rather than the level of prices unchanged.
As the world adopted a welfare state psychology, challenges began to emerge. Values, culture, ideas and philosophy determine what economic policies look like. Unless and until you change that, nothing will happen. It is ideas that matter in economics.
GA: Interest rates remained very low from 2001 to mid-2004. The Fed fund rate was around 1% from 2004 to 2006. Do you regret, in retrospect, keeping rates so low? Might that have contributed in any way to the housing and real estate bubble?
AG: It became apparent after the dot-com boom that the central banks had lost control of the wrong end of the money. In other words, the Federal Reserve and all the central banks fixed the short end like the federal funds rate, but not the real rate on 10-year notes. We began to see a huge amount of international arbitrage in the bond markets. The result was the federal funds rate went down for a year to 1% because we hadn’t seen price inflation. Money supply growth, long-term rates, all of the measures of inflation were unchanged. No one raised the issue at the time. Indeed, Economist Milton Friedman praised Federal Reserve policies. It wasn’t until 2006 or 2007 that there was a retrospective look at what occurred.
GA: We all saw the headlines about people flipping homes and borrowing and refinancing homes and turning them into ATM machines. Wasn’t that an indication that something was out of control?
AG: That had nothing to do with Federal Reserve policy. That was Fannie Mae and Freddie Mac keeping their debentures at an extraordinarily low level subsidized by the Federal government guarantee that they wouldn’t be allowed to fail. Then the Department of Housing and Urban Development required that the two lenders invest a significant amount of their balance sheet into affordable housing loans. That led to huge numbers of subprime mortgages with low down payments and adjustable interest rates. Eventually, it blew the system apart.
Q: I’d like to turn now to the years after you left the Fed, which you wrote about in “The Age of Turbulence.” We’ve now had almost six years of effective zero interest rate policy and not much measurable inflation. You wrote: “Thus without a change of policy, a higher rate of inflation can be anticipated in the United States. I know that the Federal Reserve left alone has the capacity and perseverance to effectively contain the inflation pressures I foresee. Yet to keep the inflation rate down to a gold standard level of under 1% would have to constrain monetary expansion so drastically that it could temporarily drive up interest rates in the double-digit range.” However, they have done the opposite. The balance sheet has exploded, and yet rates have stayed so low. Inflation is not that measurable, and people are fearing deflation. Could you please explain the map of this territory?
AG: Money supply hasn’t grown. The reason is very little of those excess reserves has been re-lent into the market to IBM or General Motors. That is because there is too much uncertainty, banks are better off holding it for 25 basis points. So we are left with this huge potential inflationary explosion tinder. Once those assets are triggered into the marketplace, then inflation will rise. It has to rise.
GA: My theory is the federal government doesn’t want to raise rates because it has a $17T budget deficit to pay with interest, and that’s going to hurt.
AG: When I was at the Fed, there was never a discussion between the Fed and the Department of the Treasury about the impact of rates on paying the deficit. With the size of the outstanding debt that we now have, the deficit could become fairly crippling if rates go up.
GA: I want to ask you about banks. You say three times in your book that banks have failed terribly in regulating themselves and it’s usually the whistleblowers who draw attention to it. Today, we have the concept of too big to fail. Do you think we should allow big banks to fail?
AG: The premise of a financial system is to facilitate the movement of society’s savings into productive capital assets, which will create a rising standard of living. To the extent that you don’t allow creative destruction of companies, you do not optimize the use of the savings of a society. The issue that people don’t want to address is the fact that creative destruction is an essential characteristic of a market economy, but it does have two aspects to it: creative and destructive. People like the creative, but they don’t want the destructive. You cannot have it both ways. You either have a high standard of living by allowing the savings of society to increase productive assets or you finance everybody—creative or not—and by doing that, you’re creating real serious problems.
Porter Stansberry: The thing that I think has changed in our economy during my lifetime is that debt has gotten so cheap. Debt used to be the last resort for people, now it seems to be the first choice. It makes our institutions fragile in a way that they were not before. The investment banks that blew up in 2008–2009, requiring huge bailouts from taxpayers, were fragile because they were leveraged 50:1. People who ran those institutions thought that was normal and sane. And it wasn’t. We’ve all seen the culture of our country change. In my view, that’s because we’ve gone from the role of the creditor to the role of the debtor. There are many institutions that enabled that process. The Fed is one of them.
AG: The standard of living in the economy is fundamentally tied to the issue of productivity and the degree of independent innovation. We have a very substantial degree of entitlements within this economy, an aggregate of Medicare, Medicaid, Social Security and a whole variety of other programs, all of which are mandated, not appropriated, by Congress under both parties. This leads to a reduction in the level of gross domestic savings, which immediately translates into lower capital of stock and lower standards of living. There is no way out of this arithmetic through bookkeeping. We are eating our seed corn.
Marc Faber: There are many reasons the Western economies are slowing down. One is government spending. Between 1870 and 1910, nowhere in Europe or in the U.S. was it above 15% of the economy. Now, U.S. government spending, including states and municipalities, is at around 40% of gross domestic product (GDP). In France, government spending is 57% of GDP. The larger the government becomes, the less economic growth there will be. So Dr. Greenspan and I agree on the problem, but who financed all these entitlements? I believe the central banks with their artificially low interest rates are deliberately creating bubbles even though in a bubble, the majority loses, and the minority makes a lot of money.
AG: The presumption is that if the Federal Reserve were not funding the deficits, they wouldn’t happen. You have it backwards. Politicians mandate the degree of expenditures and taxes. What would happen if there is no central bank is that interest rates would push up and crowd out the private sector. That is what actually occurs unless the central banks intervene. Central banks are not the primary cause of this problem, they are responding to government spending. If the government spending weren’t there, the issue wouldn’t arise.
GA: With the current Federal Reserve probably winding up quantitative easing (QE) soon, what do you see as the outcome of the current Fed policies under Janet Yellen over the next year?
PS: I really think that the current Fed is in a terribly difficult situation. The federal government is way over its head in debt. It’s $150,000 per taxpayer in debt. There is just no way politically to cut these expenditures nor is there a way to generate enough in income taxes or corporate taxes to cover the shortfall. I’ve looked at the data. It shows that even if you doubled the amount taken in income taxes, we’d still be running a deficit. So the Fed is in a really tough place. It is in charge of financing the government’s runaway spending and uncontrollable debt.
Regardless of what the hawks may say, I just don’t believe that the Fed is ever going to become very aggressive with the purse strings. I think that we’re locked into a pattern of larger and larger QEs, lower and lower rates, until finally something breaks, whether that’s the commodity markets or the bond markets. I actually sort of feel sorry for the folks who are at the Fed currently because they’re stuck between a rock and a hard place.
MF: My sense is that the Fed and other central banks around the world will keep interest rates at very low levels for a very long time. The whole investment world has been distorted by essentially zero interest rates and expansionary monetary policies.
AG: If the Federal Reserve wants to keep the same degree of tightening, it has to actually raise the rate it’s paying on the money. There’s no other alternative. The issue of the size of the balance sheets is beyond comprehension. We are going to have to wait and see what happens when the huge amount of unused reserves starts moving. We have never seen anything like this before. If anyone has the guts to go out and forecast five years out from now, good luck.
PS: Dr. Greenspan, you famously said while you were at the Fed that spotting bubbles is notoriously difficult until in retrospect. There are a couple of things going on today that strike me as bubble-like behavior: NASDAQ trading at almost seven times earnings, high-yield corporate debt offering less than 5%, beachfront condos in Miami selling for $30 million. Do any of those things strike you as being in bubble territory?
AG: Commercial real estate, which was dead in the water with respect to price and volume, has now had a significant change in pricing. Prime areas have seen a surge in funding, but the volume of activity is not back to where it was. Multifamily is doing better because a lot of people have shifted from home ownership to rental status. You will know you are in very serious trouble when there is price inflation but no buyers; that’s suggestive of something not well going on. Yes, I think there are many signs.
The stock prices have been very surprising. This is not sustainable, but we are not seeing any signs of inflation or real interest rates rising. . .yet.
Bubbles are easy to see, but difficult—if not impossible—to pinpoint when they implode because of the way markets work. If people see it coming, it won’t happen. No one can forecast when those bubbles will break.
GA: Marc Faber, what is the significance of the Swiss referendum coming up next month to have 20% gold backing, repatriated gold and forbid gold selling?
