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At first and maybe for a while I expect trivial or unimportant documents like emails about where lunch will be. Judge(Judy) Sweeny will have to push them along. Can the threat of obstruction (in some form) be applied here by the court?
There you go. A positive article. And very good timing for you. You are officially back on the (Friends of FnF) list.
RELEASE IS IMMINENT !
The good humor men are coming to take him away haha they're coming to take him away !!
This does not trouble me because it is more of the same misleading garbage that our elected officials have been feeding the public for a while now. Every one of them will have egg on their faces once Judge(Judy)Sweeny rules in the shareholders' favor. Only then will our elected ass wipes be forced to conceed that they are not owners but conservators and they are limited to preserving the entities. The rule of law will determine that govt. can not abuse the companies that are entrusted to them.
Until then I find it frustrating but not troubling.
Bloomberg NewsU.S. Home Prices Increased More Than Estimated in May
By Prashant Gopal July 22, 2014
U.S. house prices rose more than economists estimated in May as sales demand improved following a slowdown earlier in the year.
Prices climbed 0.4 percent on a seasonally adjusted basis from April, the Federal Housing Finance Agency said today in a report from Washington. The average economist estimate was for a 0.2 percent increase, according to data compiled by Bloomberg.
More homeowners are listing their properties, giving buyers more choices. Purchases of previously owned houses rose to an eight-month high in June, the National Association of Realtors said today. The number of homes on the market climbed 6.5 percent from May.
Story: The Re-Explosion of U.S. House Prices Is Over
“The current conditions are more encouraging for buyers,” Stephanie Karol, U.S. economist for IHS Global Insight in Lexington, Massachusetts, said in a telephone interview yesterday. “As price gains moderate and wage growth and employment growth pick up, buyers will be in a better position to make a purchase.”
The FHFA’s report showed prices increased 1.1 percent from April in the Middle Atlantic area, which includes New York and New Jersey, and in the West South Central region, with states such as Texas and Louisiana. Prices fell 0.7 percent in the East South Central area, including Tennessee and Kentucky.
Nationwide, prices rose 5.5 percent in May from a year earlier. The U.S. index is 6.5 percent below its April 2007 peak and is about the same as the July 2005 level.
Story: That Grilled Cheeseburger in Your Backyard Will Cost More This Summer
The FHFA index measures transactions for single-family properties financed with mortgages owned or securitized by Fannie Mae and Freddie Mac. It doesn’t provide a specific price for homes.
The median price of a home sold in June was $223,300, up 4.3 percent from a year earlier, today’s report from the Realtors showed.
http://www.businessweek.com/news/2014-07-22/u-dot-s-dot-home-prices-rose-5-dot-5-percent-in-year-through-may-fhfa-says
Let's Band Together To Save The 30-Year Mortgage
Federal National Mortgage Assctn Fnni Me : The News Journal Op-Ed: Let's Band Together To Save The 30-Year Mortgage
07/22/2014 | 10:04am US/Eastern
When I was in my early 30s, I bought the home I live in now - in Wilmington right near Warner Elementary. My brother and dad went in on it with me. The only way my brother and I could qualify was with my dad's credit, and the only way we could afford the monthly payments was to take out a 30-year mortgage.
If homeownership is part of the American dream, so is the 30-year fixed-rate mortgage. Most of you reading this, if you own a home, probably purchased it using this type of mortgage. For those of us first-time home buyers with car payments or student loans or credit-card debt, spreading your mortgage out over 30 years is the only way to make it work. For many, the 30-year mortgage is a gateway to the middle class.
The trouble is, as we saw in the 2008 housing crisis, our current housing finance system puts taxpayer dollars in jeopardy. We need to find a way to change that, while making sure the 30-year fixed-rate mortgage continues to be an option for home-buyers across the country.
Leading up to the 2008 housing downturn, Fannie Mae and Freddie Mac - private companies chartered by the government - bought and sold mortgages, with the purpose of injecting more cash into the housing market and allowing more Americans to own homes. The debt that Fannie and Freddie took on was not guaranteed by the full faith and credit of the U.S. government, but it was commonly believed that the federal government would, in fact, back these entities in the event of a downturn.
As a result of this understood government guarantee, Fannie and Freddie were able to borrow money at very low rates in order to purchase mortgages, package them together, and sell them to investors. In the lead-up to the mortgage crisis in September of 2008, Fannie Mae and Freddie Mac adopted too many of the risky practices of the subprime mortgage industry. As a result, they got themselves into extreme financial difficulty. In order to prevent an even worse financial meltdown, the government took control of Fannie and Freddie - and bailed them out. And that means that today, the taxpayers effectively own these entities. The problem is that in the event of another housing crisis, taxpayers would once again be on the hook for bailing out Fannie and Freddie.
Some have called for eliminating the government's role in housing all together. In fact, there's a proposal right now in the U.S. House of Representatives that would eliminate the government guarantee and severely limit access to affordable housing options. Experts agree that doing so would cut off access to the 30-year fixed-rate mortgage and foreclose the dream of homeownership for countless Delawareans. It would be extremely disruptive to the housing market for the foreseeable future.
I've teamed up with two of my colleagues - Rep. John Delaney of Maryland and Rep. Jim Himes of Connecticut - to protect taxpayer dollars, ensure that banks keep offering the 30-year fixed-rate mortgage, and maintain access to affordable housing options.
The Partnership to Strengthen Home Ownership Act, makes it so that if another housing crisis happened, private money - not taxpayer dollars - would take the biggest hit. It also allocates resources to the long neglected Housing Trust Fund to provide more housing options for low and middle income families. Unfortunately, as is the case with most things in Washington, reforming our housing finance system has become a partisan issue.
The good news, though, is that our proposal structures the new system in such a way that people on both sides of the aisle can support it. To learn more about the details of my bill, visit my website at www.johncarney.house.gov.
Close to 65 percent of Americans own their own home. For generations, owning a home has been tied to American prosperity, the American dream, and the strength of the middle class. After World War II, we saw a rise in homeownership as couples who made it through the war gave birth to the baby boom generation and bought houses - much like my own parents, Ann and Jack, did in Claymont.
Whether you're a senior citizen who looks back with pride at the home you raised your children in, or a young couple just starting out, excited to move in to your first home together - the ability to buy a home is a hallmark of the American middle class.
We owe it to our nation's history and our children's future to ensure that our system for buying and selling homes is built upon stable financial ground. I'm hopeful that even if my colleagues in Congress can't agree on everything, they can agree on this.
Read this original document at: http://johncarney.house.gov/index.php?option=com_content&view=article&id=587:the-news-journal-op-ed-let-s-band-together-to-save-the-30-year-mortgage&catid=13&Itemid=9
(c) 2010 Federal Information & News Dispatch, Inc.
http://www.4-traders.com/FEDERAL-NATIONAL-MORTGAGE-6383239/news/Federal-National-Mortgage-Assctn-Fnni-Me--The-News-Journal-Op-Ed-Lets-Band-Together-To-Save-The-3-18775758/
House Republicans move to repeal Dodd-Frank
by Ryan Smith | Jul 22, 2014
The Dodd-Frank Act, meant to rein in corporate excesses, has been a failure, according to the House Financial Services Committee.
The committee released a report Monday that claimed Dodd-Frank didn’t end “too big to fail” but instead entrenched it as official government policy. The report came days before the fourth anniversary of the act being signed into law.