MF: I think it will be rejected. If the proposal was for 100% backing, I would more enthusiastically endorse it. Twenty percent, in my opinion, is neither here nor there. I believe that smart investors need to have their own gold reserves. I would never trust anyone to hold these gold reserves on my behalf because they can lease it out or they can sell it.
This interview was condensed and edited from a transcript of the conversation at the New Orleans Investment Conference and Dr. Greenspan’s book, “The Map and the Territory 2.0.” You can order audio CDs and video DVDs of the conference here.
http://jutiagroup.com/20141105-gold-economic-theory-and-reality-a-conversation-with-alan-greenspan/
Politics would constrain Shelby as head of U.S. Senate banking panel WASHINGTON | Wed Nov 5, 2014
By Emily Stephenson
WASHINGTON, Nov 5 (Reuters) - Richard Shelby appears poised to retake his old job as head of the U.S. Senate Banking Committee after big Republican electoral wins, likely bringing tougher scrutiny of the Federal Reserve, big banks and housing finance giants Fannie Mae and Freddie Mac.
But his ability to drastically revamp financial regulation or eliminate the two government-controlled mortgage companies would be limited with Washington still closely divided even after the elections handed control of the Senate to the Republicans.
Shelby, an Alabama Republican who objected to great swaths of the Dodd-Frank Wall Street reforms approved in 2010, will have to walk a fine line between the House of Representatives, where Republican leaders want to repeal large parts of the law, and President Barack Obama, who would veto any attempt to gut it.
With party rules that would restrict Shelby to just two more years at the helm of the panel, analysts and former aides say they expect him to focus on areas where he could attract some Democratic support. That could mean tougher oversight of the Fed's regulatory powers and more of an effort to pressure big banks to boost capital.
"It comes down to what's achievable," said Lendell Porterfield, a former Shelby aide who is now with the lobbying firm Porterfield, Lowenthal, Fettig & Sears.
A spokeswoman for Shelby declined to elaborate on his plans.
MANAGING EXPECTATIONS
Even before the elections, lobbyists had told clients not to expect a major overhaul of Wall Street regulation. Lawmakers might try to reduce the burden on smaller, regional banks, but gridlock likely would prevent more substantial changes.
Shelby and Senate Democrats are united in their criticism of the biggest banks and their regulators, which are seen as too cozy with the firms, and Shelby has at times called global capital agreements too weak.
But his approach differs from Democrats' in other ways.
Shelby has critiqued the Fed's easy-money policies, and he lent some support to attempts to audit the central bank's monetary policy decisions, a step that top Fed officials have warned would undermine the central bank's independence.
"The Fed is going to have to get used to a frostier reception," said Mark Calabria, a former Shelby staffer now at the Cato Institute, a libertarian think tank.
Housing finance reform, which failed this year when Republicans and Democrats could not agree on the government's role in a new system, would be a tough sell as well in the new Congress, political analysts said.
Liberals said a bipartisan Senate proposal that would have boosted the private sector's role in funding new mortgages would hurt borrowers. Shelby said it maintained too much of a government role in the sector.
"That is such a difficult area to get change in because there are so many people who want to have the government subsidizing that market," said Hester Peirce, a former Shelby aide who works at the Mercatus Center, a right-leaning think tank at George Mason University in Virginia.
In contrast, some lobbyists believe Shelby might be able to win changes to the new Consumer Financial Protection Bureau, which was created after the Dodd-Frank law to oversee mortgages, credit cards and other financial products.
Republicans argue the bureau is unaccountable to Congress, while Democrats say its independence is necessary to protect consumers. Lobbyists said small changes, such as guidelines for how the bureau can use monetary penalties obtained through enforcement actions, might be possible. (Reporting by Emily Stephenson; Additional reporting by Jason Lange and Michael Flaherty; Editing by Tim Ahmann and Leslie Adler)
http://mobile.reuters.com/article/idUSL1N0SV2JV20141105?irpc=932
He has a weekly chat with Uncle Melvin.
That too. I replied before I read your reply. We are on the same page
Maybe selling of preferreds to free up money to by commons. Commons have the most potential to fly.
Yes, I post both positive and negative articles. Articles may have facts or b.s. opinions or both. I like posting the articles written by the uninformed and the biased. It is like throwing an injured animal to the ihub hungry wolves. You all will just rip it apart and devour it. It really is fullfilling when I do my part by posting them. LOL
Is this not a good article for us? Gridlock/status quo. No serious cance wind down b.s. legislation imo.
HOD $2.36
Morning Consult Finance: Republican Takeover of Senate Means New Banking and Finance Committee Chairmen
By Anna Sillers
• November 5, 2014
Election Update:
Republicans secured their first Senate majority since 2006, flipping seats in Arkansas, Colorado, Iowa, Montana, North Carolina and South Dakota. Kentucky Republican Mitch McConnell was also re-elected and is expected to be the next Senate majority leader.
Republicans easily retained control of the House, and the GOP added at least 10 new members to its caucus by taking seats from Democrats in some traditionally blue districts. The Republican majority is expected to be its largest since the 1940s. That will both embolden and challenge House Speaker John Boehner, who has had to balance the agendas of Tea Party and mainstream Republicans the past four years.
What it Means for Finance Policy:
Sen. Richard Shelby of Alabama is expected to take the reins of the Senate Banking, Housing and Urban Affairs Committee for the second time in his congressional career. While Shelby may take a tough stance on some Wall Street banks and Fannie Mae and Freddie Mac, possibly moving to get rid of the GSEs altogether, he’s also expected to support loosening some banking regulations, particularly for smaller institutions. Read more here.
Sen. Orrin Hatch of Utah will most likely be the next chairman of the Senate Finance Committee. Hatch, currently the panel’s ranking Republican, has already expressed his ideas for individual and corporate tax reform, but a major overhaul may have to wait since some in his party are considering the possibility of a Republican president before completely changing the country’s tax codes. Read more here.
The House Ways and Means Committee may see Rep. Paul Ryan as its new chairman. Policies Ryan has pushed for in the past — lower tax rates, fewer breaks and dynamic scoring — would most likely make their way into new legislation if Ryan holds off a challenge from fellow Republican Kevin Brady of Texas for the panel’s chair. Read more here.
http://themorningconsult.com/2014/11/morning-consult-finance-republican-takeover-senate-means-new-banking-finance-committee-chairmen/
Will Fannie, Freddie’s new tools increase certainty?
In an effort to increase transparency and expand access to credit, Fannie Mae and Freddie Mac have deployed new servicing tools to better help servicers through the loan process.
Fannie Mae Collateral Underwriter (CU) is a proprietary appraisal analysis application that allows lenders to compare appraisals against Fannie Mae’s database of appraisal and market data. CU, which will available to lenders in early 2015, provides additional transparency and certainty by giving lenders access to the same appraisal analytics used in Fannie Mae's quality control process.
“Our goal is to provide relief on appraisal representations and warranties in the future, and we will work with FHFA to do so,” said Andrew Bon Salle, an executive vice president of single-family underwriting, pricing, and capital markets at Fannie Mae. “Collateral Underwriter will help lenders build their businesses safely and strongly.”
Click here to learn more about CU.
Freddie Mac has also deployed a new servicing technology tool that allows lenders to electronically submit appeal data, and supporting documentation, for foreclosure timeline compensatory fees and late foreclosure sale reporting compensatory fees.
Beginning Jan. 1, 2015, servicers must use the Default Fee Appeal System for all compensatory fee appeals but Freddie is encouraging the group to begin using the appeal system today. The government-sponsored enterprise said servicers must register by December 2.
Click here to learn more about the Default Fee Appeal System.
Earlier this month, Mel Watt, director of the FHFA, along with U.S. Housing and Urban Development Secretary Julian Castro, pledged to help provide lenders more certainty about when they would face liability for defaults on loans insured by the FHA.
Lenders have argued that standards are so unclear and tight that they fear penalties for minor paperwork errors that have nothing to do with loan quality or repayment. Following the bust, lenders had to repurchase tens of billions of dollars of bad mortgages they sold to Fannie Mae, Freddie Mac and private investors.