“In no way, shape or form does the Dodd-Frank Act end ‘too big to fail.’ Not even Timothy Geithner believed his talking points on that,” said committee chairman Jeb Hensarling (R-Texas), referring to the former Treasury secretary’s recent comment that “too big to fail” still exists. ““Instead, Dodd-Frank actually enshrines ‘too big to fail’ into law. Today, hardworking taxpayers are at greater risk of being forced to fund yet more Wall Street bailouts. Dodd-Frank officially designates an entire category of Wall Street firms as ‘too big to fail’ and then creates a taxpayer-financed bailout fund for their use.”
"Today’s report not only convincingly rebukes President Obama’s false promise that Dodd-Frank represented 'no more tax-funded bailouts – period,' but it also levels with the American people that widespread consensus confirms that Dodd-Frank has institutionalized ‘too big to fail’ at the peril of local communities and their access to capital,” said Rep. Patrick McHenry (R-NC), chairman of the Oversight and Investigations Subcommittee.
Among the reports criticisms of Dodd-Frank are the claims that the act “leaves taxpayers exposed to the costs of resolving large, complex financial institutions,” and that Fannie Mae and Freddie Mac are still considered “too big to fail.”
Hensarling said that Republicans on the Financial Services Committee plan to introduce legislation “to repeal Dodd-Frank’s bailout fund and take other steps to end ‘too big to fail’ once and for all.”
http://www.forbes.com/sites/tedkaufman/2014/07/22/after-four-years-of-dodd-frank-were-still-waiting-for-wall-street-reform/
After Four Years of Dodd-Frank, We're Still Waiting for Wall Street Reform
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Four years after passage in July, 2010 of the grandiloquently-named Dodd-Frank Wall Street Reform and Consumer Protection Act we’re pretty much back to square one in terms of fixing the major causes of the financial meltdown of 2008-2009.
Yes, a very few positive things have happened. Thanks mainly to prodding from Federal Reserve Governor Daniel Tarullo, the Fed has set modestly higher capital requirements and reduced leverage ratios for the big banks. Still fighting Wall Street resistance at every turn, the Consumer Finance Protection Bureau continues to do good work.
But what else? The solemn pronouncements coming from Washington that “Too Big to Fail” is a thing of the past are ludicrous. The megabanks are bigger than ever, and are behaving exactly the way they did when, one year before the crash, Citibank’s CEO Charles Prince declared, “as long as the music is playing, you’ve got to get up to dance.” And the music being made these days while the banks gamble with FDIC-insured money and expand trading in risky derivatives is truly beautiful for the dancers. Megabank profits are soaring.
Last year I wrote an eleven part series in Forbes that laid out the failed promises of the Dodd-Frank financial reform package and the continued dangerous imbalances in our financial system. The entire series can be found at http://www.forbes.com/sites/tedkaufman/2013/07/17/an-unhappy-birthday-for-dodd-frank-as-momentum-builds-for-the-next-meltdown/
Not much has changed in the past year.
There has been no movement at all to actually reduce the size of the banks. Strangely, just about everyone agrees with the Alan Greenspan’s simple rule that “if they are too big to fail, they are too big.” But Washington is paralyzed, and JPMorgan Chase and the other megabanks have mounted a defense that more or less says that size isn’t a problem. It sure was five years ago, and it will be again.
Beyond the TBTF problem, regulators have not required realistic “living wills” for the big banks or implemented the international resolution authority required to avoid another taxpayer bailout.
Fannie Mae and Freddie Mac weren’t even mentioned in Dodd-Frank, but clearly they were major contributors to the housing crash. No reform of them has been approved.
The Obama administration has maintained the Wall Street-Washington revolving door. The old fox guarding the hen house analogy is as apt as ever. In the latest example, Diana Farrell, Larry Summers’ deputy in the White House and a key player in the administration’s policy on Dodd-Frank, just went to work for the new JPMorgan Chase Institute.
There has been a lot of regulatory busy work on reforms that would monitor and control the trading of derivatives. Unfortunately as with many Dodd-Frank “reforms,” a gigantic loophole was added at the very end of the process that allows the big banks to trade derivatives overseas without U.S. regulatory oversight.
After almost four years of lopsided input from Wall Street lobbyists, regulators finally approved a watered-down Volcker Rule to attempt to limit the big FDIC insured banks engaging in risky investments. Of course the real solution is reinstating the Glass-Steagall Act, but there is no movement in Congress or the administration to do that.
Another year has passed with no one from a Wall Street bank going to jail for the criminal behavior everyone knows helped cause the financial crisis. Fines against Wall Street banks are reaching $100 billion, but all will be paid by stockholders. Bank CEOs and managers pay no fines and face no prison.
There has been no reform—zilch, nada– of the credit-rating agencies. They are right back rating securities from issuers who pay them for their ratings.
Sad, right? But funny too, if you have a mordant sense of humor, when you follow the constant complaints of some in Congress that Wall Street banks are suffering under the heavy heel of the federal regulatory agencies.
I have no hope at all that the current Congress will do anything to reform the big banks and protect us from another meltdown, but there are signs of awakening beyond the beltway.
A national poll conducted by Greenberg, Quinlan Rosner Research, on behalf of Better Markets, shows that almost 90 percent of the American people believe the federal government has failed to rein in Wall Street. In addition, “sixty four percent of all voters and 62 percent of voters that own stock believe the stock market is rigged for insiders and people who know how to manipulate the system.”
“Another 55 percent majority,” the poll shows, ”believes Wall Street and big banks hurt everyday Americans by pouring money into ‘get-rich-quick’ schemes rather than real businesses and investments. This view is shared by strong majorities of Democrats and independents and more than four in ten Republican voters.”
“Sixty percent of voters favor stricter regulation on the way banks and other financial institutions conduct their business,” with only 28 percent opposed. Stricter regulation of Wall Street and the big banks finds large and wide bipartisan support, including 74 percent of Democrats, 56 percent of Independents and a comfortable plurality of Republicans at 46 percent.”
Politicians let the people they represent get this far ahead of them at their peril. My hope, as always, is that they take some real action before a very skeptical American electorate is inevitably asked again to bail out the big banks.
http://www.forbes.com/sites/tedkaufman/2014/07/22/after-four-years-of-dodd-frank-were-still-waiting-for-wall-street-reform/
Fannie Mae Vs Fairholme: Documents Dissemination Details
by valueplaysJuly 22, 2014, 9:53 am
Editor’s note: We posted this Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA), but are reposting as many readers likely missed it and also because ValuePlays provides some good analysis, as well, as highlights of the important parts.
The following is part of the transcript from the 7/16 hearing. The sides are Cooper for the Plaintiffs and Schwind for the defendants (gov’t). It is clear that in order to expedite discovery, all documents will initially be protected. The two sides will then go back and undesignate documents that do not qualify under the order. Should there be disagreement, the court will then decide. Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA)
Fannie Mae Freddie Mac Glassman
Fannie mae
Fannie Mae discovery document
Both side were in agreement and Judge Sweeney was sure to make clear there would be a significant number of documents coming forth to the public.
THE COURT: Let me ask you something. As I understand Plaintiffs’ counsel’s argument, the Government has indicated it intends to designate all material it produces as
protected. Is that correct?
MR. SCHWIND: Initially, Your Honor, yes. And Plaintiffs have agreed with that –
THE COURT: Okay.
MR. SCHWIND: — process.
THE COURT: And then?
MR. SCHWIND: And then there would be a process where we would go back and look at the documents and
undesignate documents that do not meet the definition that the Court puts in the order.