To avoid such costs in the future, lenders have put in place tight mortgage standards that intentionally overshoot Fannie and Freddie requirements. The result has been the tightest credit market Americans have seen in 16 years.
http://www.mpamag.com/mortgage-originator/will-fannie-freddies-new-tools-increase-certainty-20125.aspx
What election winners can achieve before 2016: Our view
Divided government — in which one party controls the White House and the other at least one chamber of Congress — has long been seen by voters as a way of keeping Washington honest. But in the past four years it has been an abject failure, yielding little but gridlock.
With Republicans sweeping to a Senate majority Tuesday night, the conventional wisdom holds that the final two years of President Obama's presidency will be a continuation of the past four — which is to say, not pretty.
OTHER VIEWS: Congress occupies system's center
OUR VIEW: What the Democrats lost
OUR VIEW: GOP wins don't alter 2016 math
It's hard to knock that argument. Most recent presidents achieved little, domestically at least, in their last two years as their clout diminished and the nation's attention shifted to the next presidential election. In the next two years, Tea Party Republicans will continue to push for more polarizing confrontation, particularly over President Obama's signature health care law.
But there are reasons not to give up hope this time.
Exit polls Tuesday showed voters angry at both parties, suggesting neither will earn their favor with more rancor. With control of both chambers of Congress and the approach of a presidential election without an incumbent, Republicans will feel pressure to show gridlock-weary voters they can legislate responsibly and are mainstream enough to be entrusted with the White House.
Republicans have little to show legislatively since the first term of George W. Bush's presidency, when they cut taxes and added drug benefits to Medicare, and will have motivation to show new achievements.
The 2016 election will also put pressure on Democrats. They won't want to approach it with nothing to show but Obamacare, which remains controversial. Nor will they want their nominee to be weighed down by Obama, whose party got a second coat of shellac on Tuesday.
That gives both parties in Congress incentive to focus on issues that, while contentious and complex, are not hugely partisan.
Tax simplification — individual and corporate — would top this list. The parties disagree on whether reform should raise more money. But the main divide is between the general interests of taxpayers and the favoritism and corruption enabled by an absurdly complex tax code.
Other targets of opportunity include a fix to the nation's antiquated and overly litigious patent system, and changes that will make mortgage giants Fannie Mae and Freddie Mac less of a taxpayer liability.
For Obama, the natural tendency in the next two years will be to focus on matters not needing congressional approval. He has a full plate of foreign policy crises. But he should avoid excessive use of executive orders to enact domestic policies that should be done through legislation.
On immigration in particular, he should wait until House Republicans come to their senses and get behind something like the bipartisan Senate-approved plan. If they don't, the GOP will suffer the consequences with the growing bloc of Hispanic and Asian voters.
The last two years of the Obama administration are a time when important decisions will need to be made on everything from Iran to highway funding. Voters deserve better than two more years of dysfunction.
The winners on Tuesday were not elected to do nothing.
http://www.usatoday.com/story/opinion/2014/11/04/election-day-midterm-elections-congress-2016-editorials-debates/18502987/
Fannie Mae: Sweeney’s Words by valueplaysNovember 04,11,2014
Fannie Mae: Sweeney’s Words by Todd Sullivan, ValuePlays
It has been postured that Judge Sweeney may be influenced by the decision by Judge Lamberth in DC District Court (currently under appeal). I’d say the best predictor of her future behavior is her past behavior and comments. Below are portions of her statements from a 6/19 discovery hearing before her (full transcript at end). Now, nothing she said in that conference can possibly give anyone an indication she would even consider staying her proceedings. She is bound by Lamberth’s decision and his court hold no sway over hers. Just because he issued a ruling in parallel litigation in no way precludes her from continuing the case before her.
Fannie Mae: Judge Sweeney’s ruling
But read what she says…… Is it possible she does an about face here? Sure, but I think given the statements she makes below it is highly unlikely. Just read the second sentence:
I know you’re going to say that the Court has no ability to have any — to, in any way, impact FHFA, and I disagree with that. I don’t believe that is a blanket insulation.
Now the rest
THE COURT: Yes, I don’t agree. I know you’re going to say that the Court has no ability to have any — to, in any way, impact FHFA, and I disagree with that. I don’t believe that is a blanket insulation. If FHFA enters into contracts and there’s a dispute and there’s a breach of contract — and the agency breaches the contract, I don’t think they can invoke that — the agency can invoke that provision to insulate itself. And, also, I think here — I’m not trying to control the conservatorship, I’m not trying to influence it in any way, I’m just trying to allow citizens to have every opportunity to meet the jurisdictional hurdle that the Plaintiff — excuse me, that the Government has asserted. The Government has said that the conservators are not part of the United States and, therefore, the Defendant is not implicated here. Now, on the other hand, by requesting these documents, the Government is saying, no, I’m sorry, you’re not entitled to any of these documents because the conservators are part of the United States. So, it’s a government entity and, therefore, you’re asking for deliberative process documents. So, it seems to me the Government is trying to have it both ways and, so, I don’t accept that argument. And as I said, you know, I understand and can appreciate the bar of –or the — not the bar, but the — that Congress intended that courts do not meddle in the business of the conservators. That’s not my goal or desire. I have enough on my plate without trying to run the conservatorships. But I do want the Plaintiffs to have an opportunity to meet the jurisdictional challenge that’s been raised by the Government.
Fannie Mae: Sweeney asks to explain the litigation position
The after Government Attorney Ms. Hosford explains their position in a long argument covering several pages of the transcript, Sweeney asks, “Anything else?” when he replies “No”, Sweeney says:
THE COURT: I just have a question for you. Could you please explain the litigation position or what I see as a conflict with — or an inconsistency with, on the one hand, the Government are saying Plaintiffs lack standing, this Court lacks jurisdiction because the conservatorship is not part of the Government, it’s not a Government entity. And, yet, when Plaintiffs seek discovery, it’s the position of the United States that any documents generated by the conservatorship are subject to the deliberative process privilege?
After plaintiff attorney Cooper states his case in an equally long argument before Sweeney, she says:
THE COURT: And so far, I haven’t gotten — I haven’t received a good answer from the Government. Counsel is very able. But counsel has expressed concern of what could happen if certain documents are released, which I do not want to see happen, but counsel didn’t answer to my satisfaction the discrepancy between sort of using the deliberative process as sword and shield. On one hand, FHFA is a government entity, you know, for purposes of booting the Plaintiffs out of court and not part of the Government, but for purposes of forwarding discovery, all of a sudden deliberative process is appropriate because they are part of the Government. So, it’s a schizophrenic approach and I’m just waiting to hear a reasonable explanation.
Fannie Mae’s discovery request
Sweeney then spends the next several transcript pages working through discovery request with Cooper. Then following a very long exchange between both sides on dates, breadth etc, Sweeney ends with this:
I mean, there’s got to be — for purposes of the nature of this inquiry and this discovery request, it’s going to be more narrowly focused. We’re taking a surgical approach. But I want the Plaintiffs to have — I mean, their day in court may be that they’d prevail all the way to the Supreme Court. I’m not coming down one way or the other, but it’s important for the Plaintiffs to have access to information so that they have the ability, if possible, to establish this Court’s jurisdiction. And that’s all I’m dealing with at the moment. Merits from the Government — Plaintiffs’ perspective will come later; from the Government’s perspective, we won’t need to go there. So, we’ll just have to see who prevails. But the Plaintiffs will have the ability to make the best case they can to establish the Court’s jurisdiction. And with that, I’ll say good afternoon. Thank you.
Hearing transcript On 7/16 the order was granted (link), Now, was is narrower than the “everything ever produced” scope that plaintiffs wanted? Of course it was as it should have been. But if we step back the government did not want ANY discovery and then wanted discovery that was far narrower than was actually granted so again, this can only be seen, when taken in addition to what was said above as very very positive for plaintiffs. As opposed to Lamberth who punted (perhaps because he knew Sweeney was going to get into this) Sweeney seems determined to hear plaintiffs out….. that is all one can ask .
Richard Epstein gets deeper into it
Late Friday Ackman’s Pershing Square withdrew their action before Lambreth. Why not? It is clear he was going to rule against them anyway and Pershing has joined Fairholme before Sweeney and they can always re-file when the appeals court throws in back in Lamberth’s lap .
http://www.valuewalk.com/2014/11/fannie-mae-sweeneys-words/
Yes sir ! You are a winner winner chicken dinner. We need to watch the AIG developements closely. FnF are highly susceptible to outside influences good and bad. So I just hold because nobody knows when or from where the fuse will get lit.