THE COURT: Okay.
………………………………………………………………………………………………..
Government still haven’t reviewed all of Fannie Mae’s discovery documents
THE COURT: Well, I can agree with that, my sentiments entirely. But Plaintiffs have to be able to have access to documents to establish this Court’s jurisdiction. I mean, otherwise, they don’t have their day in court if they don’t have that opportunity. And one thing that does concern me is that the Government is going to designate the entire universe of documents as protected. And as I understand it, the Government still haven’t reviewed all of those documents yet. So — but I also understand you to say that despite that initial blanket designation, you will go back then and look at each document and make a determination as to whether or not it should be protected.
MR. SCHWIND: Correct, Your Honor. And to the extent there’s a disagreement, as Plaintiffs said, there is a process in the order that the parties can address those disagreements.
………………………………………………………………………………………………..
Fannie Mae’s documents public release
MR. COOPER: But we also have the Government’s catchall provision that says any information that has not been publicly released is, by definition, protected. We think that’s way too broad.
THE COURT: Right. I can tell you, I did not –that also jumped out at me immediately because it would seem cumbrous to have — let’s say a reporter files a Freedom of Information Act or by some other means obtains information during the pendency of this case, and because it hasn’t been produced to you today, you couldn’t have it. I mean, I just — no, that just — that’s just — this isn’t a legal term, so forgive me, but it just seems silly. So, I mean — and just terribly unfair. And I was very — well, the Government attorneys are very good advocates and, so, I — and I do respect that. But that one didn’t slide by me and that’s not going in the order.
…………………………………………………………………………………………………
Fannie Mae: Warranted protection
MR. COOPER: The real question, though, is in the standard they apply and that this Court will ultimately apply if there’s any dispute over a particular document, whether genuinely legitimately warranted protection, whether or we should be entitled to receive, without restrictions, anything that any Tom, Dick or Harry in the United States made an FOIA request for and would be entitled under that law to receive. Surely, if any member of the public — if we ask for the same document as FOIA requesters, we’d be entitled under that law to receive it and, surely, we should be entitled to receive that in this process without the restraints of the protective order. That’s — I just wanted to make sure that –
THE COURT: No, we’re on the same page.
…………………………………………………………………………………………………
7:16 Transcript
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Tags:7/16 hearing Cooper discovery documents fannie mae FMCC FNMA FOIA freddie mac Government provision Schwind Warranted protection
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Richard Beales talks to Dan Indiviglio about the latest plan to wind down and replace U.S. mortgage giants Fannie Mae and Freddie Mac, and why it could – eventually – actually happen.
Video
http://uk.reuters.com/video/2014/07/21/breakingviews-fannie-may-die-at-last?videoId=324306919&videoChannel=2603&channelName=MOST+POPULAR
I read those comments and it's nice to know that the truth of our situation is known throughout the interweb. I posted that article so ihub members could rip it apart. It's like throwing a nice fat sheep to the starving FnF wolves.
A Purchase of Fannie Mae and Freddie Mac's Common Stock is Speculation, Not Investing
7/21/14 Courtesy of Motley Fool
Fannie Mae (NASDAQOTCBB: FNMA ) andFreddie Mac (NASDAQOTCBB: FMCC ) shareholders continue to face massive uncertainty with respect to the underlying values of the common stocks of these two companies.
Buying the common stock of the two government-sponsored enterprises is a speculation on Washington's inaction with respect to fundamental reform of the U.S. housing finance market. In addition, investors bet that U.S. courts will overturn the net sweep agreement and strengthen shareholder rights.
Difference between investing and speculating
There is a vast difference between being an investor and being a speculator. Investors do their research and are pretty much backed up by solid fundamentals relating to an investment target's business or industry.
Speculators, on the other hand, often bet on a price movement, either short-term or prolonged, which is expected to be precipitated by some projected catalyst. Buying the government-sponsored enterprises Fannie Mae and Freddie Mac, most notably their common stocks, certainly should be classified as a speculative action, not as an investment based on financial due diligence.
The outcome of a long position in Fannie Mae and Freddie Mac largely hinges on the courts and the inability of both political parties to reach a compromise about housing finance market reform.
Background
After the government-sponsored enterprises ran into serious solvency issues during the financial crisis, Fannie Mae and Freddie Mac were placed into conservatorship of its immediate regulator, the Federal Housing Finance Agency, or FHFA.
Source: Company
Ultimately, because of extremely high mortgage losses, which threatened to push the two companies into bankruptcy, both GSEs received a capital infusion of $187 billion from the Treasury.
As a result, a 'net sweep agreement' was put in place, which requires both companies to transfer all of their (prospective) earnings to the Treasury.
The most important characteristic of the net sweep: The dividends swept over by Fannie Mae and Freddie Mac aren't applied against the bailout balance. In other words, though the GSEs keep on paying an ever increasing stream of dollars to the Treasury, the companies, technically, have not repaid their bailout funds.
High-profile investors involved
Some investors, most notably, Perry Capital, filed suit against the net sweep agreement and many investors including Bill Ackman from Pershing Square Capital Management, Bruce Berkowitz, Morningstar's mutual fund manager of the decade from Fairholme Funds and Carl Icahn from Icahn Enterprises have initiated contrarian, high-risk equity positions in the common stocks of Fannie Mae and Freddie Mac.
As you can imagine, investors easily got fired up by the involvement of highly successful investors -- many with extremely appealing activist records.
The common stock, said to be worthless because of the net sweep, kept soaring throughout much of 2013 and the first quarter 2014 until a Senate Banking Committee made its best effort yet in March of 2014 to wind down Fannie Mae and Freddie Mac.
Though the Johnson-Crapo bill, which aimed at reducing the role of the government-sponsored enterprises in the mortgage finance market, was largely expected to not have any chances at all to succeed, the discussion of the bill and vote on it in the Senate Banking Committee forcefully injected volatility into the common stock of the two GSEs.
Expect high volatility going forward
After some volatile trading days and investors coming to terms with the fact, that the Johnson-Crapo reform bill will go nowhere, shares of Fannie Mae and Freddie Mac have found a bottom around the $4 mark, while both common stocks eagerly wait for new impulses.
Just last week, Fairholme Funds achieved a minor victory in court as Judge Margaret Sweeney in the U.S. Court of Federal Claims sided with Bruce Berkowitz and ruled that the discovery process in Fairholme Funds' suit against the government could proceed.
The news was responsible for sending shares of Fannie Mae and Freddie Mac up 9% and 10% respectively, indicating just how volatile an 'investment' in the GSEs can be. Investors should continue to expect high volatility in either stock going forward.
The Foolish Bottom
LineThe purchase of Fannie Mae's and Freddie Mac's common stock is a high-risk bet that reform attempts of the mortgage finance market will be unsuccessful in an election year as well as beyond 2014.
Further, investors bet, that the courts will side with shareholders and overturn the net sweep.
There is an important distinction to be made between investing and speculating. If you buy the common stock of the two GSEs, you are speculating and you should only allocate a small amount of your funds to such a risky bet.
http://dc.citybizlist.com/article/46731/a-purchase-of-fannie-mae-and-freddie-macs-common-stock-is-speculation-not-investing
Fannie Mae, Freddie Mac Phobia is Madness
by Guest PostJuly 21, 2014, 3:25 pm
Fannie Mae, Freddie Mac Phobia is Madness by Glen Bradford
The purpose of this article is to illustrate the cost to wind down Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) is so great that it’s not really a tractable solution and as such, the equity is severely undervalued. The idea is that the cost of wind down is so large that, as we are seeing, billionaires are getting involved and setting things straight. Politicians love to see what they can get away with, but this time they have bitten off more than they can chew and the analogy is like a minnow trying to swallow an elephant.