Why the GSEs' Support of Low Down Payment
Loans Again Is No Big Deal
By Taz George, Laurie Goodman & Jun Zhu
Will allowing the government-sponsored enterprises (GSEs) to guarantee smaller down payment loans in an effort to increase mortgage availability lead to more defaults? Some skeptics have raised this concern in response to the Federal Housing Finance Agency's recent move to encourage lenders to issue mortgages with down payments as low as 3 percent. Based on a review of the performance of low-down-payment GSE mortgages in recent years, however, these fears are not well founded.
Fannie Mae and Freddie Mac (the GSEs), the guarantors of most of the nation's mortgage debt, currently only purchase loans that have at least a 5 percent down payment. Prior to late 2013, however, Fannie Mae guaranteed loans with down payments between three and 5 percent. By examining the performance of these pre-2013 loans, we can get a sense of how likely it is that borrowers with similar loans will default going forward.
The default rates of 3-5 and 5-10 percent-down payment GSE loans are similar.
Loans that originated in recent years with down payments between 3-5 percent exhibit default rates similar to the default rates of those with slightly larger down payments -- in the 90-95 LTV category.
Of loans that originated in 2011 with a down payment between 3-5 percent, only 0.4 percent of borrowers have defaulted. For loans with slightly larger down payments -- between 5-10 percent -- the default rate was exactly the same. The story is similar for loans made in 2012, with 0.2 percent in the 3-5 percent down-payment group defaulting, versus 0.1 percent of loans in the 5-10 percent down-payment group.
While this database is limited to 30-year, fixed-rate, amortizing mortgages (interest-only mortgages, 40-year mortgages, and negative-amortization loans are excluded), it is representative of GSE loans made in the post-crises period.
Borrower's credit is a stronger indicator of default risk than down payment size with these loans.
The pattern is consistent even in the years leading up to the crisis, when overall default rates were much higher. In 2007, the worst issue year, 95-97 LTV loans in any given FICO bucket performed only marginally worse than the 90-95 LTV loans, and FICO score was a larger determinant of performance. For example, 95-97 LTV loans with a 700-750 FICO score have a default rate of 21.3 percent, versus 18.2 percent for 90-95 LTV loans. However, the 95-97 LTV loans with a FICO score above 750 had a 13.5 percent default rate, much lower than the 90-95 LTV loans with a 700-750 FICO score.
The GSEs' risk-based pricing means only a small group of lower-risk borrowers will end up with these loans.
This analysis tells us that there is likely to be minimal impact on default rates as low-down payment GSE lending gravitates towards borrowers with otherwise strong credit profiles. And this makes sense because GSE loans are priced on the basis of risk (including loan-level pricing adjustment and mortgage insurance costs), while Federal Housing Authority (FHA) loans are not. Thus, borrowers with high LTVs and low FICO scores will find it more economically favorable to obtain an FHA loan.
Furthermore, in recent years, a miniscule number of these loans were put back by Fannie Mae following a default, an action taken when Fannie determines that a delinquent loan was irresponsibly underwritten. The number of putbacks on 95-97 LTV loans over the entire 1999-2013 period was 0.5 percent, little different than the 0.4 percent for the 90-95 LTV bucket.
Those who have criticized low-down payment lending as excessively risky should know that if the past is a guide, only a narrow group of borrowers will receive these loans, and the overall impact on default rates is likely to be negligible. This low down payment lending was never more than 3.5 percent of the Fannie Mae book of business, and in recent years, had been even less. If executed carefully, this constitutes a small step forward in opening the credit box -- one that safely, but only incrementally, expands the pool of who can qualify for a mortgage.
http://www.realclearpolicy.com/blog/2014/11/04/why_the_gses_support_of_low_down_payment_loans_is_no_big_deal_1127.html
New article from value walk
Fannie Mae, Freddie Mac Announce Common Securitization Platform CEO
by Michael IdeNovember 04, 2014, 1:31 pm
The GSEs take another step towards unifying their businesses, and set the stage for whatever will follow, by naming the CEO and board for the jointly owned Common Securitization Securities
Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) are one step closer to using the Common Securitization Platform (CSP) first outlined by FHFA chief Mel Watt earlier this year, now that they have announced the CEO and board of Common Securitization Securities (CSS) the group responsible for managing CSP. David Applegate, a former head of GMAC Mortgage and GMAC Bank with more than 20 years in the banking and mortgage industry, has been appointed CEO, with the rest of the board made up of two executives from each of the GSEs.
“One of our goals is to build a new securitization infrastructure to meet the current securitization needs of the Enterprises that could be adaptable for other users in the future,” said Watt in a statement. “FHFA remains committed to achieving a seamless CSP launch, and I am confident the steps announced today, combined with ongoing input from stakeholders, will help ensure success.”
CSP is meant to be flexible since Fannie Mae, Freddie Mac’s future still unknown
Even though legislative reform has stalled out indefinitely, as Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) CEOs recently explained, that doesn’t mean GSE reform had also ground to a halt. The purpose of the CSP is to provide a flexible bridge that can be used to transition from the current model (Fannie Mae and Freddie Mac in conservatorship limbo) to something more permanent without tying Congress’s hands. Watt has pointedly avoided speculating on what that permanent solution should look like, but it seems clear that he doesn’t expect the GSEs to simply be dismantled without some sort of replacement.
‘Stakeholders’ likely refers to taxpayers, mortgage industry players
It’s probably a sign that Watt has been successful that different people can realistically see their own preferred program making use of the CSP. Rafferty Capital Markets VP of equity research Richard Bove in a note sent to investors today says that he sees this as a positive for his fellow Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) longs because there could be a role for shareholders in the CSS, which is jointly owned by the GSEs. He may also be seizing on Watt’s mention of ‘input from stakeholders,’ which would normally include shareholders as a matter of course, expect that Watt has explicitly said that he considers himself responsible to taxpayers, not shareholders.
http://www.valuewalk.com/2014/11/fannie-mae-common-securitization-platform-ceo/
To da moon Alice...To da moon!! Bam..Zoom!!!
Opec hates those frucking frackers.
Light volume price moving up. Not too many want to sell right now. Anticipation of Freddie news early Thursday. Hmm, premarket P.R. anounced ahead of time. Maybe we should fasten our seat belts or we could be stuck to the rear bulkhead of the rocket.
I like it too. Crazy old Greenberg may be a wiley old fox.
Greenberg’s AIG Suit Provides Not-So-Fast Moment: comment if you see parallels to fnf.
By C. Thompson November 03, 2014
Boies Schiller & Flexner Chairman David Boies
David Boies, the attorney for former AIG Chairman Maurice “Hank” Greenberg’s Starr International Co. in the trial challenging the government’s demand for AIG equity in consideration for an initial $85 billion loan, has framed the rescue as a series of cozy deals rigged by regulators in favor of Goldman Sachs Group Inc. and other investment banks at the insurer’s expense. Photographer: Andrew Harrer/Bloomberg
The pretrial wisdom had pegged this so-called AIG trial up to an old man, Maurice “Hank” Greenberg, attempting to exact revenge for the face he lost when the company he built over almost 40 years had to be seized, some might say nationalized, by the federal government to keep it from wreaking some of the worst possible havoc of the 2008 financial crisis.
It was a long shot, they said, probably having more do with Greenberg’s desire to drag Tim Geithner, Henry Paulson and Ben Bernanke through the mud than anything. It would be next to impossible to show harm, considering how the company survived and in fact thrived.
“I think they’re going to lose,” Marcel Kahan, a New York University law professor who specializes in corporate finance and governance, said about Boies and Greenberg on the eve of the trial. “I think they realize they’re going to lose. But you never know what’s going to happen.”
Story: The Bailout Reunion Trial
Got that right.
With the trial entering its sixth week today, suddenly it seems people are seeing it differently. Andrew Zajac and Christie Smythe take stock of the proceedings so far and find the arrow has moved. They note the adroit litigating by David Boies, the celebrated attorney representing Greenberg and the plaintiffs, as well as favorable rulings from the judge in this bench trial, Thomas Wheeler.
Wheeler appeared to be leaning even before the trial, based on reporting that he had criticized the U.S. for trying to keep AIG out of the case as well as “the low evaluation of Starr’s potential success on the merits” of the case that AIG’s lawyers represented to the board.