As you will see, it would take an act of great financial retardation to chop down:
A huge revenue source for American Taxpayers
Home affordability
Two enormously profitable companies with over 120 years of combined experience
The best way to begin illustrating the value created by Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) is to imagine that tomorrow you wake up and they no longer exist. What happens? The movie 28 Days later comes to mind. Things would get really bad really fast.
Home Affordability Plummets
Putting an end to Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) will increase the cost of taking out a mortgage. This will make homes less affordable. Dick Bove outlines that the median American household, in the absence of Fannie Mae and Freddie Mac, will be able to afford 20% less house. The math is as follows. At $51,000 per year, by his math, affordability drops from $435K to $345K.
The question that I am proposing is one that nobody seems to be asking: “How does this impact tax revenue?”
Fannie Mae, Freddie Mac wind down impact is Widespread
Because the secondary mortgage market contracted meaningfully over the last decade, a wind down of Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) would impact the entire American middle class. As of the most recent Census, there are 114,800,000 U.S. Households.
Year Number of Households
2010 114,800,000
2005 108,800,000
2000 103,200,000
1995 97,700,000
1990 91,900,900
1980 80,800,000
1970 63,500,000
1960 52,600,000
1950 43,500,000
1940 34,900,000
The impact of the wind down would be put across roughly half of these. Based on the US income demographics chart below I’m figuring that 52% of households would be immediately impacted and would be able to afford 20% less house.
fannie mae
Now that we have a sample size of people that would be impacted and their median incomes, let’s take a look and see if we can ballpark an effective property tax across this group of people to calculate the tax revenue impact of dropping home affordability by 20% via the end of Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC).
From the chart below, I have assumed that for math purposes a conservative estimate for property taxes would be 2.7% of income for the middle class.
fannie mae
(click to enlarge)
Middle Class Impact
Conservatively assuming that this only impacts the middle class, let’s take a look at income distribution in the United States and do some math:
114,800,000 households * (23%+18%+11% are middle class)*$50,054 median income * 2.7% = $81B/year in property taxes on this subset alone.
Governmental Impact
There are two components of tax revenue loss in this case. There is the run rate loss (A) and there is the one-time loss (B) because of tax write offs associated with capital losses. By my rough napkin math, the government will lose 20% of this tax revenue by winding down Fannie and Freddie, or $16B/year. If you capitalize this with a 14x multiple you get $224B. If you assume that home prices fall by this amount and the economy does not implode you are also looking at an estimated tax revenue loss in the amount of $254B, calculated as follows:
Median home price $213,400*20%*114,800,000 households * (23%+18%+11% are middle class) * 10% Effective Federal Tax rate on income.
The Lost Cost of a Going Concern
From a conservative investor standpoint, the losses for the government do not stop there because they potentially own 80% of the combined businesses. If you reference the value lost by not continuing the firms as a going concern, Bill Ackman on slide 105 puts the number somewhere between (C) $444B and $621B.
The Total Cost to the US Taxpayer
So far, I have outlined three Exhibits that will count towards losses in potential revenue for the US Taxpayer in the event that Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) are wound down. On top of that, you need to value the direct loss in home value, $2.5T calculated as follows:
Median home price $213,400*20%*114,800,000 households * (23%+18%+11% are middle class)
Total It Up
$224B+$254B+$444B+$2547B=$3.5T
If you spread that evenly across US Households the bill comes to $30,487, each. That is a price that I think many of us would prefer to not incur. This is why winding down Fannie and Freddie would result in the creation of neighborhoods of rental units aka instant slums.
It has been opined publicly, “How can we afford to continue on with Fannie Mae and Freddie Mac?” Gilbert Godfrey puts my candid perspective as eloquently as possible. You fool!
The Summary
The claim that Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) are not worth keeping around is a baseless opinion grounded in illusory ideas and not the reality that the world exists in today. Billionaires are getting involved and will see this through because it is profitable for them to involve themselves in this because the equity is seriously undervalued.
Making It Personal
I called my sister Julie, who just bought a house in Indianapolis, IN this past Spring and the truth of the matter is that her mortgage was financed by these beautiful companies. Until I made her investigate it, she had no idea. Meanwhile, she works as an accountant where she processes documents for the United States Department of Housing and Urban Development. I am just saying that most of the people that benefit, even the ones that probably ought to know, don’t know that they benefit directly from Fannie Mae and Freddie Mac’s existence.
That doesn’t even take into account the indirect benefit of being employed because the economy is healthy. The good work that they do behind the scenes is evidenced by the lack of private competition. They do what no one else dares to do at a great price and make a lot of money doing it. Without Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC), the 2008-2009 crisis would have been so much deeper and prolonged that we’d probably still be dive bombing economically.
As a previous tenant in the city of gossip, Washington DC, I lived within a 10-minute walk of the White House. I’ve spent a lot of time trying to understand how all of this madness is going to play out. The good news is that, from where I sit, I think that there are systems in place that will right the wrong that has happened. Before my grandfather died, he confided in me that his greatest regret was that he wished he could have helped just one more person. In that context, I hope that I have helped you better understand what is at stake here. For you and your friends the running total starts at $30,487.
Disclosure: The author is long FNMA, FMCC.
by G. Richard Bradford, III
Today is the greatest day of my life and tomorrow is going to be even better. We spend our whole lives holding back, imagine how quickly you can succeed if you just take what you want. What you get by achieving your goals is not as important as what you become by achieving your goals.
http://doblim.com/link/145893_fannie-mae-freddie-mac-phobia-is-madness
This is a couple of days old but interesting
Will The New Bill To End Fannie Mae And Freddie Mac Be Good News For Investors?
By Matthew Frankel | More Articles
July 17, 2014 | Comments (4)
There have been several efforts to get rid of Fannie Mae (NASDAQOTCBB: FNMA ) and Freddie Mac (NASDAQOTCBB: FMCC ) in Congress, but shareholders of the two companies weren't too worried because none of the proposals so far ever had a strong chance of passing. However, a new bill by three Democrats in the House of Representatives could change things a bit. This is significant because it's the strongest effort so far by Democrats to wind down the companies.
www.futureatlas.com
So, what's different about this proposal? What would take the place of Fannie and Freddie and the services they provide? And, will this proposal be fairer to shareholders of Fannie and Freddie? And why were shares of both companies up nearly 10% after the proposal was announced?
The bill and what it proposes
Basically, the Delaney-Carney-Himes bill has two main proposals.
First, it would establish an insurance program through Ginnie Mae that would require private capital to share the risk with the government by absorbing the first 5% of any losses sustained. This will help ensure responsible lending practices, as it adds an element of uninsured risk to lenders.
Second, it would wind down Fannie and Freddie over a period of five years, and this is where it gets a little interesting. The bill would wind down Fannie and Freddie's current activities and revoke their charter, but would allow them to be sold and recapitalized as new entities with new and different business plans.
Basically, the bill promises to maintain an accessible 30-year mortgage market, and to provide affordable housing options to the American public. It wants the new system to maintain pretty much all of the things Fannie and Freddie currently do, but at a much lower risk to taxpayers.
What about the shareholders?
It's a little unclear what this new proposal would mean for investors, but it's definitely not the "death sentence" for the common and preferred stock proposed under some of the previous bills.
The language is not completely clear and leaves some unanswered questions. As stated in the bill's summary, "they (Fannie and Freddie) will repay the government with interest for the government's investment in the institutions. The repayment must take into account both the injection of capital and the overall exposure to the government."
It is unclear exactly what this means for current investors, but it sounds a heck of a lot better than simply selling off both companies' assets and giving 100% of the proceeds to the Treasury, as proposed in some of the earlier bills.
What to do if you're an investor?
Before deciding what to do here, I'd want to hear a lot more about what the "repayment" to the government would require, especially since as far as I can tell, it's already happened.
As of the most recent quarter, Fannie and Freddie have paid the government back every dime they received from the bailout and then some. Fannie Mae has sent $126.8 billion to the Treasury, about $10 billion more than the $116.1 billion it received, and Freddie Mac has returned $86.3 billion, or $15 billion more than the $71.3 billion it received during the mortgage crisis.
Quite frankly, I'm somewhat confused by the language in the bill requiring a "payback with interest." Still, I have to say that this may be a good time for investors to start thinking about taking profits.
Fannie and Freddie shares are up more than tenfold over the past couple of years, and whether or not investors will ever see any of the companies' profits is still anyone's guess. Personally, I would embrace the pop this new legislation provided and enjoy my gains, but if you stay in, realize you're gambling, not investing.
These dividend stocks are much better investments than Fannie and Freddie
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http://www.fool.com/investing/general/2014/07/17/will-the-new-bill-to-wind-down-fannie-mae-and-fred.aspx
A question for everyone. Did the FHFA as conservator to FnF issue new shares of either common or preferred prior to the net profit sweep? Prior to informing the public of the plan for the net profit sweep? I am sure that I have read it before but I have not seen a historical record. A link to the info. would be greatly appreciated. TIA
Ha ha ANAL-ist
Yes sir. I mostly just copy and paste so as to keep it all authentic.
Fannie Mae: OPINION & ORDER Fairhome case and author opinion
By admin on Thursday, July 17th, 2014 | No Comments
Opinion and order in Fairholme lawsuit regarding Fannie Mae (OTCB:FNMA) and Freddie Mac (OTCB:FMCC),analysis to follow! PDF attached.
UPDATE: 11:38PM EST commentary from TimHoward717.com
“Hold no merit,” “contrary to law.” Once again Judge Sweeney reminds the government attorneys that the rule of law still is alive in the USA contrary to what they may believe. I think its pretty obvious that there have been numerous discussions between the FHFA, Treasury department and the administration about the potential for reforming and releasing Fannie and Freddie. More will be revealed. Part of me was hoping that this order would not be made public till after midnight so I could post it on 7/17. Seriously though its been a long day but I wanted to post a few key passages from today’s order. I think they stand pretty well on their own. Keep the Faith!
“the “FHFA cannot evade judicial review. . . simply by invoking its authority as conservator.” County of Sonoma v. Fed. Hous. Fin. Agency, 710 F.3d 987, 994 (9th Cir. 2013); Leon County v. Fed. Hous. Fin. Agency, 700 F.3d 1273, 1278 (11th Cir. 2012) (“The FHFA cannot evade judicial scrutiny by merely labeling its actions with a conservator stamp.”).”
“there is no request by plaintiffs that would potentially restrain or affect the exercise of powers or functions of the FHFA as conservator. Consequently, blanket assertions concerning the court’s ability to conduct these proceedings, especially as they pertain to a discovery matter related to the question of jurisdiction, hold no merit”.
“Overall, defendant advances general claims concerning the sensitive nature of the documents, and the adverse consequences that would result from divulging them. Without more detail regarding the content of the documents, or the opportunity to review them, the court cannot make a finding that they fall under the privilege. Id. (“[A] blanket approach to asserting the privilege is unacceptable and is itself grounds for denying invocation of the privilege.”) (citation omitted). In essence, defendant asserts that the court should merely take its word that the documents—some of which defendant, itself, has not reviewed—are privileged. This suggestion is contrary to law.”
UPDATE 8:57 PM EST June 16th 2014 Todd Sullivan of ValuePlays states:
Judge Sweeney entered her decision today on discovery. Bottom line is a big win for $FAIRX. Sweeney acquiesced on the dates for the govt but in a large swing granted discovery from the dates of June 2011 to Aug 2012. The FHFA has requested Jan 2012 to Aug 2012. She also granted discovery from the dates of April 2008 to Dec 2000 vs the Sept-Dec 2008 the government requested. That is a very big difference and will capture much more of the pre-decision deliberations.
This is a big win…..
OPINION ORDER
SWEENEY, Judge
Plaintiffs seek just compensation under the Fifth Amendment of the United States Constitution, contending that defendant engaged in a taking of their property without just compensation. According to plaintiffs, the Federal Housing Finance Administration (“FHFA”) placed the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) (collectively “the enterprises”) into conservatorship in 2008. Plaintiffs state that the United States Department of the Treasury then provided the enterprises with capital, and entered into agreements to purchase securities from them (“government stock”). While serving as conservator, plaintiffs contend, defendant issued the so-called the Third Amendment or “Net Worth Sweep” to government stock documents, which changed the dividend due on the government stock from 10% to 100% of all current and future profits. So long as the Third Amendment remains in effect, the rate of dividends on plaintiffs’ stock is zero. Plaintiffs claim that the elimination of their dividends constitutes a taking of dividends owed to Fannie Mae and Freddie Mac shareholders. This case is related to or coordinated with other cases with similar claims.
Defendant has filed a motion to dismiss, contending that the court lacks jurisdiction to hear this case, that plaintiffs’ claims are not ripe, and that plaintiffs have failed to state a claim for a regulatory taking. Plaintiffs respond that defendant’s motion relies upon factual assertions
that go well beyond, and in many respects, conflict with, their complaint. The court thus entered an order on February 26, 2014, allowing the parties to engage in jurisdictional discovery.
On May 30, 2014, defendant filed a motion for a protective order regarding jurisdictional discovery. As an initial matter, defendant claims that Section 4617(f) of the Housing and Economic Recovery Act (“HERA”) of 2008 bars the court from taking “any action to restrain or affect the exercise of powers or functions” of the FHFA as conservator. 12 U.S.C. § 4617(f). Further, defendant contends that disclosing documents in response to many of plaintiffs’ production requests would “interfere with the functioning of the conservatorships of Fannie Mae and Freddie Mac, impair ongoing deliberations about the future of the [e]nterprises,” Def.’s Reply at 1, and have a “destabilizing effect on the nation’s housing market and economy,” Def.’s Mot. at 7. Defendant also asserts that such documents are protected from production by the deliberative process privilege.1 Id. In response, plaintiffs argue that defendant’s concerns can be addressed with a protective order prohibiting public dissemination of sensitive information. Pls.’s Mot. at 1. Plaintiffs also state that defendant’s invocation of the privilege is premature because it has not reviewed all of the documents that it seeks to withhold, nor produced a privilege log explaining why they are privileged. Id. at 1-2.