Video: AIG’s Miller: Board Declined to Join Greenberg Suit
Reading today’s story, we wonder whether Wheeler ever was prepared to give the U.S. government a fair hearing. News to us in the story is how much else the judge had written or said before the trial ever began -- years ago.
Zajac and Christie report Wheeler wrote in 2012 that he agreed with Starr’s argument that the only consideration for a loan under the Fed’s emergency powers can be an interest rate set by the board of governors -- not a demand for equity. He also wrote that he didn’t buy the government’s argument that the Federal Reserve Act conferred broad enough powers to take that equity, and that the Treasury Department’s holding of the stake in a trust didn’t mitigate any of this.
So, chalk it up to our ignorance, which is always on full display, when we wonder whether and how there was supposed to be any impartiality in this and whether, as suggested by today’s story, this judge saw a vacuum in the federal powers at use for the first time since the Great Depression and decided he abhorred it.
http://www.businessweek.com/news/2014-11-03/greenberg-s-aig-suit-provides-not-so-fast-moment-opening-line
Just what he said/insinuated/alluded to, he has info that he can't share. (FHFA gag order)? Patience will pay off.
Judge Sweeney Should Let Discovery Continue On Fannie And Freddie Tuesday, November 4th, 2014
On October 28, 2014, the United States sought to follow up the major advantage that it received from the decision of Judge Royce Lamberth on September 30, 2014, which dismissed all the claims brought by the junior preferred shareholders of Fannie Mae and Freddie Mac to set aside the Third Amendment of August 2012 of the Senior Preferred Stock Purchase Agreements (SPSPA) of September 2008. As I have urged in previous posts, here, here and here, that I have made as a consultant to some institutional investors regarding this litigation, I think that Judge Margaret Sweeney should reject the government’s motion and allow the discovery to go forward in her court in accordance with her original order. The arguments here go both to matters of procedure and to substance.
Procedural Issues
On the procedural side, it is quite clear that the government strategy throughout this litigation is to keep all of its deliberations surrounding the Third Amendment out of the public eye. The government renews a claim, earlier rejected by Judge Sweeney, that the discovery of this sensitive information could compromise delicate deliberations over major financial matter. But by the same token, the release of this information to private parties in the course of litigation could shed the necessary light on the processes that were used to conclude the one-sided Third Amendment, where the Federal Housing and Finance Agency (FHFA) irrevocably released all future income streams for both junior preferred and common shareholders, only to receive precisely nothing in exchange. There are of course, the risks that some sensitive information could be inadvertently disclosed to the public at large, in violation of the terms of this protective order. But it would be most unwise to stop the collection of that information when ex post sanctions could be imposed upon the plaintiffs if they violate the order’s terms. In addition, Judge Sweeney could well conclude that much of the information turned over to the private plaintiffs does not warrant protection, at which point it could and should be made public.
Certainly, there is good reason to think that this is indeed the case, because it allows for the honest and full assessment of the government claim that the Third Amendment was needed to stop the supposedly vicious circle whereby initial funds would be lent to Fannie and Freddie to pay the dividends. On its face, that claim looks indefensible given that the government’s position ignores Fannie and Freddie’s option under the SPSPA to defer payment of the 10 percent dividends on the preferred in exchange for the right to pay 12 percent later.
Unfortunately, the decision in Perry Capital never once asks why it is that the conservator for Fannie and Freddie would give up this valuable option for nothing. Blocking discovery through a summary judgment in Perry Capital allows the government to win its case without ever having to answer the charges that the entire Third Amendment was a sham, intended to siphon off known profits to Treasury. The government has repeatedly made the solvency of Fannie and Freddie an issue before Judge Sweeney. The validity of that claim should be tested in her court. Indeed, if she chooses to make that information public, it could influence the outcome of any future appeal that takes place in the Court of Appeals for the District of Columbia, especially if it reveals that FHFA operated as an “arm” of the federal government and did not exercise its appropriate independent judgment.
Knowing that Judge Sweeney may be reluctant to undo a decision that she has already made, the government then adds that she should stop the case on the grounds that a judgment in the Court of Appeals could “preclude” further litigation between the same parties in this case, given the core of common facts. But at the very least there are other lawsuits with different parties who could benefit from the release of this information, and it strains credibility that this important information should remain under wraps in order to economize on litigation costs that are tiny in comparison with the principles and dollars at stake in this litigation.
The government also takes the position that the entire matter is not ripe for litigation because it turns out that FHFA is not in liquidation. “Simply stated, ‘liquidation preference claims are not fit for a judicial decision until liquidation occurs.’”
The government then further notes in the same vein that “[g]iven that the plaintiffs maintain no current right to a liquidation preference while the GSEs are in conservatorship, the plaintiffs are no worse off today than they were before the Third Amendment.” The first of these arguments means that if the government strips out all the money from Fannie and Freddie but never liquidates them, it can never be challenged in court. The second argument flies in the face that the Third Amendment purports to be a binding contract whose immediate effect was to send the market into a tailspin. The ripeness argument is also incorrect for a variety of technical reasons.
First, all of the facts that are needed to resolve the question of whether FHFA and Treasury exceeded their powers under the law are available right now. Nothing that is done in the future can either add to or detract from the strength of the takings claim that is now located in the Court of the Federal Claims (CFC). The postponement therefore does nothing whatsoever to sharpen the issue.
Second, there is no likelihood that the legal situation will change on the ground. Recall that the Third Amendment is an ostensible contract between FHFA and Treasury. There is at this point nothing that FHFA could do unilaterally to escape the consequences of the Third Amendment in the event that it should be found valid. The Treasury, which stands to receive future billions of dollars has no incentive whatsoever to back off that contract, even if FHFA abandoned its conservatorship and put the control of the operation back into the hands of a Board of Directors responsive to the interests of the private shareholders that FHFA was supposed to represent in the first place.
http://originatortimes.com/freddie-mac/judge-sweeney-should-let-discovery-continue-on-fannie-and-freddie-2/
Fannie Mae CEO Tim Mayopoulos video
Fannie Mae: The Rafter/Pershing Square Voluntary Dismissal Has No Bearing …
by admin on Monday, November 3rd, 2014
My thanks to Glen Bradford, a frequent writer on Fannie Mae matters, for bringing this to my attention. On October 31, 2014, three plaintiffs named Rafter and Rattien, together with a fourth plaintiff, Pershing Square Capital, filed a Notice of Dismissal, voluntarily dismissing an action filed on August 14, 2014, against Treasury, FHFA and others. Background on the Fannie Mae facts can be found in my prior Seeking Alpha articles.
This dismissal has no bearing on the Perry Capital appeal.
Background on the Rafter litigation: The Rafter and the two Rattiens are three individual plaintiffs who have owned Fannie shares since prior to 2008. Pershing Square is an investment advisor associated with Bill Ackman. Pershing’s shares were purchased well after the Sweep Amendment. Ackman made a well-known presentation in May 2014, asserting a range of value for the Fannie common from $23 to $47 depending in part on the guarantee fees Fannie would charge to guarantee mortgages and on the multiple applied to the Fannie earnings.
The Rafter complaint has two counts: Count one is a takings claim based on the Sweep Amendment. See here for a prior article explaining the Restated and Amended Preferred Senior Stock Purchase Agreement and its amendments. Count two is a derivative claim for breach of contract.
Like many investors, Pershing purchased Fannie shares after the Sweep Amendment destroyed value. The investment thesis is that the Sweep Amendment will eventually be voided by the courts causing a significant increase in the market value of the shares. Those who purchased Fannie securities after the Sweep Amendment have often been derided as “greedy hedge funds” and the like. When the Rafter litigation was filed in August 2014, I took it as Pershing’s attempt to bootstrap onto the claims of long-time Fannie holders to dilute the greedy hedge fund narrative.
At the time it was filed, this complaint was puzzling.
First, the first count is a takings claim alleging that the Sweep Amendment was a taking. A takings claim alleges that the Government has taken private property for public use. The 5th Amendment to the US Constitution requires the Government to pay “just compensation” for all takings. Yet Pershing purchased its shares after the Sweep Amendment, which means after the taking. One of the tests for a taking is the reasonable investment backed expectations. Since Pershing purchased after the Sweep Amendment, Pershing could not have had any reasonable investment-backed expectations, which were adversely impacted by the Sweep Amendment. Thus, while the takings claim would apply to the individual plaintiffs who purchased Fannie shares prior to 2008, the taking argument would seem not to apply to Pershing.
Second, the second count is a derivative claim. A shareholder derivative claim is litigation brought by a shareholder against a third party in the name of the company. Any damages recovered in litigation would be the property of the company. These suits are brought because the company has failed to pursue the claim, often because of potential conflicts between a company insider and the defendant.
But consider HERA §4617(b)(2)(A)(I):
[FHFA] shall, as conservator or receiver, and by operation of law, immediately succeed
to … all rights, titles, powers, and privileges of the regulated entity, and of any stockholder,
officer, or director of such regulated entity with respect to the regulated entity and the
assets of the regulated entity;
Under this provision, all of the rights of the shareholders, as against third parties, were assumed by the FHFA as conservator. So Judge Lamberth ruled in his September 30, 2014, Memorandum Order. I have not examined that part of Judge Lamberth’s order with any depth because the derivative claims, given the text of HERA §4617(b)(2) always seemed weak. (Note: This provision, in my view, does not curtail the right of the shareholders to directly sue on their own behalf for relief against the Sweep Amendment.)
Notice that the dismissal is “without prejudice.” Without prejudice means that the plaintiffs can re-file a new complaint.
Why did Pershing dismiss the suit? We can only speculate, but it seems reasonable that in light of Judge Lamberth’s decision, Pershing either decided the suit was hopeless and wanted to dismiss it now and save attorney’s fees and/or Pershing wants to file an amended complaint in light of Judge Lamberth’s decision. A voluntary dismissal is permitted by the Federal Rules of Civil Procedure before the defendant has served an answer or a motion for summary judgment. Voluntarily dismissing and refilling a new complaint would be more time efficient than moving the court for permission to file an amended complaint, which would be subject to objection by the government.
Either way, this dismissal has no effect on the Perry appeal. In my mind, the primary issue in the Perry appeal is the HERA §4617(f) jurisdictional issue. That’s the issue the government is citing in briefs being filed in other Fannie-related litigation before other courts. This voluntary dismissal has no precedential value on that or any other issue in the Perry appeal.
Editor’s Note: This article discusses one or more securities that do not trade on a major exchange. Please be aware of the risks associated with these stocks.
Disclosure: The author is long FNMA. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article. (More)
http://originatortimes.com/fannie-mae/fannie-mae-the-rafterpershing-square-voluntary-dismissal-has-no-bearing/
Industry Asks Fannie Mae to Re-enter Reverse Mortgage Market
by admin on Monday, November 3rd, 2014
Industry Asks Fannie Mae to Re-enter Reverse Mortgage Market
November 3rd, 2014 | by Elizabeth Ecker
The National Reverse Mortgage Lenders Association (NRMLA) is making a push for Fannie Mae to once again begin purchasing reverse mortgages, and is urging that Freddie Mac be enabled to purchase Home Equity Conversion Mortgages as well.
The association made a request of the Federal Housing Finance Agency (FHFA) last week to the effect that the government-sponsored enterprises Fannie and Freddie be allowed to include reverse mortgages among the asset types the organizations purchase. NRMLA also noted the benefits of the reintroduction of a Home Keeper-like program similar to that of Fannie Mae’s proprietary reverse mortgage, and the importance of Fannie and Freddie being able to purchase proprietary reverse mortgages in the market.
Fannie Mae stopped purchasing reverse mortgages in October 2010 leaving Ginnie Mae as the sole HECM-backed mortgage securities (HMBS) issuer. At the time, Fannie Mae cited lack of infrastructure to handle multiple reverse mortgage product types, which at the time included the HECM standard and HECM Saver.
Reinstatement of Fannie Mae and introduction of Freddie Mac as a reverse mortgage purchaser should fall under the FHFA’s enterprise goals in the coming years, NRMLA wrote in comments that respond to a request from FHFA on Enterprise goals for the years 2015 to 2017.
“As America ages, and seniors continue to live longer, the shortfall in retirement savings may place a further strain on government programs, such as Social Security,” said NRMLA in its comments. “The financial planning community has begun to recognize this potential gap or shortfall in retirement savings and the possible further role that reverse mortgages might play for seniors that choose to utilize them.”
NRMLA notes further that the association believes the beginning of the decline in reverse mortgage volume in 2009 stems in part from Fannie Mae’s exit from the business.
“We feel strongly that a renewed role by the Enterprises in the reverse mortgage market would be welcomed, would greatly serve our national housing needs, and would be economically viable for the Enterprises,” NRMLA writes.
http://originatortimes.com/fannie-mae/industry-asks-fannie-mae-to-re-enter-reverse-mortgage-market/
Fannie Mae’s Book Expands for First Time This Year
Author: Tory Barringer in Daily Dose, Headlines, News, Secondary Market November 3, 2014 0
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fannie-maeDespite a decline in its mortgage portfolio, Fannie Mae's total book of business grew in September for the first time in 10 months, the company revealed Friday.
According to Fannie's monthly volume summary, the mortgage giant's book totaled $3.12 trillion as of September 30, representing an annualized growth rate of 1.5 percent compared to August's decline of 4.0 percent.
Year-to-date, the book's growth rate remains in the red at a compound rate of -1.8 percent.
September's bump in business came despite a 12.7 percent annualized contraction in Fannie's gross mortgage portfolio, which was valued at approximately $438.1 billion at the end of the month, down nearly $5 billion from August. The portfolio has been on a steady decline since the start of 2013.
Meanwhile, new business acquisitions improved, rising 21 percent from August to $45.6 billion, an 11-month high.
Delinquency was also healthier in September. According to Fannie, the conventional single-family serious delinquency rate in its portfolio was 1.96 percent, down 3 basis points from August. The multifamily delinquency rate held steady at 0.09 percent for the second month.
Fannie Mae completed 8,684 loan modifications in September. As of the end of the month, year-to-date modifications totaled 96,915 at the GSE.
http://themreport.com/news/secondary-market/11-03-2014/fannie-maes-book-expands-first-time-year
Narrative continues to shift as we prepare for D-day style offensive. 03 Monday Nov 2014
Posted by timhoward717 in Fannie Mae Freddie Mac
Thrilled to see the narrative continuing to shift dramatically. I will be much more candid after the elections on Tuesday, but this clearly follows the facts I have shared thus far.
Urban Institute & CoreLogic Co-Present: Data, Demand, and Demographics: A Symposium on Housing Finance November 5, 2014
http://www.urban.org/events/upload/Final-Agenda_Data-Demand-and-Demographics.pdf
1:30 p.m. Panel three: government-sponsored enterprises (GSEs) reform: what can be done without legislation?
Extensive political capital was exhausted in the 113th Congress to reach a Senate compromise on
Housing finance reform. But in the near term, legislation looks improbable. What is likely to happen to
the GSEs over the near term without comprehensive reform? How is the Federal Housing Finance
Agency guiding the GSEs? How will these decisions frame options for future reform? What role do the
preferred shareholder sweep amendment and ongoing litigation have in framing the near future?
Moderator: Faith Schwartz, senior vice president, government solutions, CoreLogic
? Andrew Davidson, president, Andrew Davidson & Co.
? Julia Gordon, director of housing finance and policy, Center for American Progress
? Jim Millstein, chairman and chief executive officer, Millstein & Co.
? Jim Parrott, senior fellow, Housing Finance Policy Center, Urban Institute
We will be adding a critical truth to the “Summary of Truth” page concerning the lawsuits. I found a great picture that explains the true reason for the Third Amendment Sweep:
True reason for 3rd Amendment.
It is critical that we continue to compile these simple truths. This will be critical as we transition into the next phase of the campaign.
I also want to discuss further the revelations that Josh Rosner revealed to us last Thursday night. I will be adding more analysis showing just how critical these were. Also keep in mind what else this “source” may know. We will add to this post soon: http://timhoward717.com/2014/10/31/josh-rosner-shocking-revelations-regarding-u-s-treasury-and-gses/
The bailouts of Fannie and Freddie arrived in the form of a noose around their necks. In 2012 as they were on the verge of freeing themselves from their intended deaths Ed Demarco put a bullet in their heads with the 3rd amendment. The TRUTH will be known; we will be ramping up our campaign. After the election, we will be launching an offensive modeled after the Allied D-Day invasion of Normandy. I caution everyone who has played a role in this unprecedented untruthful attack on Fannie and Freddie our quest to reveal the truth has uncovered some very interesting facts. Many of these will shed quite a bit of light on your motives and credibility. Our light of truth will be shining your way soon.