With respect to defendant’s claim that the court lacks the authority to affect the exercise of the FHFA’s powers or functions, the court agrees with the case law of the United States Court of Appeals for the Ninth Circuit, which states that the “FHFA cannot evade judicial review
. . . simply by invoking its authority as conservator.” County of Sonoma v. Fed. Hous. Fin. Agency, 710 F.3d 987, 994 (9th Cir. 2013); Leon County v. Fed. Hous. Fin . Agency, 700 F.3d 1273, 1278 (11th Cir. 2012) (“The FHFA cannot evade judicial scrutiny by merely labeling its actions with a conservator stamp.”). Thus, rather than turning a blind eye to a case and immediately dismissing it from its docket merely because the case concerns the FHFA, the proper approach is for a court to examine the factual underpinnings and legal contentions presented by the complaint, in order to determine whether the exercise of its jurisdiction is proper. County of Sonoma, 710 F.3d at 994 (“Analysis of any challenged action is necessary to determine whether the action falls within the broad, but not infinite, conservator authority.”). Indeed, “Congress did not intend that the nature of the FHFA’s actions would be determined based upon the FHFA’s self-declarations . . . .” Leon County, 700 F.3d at 1278. For purposes of the instant motion, there is no request by plaintiffs that would potentially restrain or affect the exercise of powers or functions of the FHFA as conservator. Consequently, blanket assertions concerning the court’s ability to conduct these proceedings, especially as they pertain to a discovery matter related to the question of jurisdiction, hold no merit.
The court next turns to defendant’s arguments regarding the deliberative process privilege, a subset of the executive privilege, which protects “documents reflecting advisory opinions, recommendations and deliberations comprising part of a process by which governmental decisions and policies are formulated.” NLRB v. Sears, Roebuck Co., 421 U.S.
1 Defendant’s motion puts forward additional arguments that largely pertain to whether the court retains jurisdiction in this matter, and that have no bearing on the discovery issues at hand. The court will thus refrain from discussing these arguments here, and will instead address them when resolving defendant’s motion to dismiss.
http://originatortimes.com/
FnF kind of followed the market today until that last crazy buy of fannie but you just never know when something significant will be released or leaked. That is why I just hold. It is less stressful for me to know what I own and hang on. Just doing that is stressful enough.
20 mil. Volume pretty nice.
Considering the market as a whole after that 777 got shot down, we are doing ok.
FnF parity
Fairholme Gets Another Favorable Ruling In Fannie Mae, Freddie Mac Case
by Michael IdeJuly 17, 2014, 1:21 pm
http://www.valuewalk.com/2014/07/fairholme-favorable-ruling-in-fannie-mae-freddie-mac-case/
Judge Sweeney rejected FHFA claims that discovery would interfere with its ability to act as conservator or that it had blanket privilege to withhold documents
Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) shareholder won an important decision yesterday when Judge Margaret Sweeney for the US Court of Federal Claims ruled that not only the discovery process continue in Fairholme’s case against the Federal government, but it will encompass a broader range than the government had hoped for.
Fannie Mae Freddie Mac FHFA Federal National Mortgage Assctn Fnni Me (FNMA) Bove
Fannie Mae, Freddie Mac: Sweeney rejects FHFA’s blanket claim to deliberative process privilege
The Federal Housing Finance Agency has been trying to halt the discovery process in this case by arguing that the courts don’t have the necessary jurisdiction to review its decisions and that the documents being requested are protected by deliberative process privilege, but Sweeney rejected both arguments.
Sweeney quoted a previous Ninth Circuit Court of Appeals ruling that the “FHFA cannot evade judicial review . . . simply by invoking its authority as conservator,” and found that Fairholme’s requests wouldn’t interfere with FHFA’s ability to continue acting as conservator, so there was no reason not to continue with discovery.
Pre-decisional documents are subject to ‘deliberative process privilege,’ the idea being that the government should be free to brainstorm and discuss policy and then only be accountable for
what it actually puts into effect, but this privilege isn’t absolute and requires some justification. Amazingly, FHFA admitted that it hadn’t even reviewed all of the documents that it claimed as privileged, and Sweeney said that this blanket approach to privilege is reason enough to reject it.
Fannie Mae, Freddie Mac: Sweeney gives discovery a broader scope than FHFA had hoped for
But the rejection of two unlikely arguments isn’t why this decision is being seen as a big win. FHFA has been trying to limit discovery as much as possible, arguing that documents from September 2008 to December 2008 and January 2012 to August 2012 should provide enough information for the plaintiffs, but Judge Sweeney set the scope of discovery as April 2008 to December 2008 and June 2011 to August 2012, giving Fairholme almost entire extra year’s worth of documents to pore over.
The FHFA will be able to claim privilege on some of these documents, but it will have to create a ‘detailed privilege log’ explaining why those documents should be withheld. This case still has a long road ahead of it, but after a string of favorable rulings Fairholme should soon have a trove of government documents to analyze while continuing to build its case.
I put a small buy in at 4.45 just so the price stays above it. LoL
About 15.4 mil
We can see the mm manipulation. I would like to know who the puppet masters are that are pulling the mm strings. Anybody have a thought on this? Who benefits? Insiders could have bought before now.
I hope they fill.
Ok chartists, any gaps?
A year from now we will be happy happy joy joying in cabo or hawaii or bahamas wherever our wise decision now takes us. FNF
Over 5 mil. Vol in 27 minutes. Haha somebody turned the power back on at six flags.
I thought that was odd. Is she really poking fun at the defendants with such a sarcastic remark? Don't get me wrong I love it but is she really blatantly jabbing them? If she read this out loud I picture her rolling her eyes and winking at the plaintiffs. Then the defendant tries to interrupt her and Judge(judy)Sweeny says "Excuse me sir. I AM SPEAKING!!!"
The emails have been sent sir. My attack commenced at 0700 central time.
Hell, I have to keep going. I do realize that there is more at stake than share price and my own vindictive yearning for satisfaction. The rule of law must prevail and justice must be served. These two things are cornerstones of the foundation of this country. They must be preserved. Still IMO but I am sure most of you agree.
It seems to me that the plaintiff's lawyers will have access to documents, protected or not, which is great for us. It also seems that the government lawyers want all the info. to be protected so that the public will not be officially informed of the illegal activity by our elected officials and by the appointed officials.
As a share holder I feel great right now. As an American citizen I feel anxious. Judge(Judy)Sweeny has a lot of influence on who is exposed. I hope she opens the whole can of worms. At least some of the elected officials careers will be in jeopardy. IMO.
Alison Frankel new article
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As crisis litigation draws to close, lessons for investors
By Alison Frankel
July 16,
AIG | bank of america
http://blogs.reuters.com/alison-frankel/2014/07/16/as-crisis-litigation-draws-to-close-lessons-for-investors/
We’re near the end. With the news Wednesday that Bank of America will pay AIG $650 million to settle their long-running and many-tentacled litigation over mortgage backed securities –along with a report in The Wall Street Journal that the credit rating agency Standard & Poor’s is contemplating a $1 billion settlement with the Justice Department for its MBS rating failures — it’s time to declare the twilight of financial crisis litigation.
Yes, there’s still some big work to be done, including BofA’s anticipated multibillion-dollar settlement with the Justice Department; the resolution of the Federal Housing Finance Agency’s last few cases on behalf of Fannie Mae and Freddie Mac; and dozens of private-investor breach-of-contract suits against the banks. But that’s the denouement, the last act.
So what have we learned, after six years of intense and expensive litigation? To me, the clearest lesson from financial crisis litigation is that investors cannot rely on anyone else’s assurances about complex securities.
Federal securities laws say otherwise, of course. Issuers and underwriters are supposed to disclose the risks built into the securities they’re selling. Credit rating agencies are supposed to provide realistic assessments of investment quality. State and federal regulators are supposed to make sure all of them are living up to their representations and to seek justice for investors if it turns out they’ve been deceived.
The first few years of MBS litigation, dominated by investor class actions and bond insurer suits against issuers, exposed the gap between bank representations about underlying mortgage loan pools and the pools’ actual risk profiles. After re-underwriting sample loans, MBS plaintiffs claimed breathtaking breach rates, asserting in case after case that 30, 50, 60 or even 70 percent of the mortgages underlying MBS trusts were deficient for one reason or another.
Discovery in the private cases also turned up reams of evidence that mortgage originators, bank securitizers and credit rating agencies knew — or at least should have known — that the underlying loans didn’t live up to their representations and warranties. The MBS sell side was either too greedy to tell the truth or too credulous that house prices would continue to rise, despite reports from the field about increasingly risky loans.
Regulators, meanwhile, just weren’t equipped to investigate allegations of fraud on an industry-wide scale. Even after the Obama administration and state enforcers teamed up to form an RMBS task force in 2012, the Justice Department and the Securities and Exchange Commission leaned heavily on evidence obtained in private MBS litigation. The government can afford to take its time, thanks to longer statutes of limitations than those that apply to private suits. But as Justice pursues a giant settlement with BofA, on top of the $20 billion it has already announced in settlements with JPMorgan Chase and Citigroup, it’s fair to wonder whether the government would have brought any MBS fraud cases at all if private investors and their lawyers hadn’t built a foundation for the feds’ claims.
We also learned that the MBS trust mechanism hinders accountability to investors. If AIG’s relentless opposition to Bank of America’s $8.5 billion settlement with Countrywide MBS investors proved nothing else (aside from AIG’s tenacity), it highlighted the awkward role of MBS trustees, who are paid (and indemnified) by issuers yet have the sole power to bring breach-of-contract claims for investors.
AIG failed to establish that Countrywide’s MBS trustee, Bank of New York Mellon, had a conflict of interest. But it’s no accident that some of the same gigantic institutions that negotiated the Countrywide MBS deal alongside BNY Mellon have just turned around and sued the bank for breaching its duties as a trustee.
For years after defaults began to erode MBS revenue streams, trustees declined to demand the repurchase of defective loans. Trustees began suing sponsors only after noteholders banded together to get past the 25 percent contractual ownership threshold to direct trustee action or when distressed debt funds acquired controlling stakes in faltering MBS trusts. And if noteholders couldn’t meet those procedural requirements by the end of 2013, they can pretty much forget about any recovery for contractual breaches (unless New York’s highest court raises the time bar for their claims).
No one, in other words — not issuers and underwriters, not rating agencies, not MBS trustees and not regulators — was ready, willing and able to backstop noteholders. So it shouldn’t be a surprise that the most consequential legacy of MBS litigation is investor wariness. Private capital hasn’t returned to the residential mortgage market (though other asset-backed securities are doing fine). Bondholder groups have argued in Congress and elsewhere that their members won’t invest again in mortgage-backed notes without safeguards they didn’t have the last time around.
I know what you’re thinking: MBS investors were generally sophisticated institutions with the resources to conduct their own due diligence. Investors such as Fannie Mae and Freddie Mac, for example, knew as much about chicanery in the mortgage market as any MBS issuer. You’re right, of course, and MBS defendants have made those points in court. Investors were arguably just as greed-blinded as issuers, underwriters and credit rating agencies in the MBS bubble. They could have and should have known better, though courts have generally held that MBS investors didn’t have access to enough specific, loan-level information to have known the full extent of issuers’ misrepresentations.
There’s a winner and a loser in every trade, but what years of MBS litigation has shown is that in MBS deals, noteholders were doomed to lose. Let’s hope they remember that lesson when the next securities bubble brews.
I have a question. I saw a lot of 100 share bids today for a penny lower than the then current price. I saw it over and over. I thought that I also saw ask below the current price at the time. Was this a day when the mms. Were unsucessful in their attempts of holding s/p down ? I guess I am asking if the market overwhelmed the market makers. TIA
I hope the rumor of icahn and Ackman didn't drive the stock up. No mention of FnF.
A Debate that Could Destroy Your Dream of Homeownership
Richard Osborne on 2014-07-16 16:28:04.0
Some people are saying it is just what the doctor ordered. Others are saying that the cure is worse than the disease.
The Affordable Care Act? Reengagement in Iraq? Tea Party bullying in the GOP?
Not this time. Just as protracted in the corridors of Congress and the White House is the debate over the proposed reform - and potential replacement - of the beleaguered Fannie Mae and Freddie Mac. And InsideSources has uncovered the involvement of a former Administration official, who appears to have been involved in the discussions that shaped part of the legislation that could offer a large upside to big banks.
Although it is less on the minds of Americans in the heartland, arguably no issue has more personal impact. The result of the debate will determine many of the winners and losers in the American dream of homeownership.
It is not merely families seeking their own backyard who will be affected. The titans of the banking industry also are keenly concerned about whether they will be warmed under the protective cover of government guarantees or be left out in the cold.
A key focal point in the debate is a bill sponsored by Senate Banking Committee Chairman Tim Johnson (D-SD) and ranking Republican Mike Crapo of Idaho. The Johnson-Crapo bill was voted out of committee and to the full Senate in May.
The Johnson-Crapo bill is built on the framework of legislation sponsored by Sen. Bob Corker (R-TN) and Mark Warner (D-VA). Both Johnson-Crapo and Corker-Warner would effectively wind down Fannie and Freddie, replacing them with a newly created Federal Mortgage Insurance Corporation (FMIC).
While the legislation ostensibly is designed to create a new and improved path to homeownership, its proponents don't like to talk about who would primarily benefit from its approval: the big banks, the very entities that contributed to the housing collapse in the first place. In a classic example of the cozy ties that exist in Washington between regulators and the regulated, the legislation was shaped with strong input from a number of individuals with current or recent ties to the big banks and mortgage companies.
For example, Michael Bright, Corker's senior financial adviser since 2010, previously was a mortgage trader for Countrywide Financial and Wachovia. The two firms figured prominently in the housing collapse.
Meanwhile, Fannie and Freddie investors are fighting the 2012 Third Amendment - the so-called 'Sweep Amendment' - that allows the Treasury Department to seize all profits indefinitely. The restriction exists even beyond the satisfaction of Fannie and Freddie's debt to taxpayers for the bailout.
…the legislation was shaped with strong input from a number of individuals with current or recent ties to the big banks and mortgage companies.
One of those who helped shape the amendment is Jim Parrott, a senior fellow at the Urban Institute and former senior advisor at the White House's National Economic Council. Parrott has served as a consultant for major banks. InsideSources has obtained an email strongly suggesting that Parrott played an advisory role for at least one bank, Bank of America.
The email, written by a senior official at the bank, refers to a meeting with Parrott about housing finance reform. In the email, the official also asks about arranging a telephone call to provide details of the Parrott meeting.
Parrott declined to discuss his role with the banks or in the Sweep Amendment discussions when asked by InsideSources. He also chose to not comment on how his work with any banks would fit against the backdrop of the Administration's internal rules intended to cover political appointees leaving the government.
The sweep maneuver raises even more questions about the specter of the influence of major banks on policies meant to serve the public interest. 'I am not a lawyer and I don't play one on TV,' says financial services analyst Josh Rosner. 'But I do believe it seems like it was not something done solely by the conservator.'