We will never surrender; we will prevail. The simple truth will overcome their lies. Keep the Faith
http://timhoward717.com/
Why Republicans won’t enact housing-finance reform
By Ruth Mantell
Published: Nov 3, 2014 4:23 p.m. ET
The U.S. Capitol is seen on Nov. 19, 2011.
WASHINGTON (MarketWatch) — With Republicans expected to strengthen their position in Washington this election, the party has an opportunity to advance its agenda for a key economic sector: the housing market.
An unresolved issue from the financial meltdown is what to do about federally controlled mortgage-finance giants Fannie Mae and Freddie Mac. These are big-deal companies: Together they back about half of new U.S. mortgages, according to Inside Mortgage Finance, which closely monitors industry trends.
But many Republican lawmakers may prefer to avoid contentious and complex issues such as housing-finance reform, analysts said. The housing market touches all voters, whether they are owners or renters, and with such high stakes, no one wants to be seen as getting a bill wrong.
After all, when just one party leads both congressional chambers there’s less room to point fingers when laws prove unpopular. And the pressure is on as Republicans look toward the presidential race in two years. Meanwhile, from a logistical point of view, a GOP that takes up housing reform will be hard pressed to find a wide-enough window for such a thorny issue.
“Time is the biggest challenge,” said David Stevens, president of the Mortgage Bankers Association.
There’s likely just about one year to work on a bill as Republicans and Democrats gear up for the 2016 election cycle. While there’s general agreement that something must be done about Fannie and Freddie, there’s no consensus about how to shape government’s role in the mortgage marketplace, and that’s a major sticking point.
In the absence of achievable action, the status quo may prevail, an outcome that appears to gather momentum each time the companies report healthy profits. Analysts say there’s a good chance that any serious attempt at far-reaching housing-finance reform won’t get underway until 2017.
“I hate to be such a Debbie Downer, but there is no reason to expect major legislation in the 114th Congress,” said Isaac Boltansky, an analyst at Compass Point Research & Trading, a Washington-based investment firm. “We have to expect them to revert to the lowest common denominator from a policy perspective.”
However, there is some room for movement. If, say, Texas Republican Rep. Jeb Hensarling, who has spearheaded support for a housing-reform bill that would dramatically cut the government’s role in the mortgage marketplace, can find support for his work in the Senate, that could breath life back into the House’s GOP-led efforts. A partnership with Sen. Richard Shelby, a Republican of Alabama who may become the next leader of the Senate Banking Committee, would be particularly helpful.
“This was [Hensarling’s] signature piece of legislation, so I don’t think it will go away,” MBA’s Stevens said.
However, the House bill envisions a smaller government role in the housing market than outlined in bipartisan Senate legislation. This chasm may continue to throttle progress, especially since the coming Congress will face the threat of a Democratic president’s veto pen.
Inaction on housing is the least risky choice
None of this means that elected officials won’t continue to pay lip service to the importance of housing-finance reform that includes winding down Fannie and Freddie.
But little work may be accomplished on major issues in the next couple of years, with lawmakers leaving many key decisions up to federal regulators, rather than taking on the complex and politically risky project of Fannie and Freddie reform.
“I personally have not seen a lack of progress come back to bite anyone,” said Raj Date, managing partner of venture investment firm Fenway Summer and a former U.S. Consumer Financial Protection Bureau deputy chief.
Still, Ed DeMarco, a fellow at the Milken Institute and former acting chief of the Federal Housing Finance Agency, which regulates Fannie FNMA, +3.70% and Freddie FMCC, +2.91% said Congress should work out their differences on housing-finance legislation that winds down Fannie and Freddie so that the bill can move forward. He added that Congress must consider the role of the Federal Housing Administration, which insures mortgages with low down payments, enabling younger borrowers and others to buy their own place.
“This is essential to bringing the conservatorships to an end, restoring market-based competition, and finally reducing the government’s footprint in this market,” DeMarco said. “Discussions of affordable housing and first-time home buyers in a post-conservatorship world need to include the very entity Congress created to serve this purpose.”
Outside of the enormous task of reforming Fannie and Freddie, there are still important housing-related issues that Republicans could pursue in the next couple of years. For example, they could try to ramp up oversight of the CFPB, the consumer watchdog agency created by a far-reaching bank-overhaul law that aimed to fix the flaws that lead to financial-market failures.
A Republican-led Congress could also focus on the degree to which the government supports low- and moderate-income homeowners through the FHA, Fannie and Freddie.
“That allows people to make a lot political noise,” Date said.
Several other housing-related issues that a GOP-led Congress could take up are vacancies on the Federal Reserve, a new chief for the FHA, and the tax deduction for private mortgage insurance.
http://www.marketwatch.com/story/why-republicans-wont-enact-housing-finance-reform-2014-11-03
I think that people have been waiting for some kind of event that will give them confidence that all the wind down b.s. is behind us. This could be it and there could be much buying into the gap if there is a gap tomorrow.
Bill Ackman Drops One Fannie Mae Suit, Move Probably Only Temporary
November 3, 2014
Written by Tibi Singer
Bill Ackman’s Pershing Square Capital Management filed a notice of voluntary dismissal for its Fannie Mae lawsuit in DC District Court last Friday, while another Ackman lawsuit, in the Court of Federal Claims, is still active, Value Walk reported.
Last month, US District Judge Royce Lamberth threw out Perry Capital’s and Fairholme Fund’s cases, to the chagrin of Fannie Mae and Freddie Mac shareholders. Both plaintiffs are appealing.
Ackman’s case hasn’t yet been thrown out by Judge Lamberth, but he’s very likely to do it, seeing as Ackman’s case is identical to the former two. Value Walk suggests Ackman decided to drop the suit because he wants to avoid a lengthy appeals process. So dropping the suit could be a tactical move, not good bye.
Ackman might be reacting to Justice Department lawyers who have argued that the DC District Court Judge should halt the Fairholme case until after the appeals have played themselves out since, since the two lawsuits practically overlap. So that by dropping his case in the DC District Court, Ackman is avoiding being handled the same way by the government.
However, if Ackman has actually decided to abandon the Fannie Mae suit entirely, this could be big for anyone invested in the government-sponsored enterprise (GSE).
http://jewishbusinessnews.com/2014/11/03/bill-ackman-drops-one-fannie-mae-suit-move-probably-only-temporary/
‘Refinancible’ Population Up to 7.4M as Interest Rates Fall
Author: Tory Barringer in Daily Dose, Data, Featured, News November 3, 2014 0
Recent declines in the average long-term fixed mortgage rate have opened up the pool of potential refinancers by nearly 25 percent, according to the latest Mortgage Monitor Report from Black Knight Financial Services.
Measuring its current data on active mortgages throughout the United States, analysts at Black Knight estimate 7.4 million American borrowers with 30-year mortgage loans could benefit by refinancing into a lower interest rate.
As of the end of October, the average 30-year fixed rate was 3.98 percent, according to Freddie Mac, just up from a 16-month low recorded earlier in the month. With the decreases observed over the last month, Black Knight says the number of refinance-eligible borrowers who could benefit from a lower rate has jumped by an additional 1.4 million.
"Before the most recent reductions in the average 30-year mortgage interest rate, approximately six million borrowers met broad-based 'refinancibility' criteria," said Trey Barnes, SVP of loan data products at Black Knight. "In light of where rates are today, and looking at borrowers with current notes at 4.5 percent and above, that population has now swelled to 7.4 million—almost a 25 percent increase."
Barnes added that the company's assessment is conservative, as those with current rates of 4.25–4.5 percent could "arguably benefit" from refinancing. The addition of that group brings another 1.7 million borrowers to the population, Barnes said.