Whatever the twists and turns, answers to the Fannie/Freddie dilemma do not appear to be coming anytime soon.
'Given the [political] climate and how complicated the contemplated makeover of the second-largest securities market in the world is, it will be many moons before reform legislation is passed,' says Jim Millstein, chairman and CEO of Millstein & Co. Until March 2011, Millstein was the chief restructuring officer at the U.S. Department of Treasury.
Prospects for the legislation actually making it to the Senate floor, let alone passing, are highly questionable. Opposition to the particulars of the proposals, even from those who support the concept in principle, is intense.
In testimony to the Senate Banking Committee this past November, Millstein cautioned at length against too hastily putting Fannie and Freddie to rest. He tells InsideSources:
'If the new first-loss capital hasn't been raised in size on a timetable perfectly in sync with the five-year wind down of Fannie and Freddie imposed by Corker-Warner, there could be significant contraction in the availability of mortgage credit.
'Second, the wind down has the effect of orphaning all the outstanding Fannie and Freddie mortgage-backed securities, a $4.5 trillion credit market, prices in which form the basis off of which a variety of other instruments are priced and hedged.
'As a consequence, there could be significant dislocation in interest rates not only in the mortgage credit market but in the debt markets for a variety of mortgage-related entities (e.g., mortgage REITs).'
Critics of Johnson-Crapo say the bill would hand control of the nation's $20 trillion mortgage market to the big banks while providing them with a full government backstop to protect against any potential losses. The legislation also comes at the expense of tens of thousands of investors who hold stock in Fannie and Freddie.
One outspoken critic is Rosner, managing director of Graham Fisher & Co. and co-author of Reckless Endangerment: How Outsized Ambition, Greed, and Corruption Led to Economic Armageddon??(Times Books, 2011). The book targets the individuals who, the authors argue, played pivotal roles in the financial meltdown.
The government's entire approach to Fannie and Freddie is misguided, Rosner tells InsideSources.
'Rather than label Fannie and Freddie as GSEs (government-sponsored enterprises), we should treat them as public utilities - much like water, electric and sewer - and regulate them properly,' he says. 'We need to depoliticize these institutions.
'Public utilities exist to make sure the public interests are served,' he adds. 'Instead, we have the banks licking their chops like Elmer Fudd does every time he sees Bugs Bunny. They're hoping to capture not only the primary but the secondary market.'
Rosner would keep the basic structures of Fannie and Freddie intact either through conservatorship (allowing them to raise private capital to sufficient levels) or receivership (re-chartering replacement entities that look like the GSEs with proper regulatory structures.)
'You could call them Jimmy and Sue,' he says. 'I don't care. Just fix them and support the mission they were originally conceived to perform, to support adequate liquidity in the primary mortgage market.'
Which route would he take?
'I am agnostic,' he says. 'I just think we need to recognize that Fannie and Freddie are not the problem. The problem is our failure to regulate them and to insure the separation of the primary and secondary markets.'
Millstein's formula for fixing Fannie and Freddie, at least on an interim basis, is similar.
'They need to be allowed to build capital so as to allow them at a minimum to be able credibly to back the $4.5 trillion of securities of theirs that will remain outstanding for decades to come,' he says, 'and to create a capital cushion between the underlying mortgages and the U.S. taxpayers who are on the hook for those mortgage-backed securities until they are retired.'
As the lobbying and posturing continue in the corridors, Rosner holds hope that changes in Senate leadership - he believes Richard Shelby (R-AL) and Sherrod Brown (D-Ohio) offer promise - could prompt a solution. 'They both understand the issue, they are not terribly ideological about it, and they could work together.'
Besides, he says, 'I am hoping that at some point rational thinking comes back into fashion.'
Regards
Richard Osborne
for The Daily Reckoning
http://www.tradeplacer.com/login.action?task=viewArticle&id=38430&title=A----Debate----that----Could----Destroy----Your----Dream----of----Homeownership
Extras on Excise: Mortgage Giants Are Winning on Transfer Tax Litigation—Will Their Victories Continue?
by Rebecca Helmes
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Fannie Mae and Freddie Mac are playing legal Whac-A-Mole with state and local governments’ claims of the mortgage giants’ transfer tax liability—and the mortgage giants are winning.
The idea behind the real estate transfer tax (sometimes known as a document transfer tax or a deed transfer tax, depending on the state) is that people or organizations transferring real estate must pay a tax on the transfer, usually based on the amount for which the property is sold.
In states that impose real estate transfer taxes, people generally do not get a pass on paying them. But the problem with turning to the mortgage giants for transfer tax revenue, as it has played out in several cases across several U.S. Courts of Appeals and other federal courts, is that Fannie Mae and Freddie Mac, along with the Federal Housing Finance Agency as their conservator, have special protections from state and local taxes under their federal charters—which most other private companies and individuals do not have.
Those protections include exemptions from all taxes imposed by any sate, with the exception of taxes on real property. And unfortunately for state and local governments, courts have generally found that transfer taxes are taxes on transfers of real property, not taxes on real property itself, so state and local governments cannot tax the agencies on those transfers.
In one of the most recently issued cases, Board of Commissioners of Montgomery County, Ohio v. Federal Housing Finance Agency, No. 13-4429 (6th Cir. July 10, 2014), the court’s dismissal of the case brought by two Ohio counties hinged on the mortgage giants’ federal statutory exemptions from taxation. The findings, which are similar to findings in other circuits, include:
-transfer taxes fall within the government-sponsored entities’ statutory exemptions from tax.
-real property transfer taxes are excise taxes, not taxes on real property, and do not fall into the exception to the statutory exemption from tax.
-Congress’ commerce clause power allowed it to enact the tax exemptions.
-the enactment does not run afoul of any constitutional provision.
So why have courts generally rebuffed local governments’ arguments so far, and why does this keep coming up? Under the federal charters of Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation), one of their purposes is to create liquidity in the mortgage market by buying mortgages from lenders like banks that make mortgage loans, giving lenders more money to make more mortgage loans.
When the mortgage bubble burst in 2008, Fannie Mae and Freddie Mac owned a large inventory of defaulted and overvalued subprime mortgages. At the same time, states’ revenues were declining from the financial crisis and economic depression, according to Circuit Judge Richard Posner in DeKalb County v. Federal Housing Finance Agency, 741 F.3d 795 (7th Cir. 2013), one of several circuit court opinions siding with government-sponsored entities regarding transfer taxes.
Mortgage companies started making frequent sales of the properties on which they had foreclosed, and states and their political subdivisions were in “dire need of additional tax revenues but reluctant to impose or increase taxes that would drive businesses and people to lower-tax states,” Posner wrote.
The challenges are not over yet—there are at least two cases pending in two different circuit courts of appeals (Town of Johnson v. Federal Housing Finance Agency, No. 13-2034, pending in the U.S. Court of Appeals for the First Circuit; and Montgomery County v. Federal Housing Finance Agency, No. 13-12615, pending in the U.S. Court of Appeals for the Eleventh Circuit). Whether these courts will give state and local governments a win—and a split in the circuits—remains to be seen.
Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Do you think Fannie Mae and Freddie Mac’s state tax exemption should be amended to subject them to other types of tax besides real property tax?
For more information about state tax issues, sign up for a free trial of the Bloomberg BNA Premier State Tax Library.
http://www.bna.com/extras-excise-mortgage-b17179892382/
I am loving this. The news will be favorable. Bigger moves to come.