On a related note, Black Knight also examined the state of home equity in the country, estimating that fewer than 8 percent of borrowers were underwater on their mortgage as of July, down from a level of 33 percent at the end of 2011, before the market experienced 28 straight months of home price appreciation
While an additional 8.5 percent of borrowers have less than 10 percent equity in their homes—putting them in a "near-negative equity" position, more than half of all mortgaged homes have 30 percent or more equity, "a level not seen in nearly eight years," Barnes said.
http://themreport.com/news/data/11-03-2014/refinancible-population-7-4m-interest-rates-fall
The Obama Administration Wants another Housing Bubble…Plus Final Predictions for the 2014 House and Senate Mid-Term Elections
November 3, 2014 by Dan Mitchell
More than 100 years ago, George Santayana famously warned that, “Those who cannot remember the past are condemned to repeat it.”
At the time, he may have been gazing in a crystal ball and looking at what the Obama Administration is doing today.That’s because the White House wants to reinstate the types of housing subsidies that played a huge role in the financial crisis.
I’m not joking. Even though we just suffered through a housing bubble/collapse thanks to misguided government intervention (with all sorts of accompanying damage, such as corrupt bailouts for big financial firms), Obama’s people are pursuing the same policies today.
Including a bigger role for Fannie Mae and Freddie Mac, the two deeply corrupt government-created entities that played such a big role in the last crisis!
Here’s some of what the Wall Street Journal recently wrote about this crazy approach.
Federal Housing Finance Agency Director Mel Watt has one heck of a sense of humor. How else to explain his choice of a Las Vegas casino as the venue for his Monday announcement that he’s revving up Fannie Mae and Freddie Mac to enable more risky mortgage loans? History says the joke will be on taxpayers when this federal gamble ends the same way previous ones did. …unlike most of the players around a Mandalay Bay poker table, Mr. Watt is playing with other people’s money. He’s talking about mortgages that will be guaranteed by the same taxpayers who already had to stage a 2008 rescue of Fannie and Freddie that eventually added up to $188 billion. Less than a year into the job and a mere six years since Fan and Fred’s meltdown, has he already forgotten that housing prices that rise can also fall? …We almost can’t believe we have to return to Mortgage 101 lessons so soon after the crisis. …Come the next crisis, count on regulators to blame everyone outside of government.
These common-sense observations were echoed by Professor Jeffrey Dorfman of the University of Georgia, writing for Real Clear Markets.
The housing market meltdown that began in 2007 and helped trigger the recent recession was completely avoidable. The conditions that created the slow-growth rush into housing did not arise by accident or even neglect; rather, they were a direct result of the incentives in the industry and the involvement of the government. Proving that nothing was learned by housing market participants from the market meltdown, both lenders and government regulators appear intent on repeating their mistakes. …we have more or less completed a full regulatory circle and returned to the same lax standards and skewed incentives that produced the real estate bubble and meltdown. Apparently, nobody learned anything from the last time and we should prepare for a repeat of the same disaster we are still cleaning up. Research has shown that low or negative equity in a home is the best predictor of a loan default. When down payments were 20 percent, nobody wanted to walk away from the house and lose all that equity. With no equity, many people voluntarily went into foreclosure because their only real loss was the damage to their credit score. …The best way to a stable and healthy real estate market is buyers and lenders with skin in the game. Unfortunately, those in charge of these markets have reversed all the changes… The end result will be another big bill for taxpayers to clean up the mess. Failing to learn from one’s mistakes can be very expensive.
Though I should add that failure to learn is expensive for taxpayers.
The regulators, bureaucrats, agencies, and big banks doubtlessly will be protected from the fallout.
And I’ll also point out that this process has been underway for a while. It’s just that more and more folks are starting to notice.
Last but not least, if you want to enjoy some dark humor on this topic, I very much recommend this Chuck Asay cartoon on government-created bubbles and this Gary Varvel cartoon on playing blackjack with Fannie Mae and Freddie Mac.
P.S. Now for my final set of predictions for the mid-term elections.
On October 25, I guessed that Republicans would win control of the Senate by a 52-48 margin and retain control of the House by a 246-189 margin.
On October 31, I put forward a similar prediction, with GOPers still winning the Senate by 52-48 but getting two additional House seats for a 249-187 margin.
So what’s my final estimate, now that there’s no longer a chance to change my mind? Will I be prescient, like I was in 2010? Or mediocre, which is a charitable description of my 2012 prediction?
We won’t know until early Wednesday morning, but here’s my best guess. Senate races are getting most of the attention, so I’ll start by asserting that Republicans will now have a net gain of eight seats, which means a final margin of 53-47. Here are the seats that will change hands.
For the House, I’m also going to move the dial a bit toward the GOP. I now think Republicans will control that chamber by a 249-146 margin.
Some folks have asked why I haven’t made predictions about who will win various gubernatorial contests. Simply stated, I don’t have enough knowledge to make informed guesses. It would be like asking Obama about economic policy.
But I will suggest paying close attention to the races in Kansas and Wisconsin, where pro-reform Republican Governors are facing difficult reelection fights.
And you should also pay attention to what happens in Illinois, Connecticut, Maryland, and Massachusetts, all of which are traditionally left-wing states yet could elect Republican governors because of voter dissatisfaction with tax hikes.
Last but not least, there will be interesting ballot initiatives in a number of states. Americans for Tax Reform has a list of tax-related contests. I’m particularly interested in the outcomes in Georgia, Illinois, and Tennessee.
There’s also a gun-control initiative on the ballot in Washington. And it has big-money support, so it will be interesting if deep pockets are enough to sway voters to cede some of their 2nd Amendment rights.
Returning to the main focus of the elections, what does it mean if the GOP takes the Senate? Well, not much as Veronique de Rugy explains in a column for the Daily Beast.
Republicans are projected to gain control of Congress this time around, worrying some Democrats that major shifts in policies, cutbacks in spending, and reductions in the size and scope of government are right around the corner. I wish! Rest assured, tax-and-spend Democrats have little to fear. Despite airy Republican rhetoric, they are bona fide big spenders and heavy-handed regulators…. Republicans may complain about bloated government and red tape restrictions when they’re benched on the sidelines, but their track record of policies while in power tells a whole different story—and reveals their true colors. …When in power, Republicans are also more than willing to increase government intervention in many aspects of our lives. They gave us No Child Left Behind, protectionist steel and lumber tariffs, Medicare Part D, the war in Iraq, the Department of Homeland Security and its intrusive and inefficient Transportation Security Administration, massive earmarking, increased food stamp eligibility, and expanded cronyism at levels never seen before. The massive automobile and bank bailouts were the cherries on top.
Veronique is right, though I would point out that there’s a huge difference between statist Republicans like Bush, who have dominated the national GOP in recent decades, and freedom-oriented Republicans such as Reagan.
We’ll perhaps learn more about what GOPers really think in 2016.
In the meantime, policy isn’t going to change for the next two years. Remember what I wrote last week: Even assuming they want to do the right thing, Republicans won’t have the votes to override presidential vetoes. So there won’t be any tax reform and there won’t be any entitlement reform.
http://danieljmitchell.wordpress.com/2014/11/03/the-obama-administrations-wants-another-housing-bubble-plus-final-prediction-for-the-2014-house-and-senate-mid-term-elections/
Why did you pick a user name that starts with A LONG?
The Demise Of Fannie Mae (FNMA) and Freddie Mac (FMCC)?
November 3rd, 2014 wall-street-etf
If the next Congress wants to accomplish something, it might take up the matter of Fannie Mae (OTCBB:FNMA) and Freddie Mac (OTCBB:FMCC), the federal housing agencies that effectively went bankrupt in 2008 and were rescued through a $187 billion taxpayer bailout.
Fannie and Freddie are profitable now, and they’ve paid back all the taxpayer funds that kept them afloat during the worst housing bust since the 1930s. Yet they’re still owned and operated by the U.S. government, a status that was supposed to be temporary when a government conservator took control of the two companies in 2008. “It’s been six years now that the conservator has been overseeing and directing the actions of Fannie Mae and Freddie Mac,” Ed DeMarco, who ran that conservatorship from 2009 to early 2014, tells me in the video above. “This is not a healthy condition.”
The problem is there’s no consensus about what to do with Fannie and Freddie. The government bailout allowed them to continue operating during the 2008 financial meltdown and the deep recession that followed. Without them, the housing market would have essentially shut down and a recession probably would have become a depression.
http://etfdailynews.com/2014/11/03/the-demise-of-fannie-mae-fnma-and-freddie-mac-fmcc/
Sometimes it is pretty good entertainment considering that it is free.