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Yellen's question/answer about GSE reform in House Financial Services Committee .
http://www.forextv.com/forex-news-story/yellen-excerpt-housing-finance-system-still-has-systemic-risk
WASHINGTON (MNI) - The following is an MNI excerpt of Federal Reserve Chair
Janet Yellen's answer to a question on GSE reform Tuesday morning from the House
Financial Services Committee:
Representative Michael Capuano: Do you think that it is fair or wise or
equitable to keep any entity in a de facto bankruptcy state once they have paid
back their debt?
Yellen: I think with respect to GSEs, I think it is really very important
for Congress to put in place a new system to address GSE reform, I think we
still have a system that has systemic risk , that government funding remains
critical to the mortgage sector and I think to really get housing back on its
feet, it's important for Congress to put in place a new system and to explicitly
decide what the role of the government should be in helping the housing sector.
--MNI Washington Bureau
If we can get through 3.15 first...
Haha.
IMO, it needed room to breathe and separate from the 50-day SMA. It was getting too close for too long. It couldn't go down much further and clearly has strong support at the 50 day. Now it has some liquidity to oscillate until earnings.
Thank you for your first hand insight malebaboon. Obviously there are legal differences between preferred and common shareholders, but outside of that distinction, how can shareholders be treated differently based on time of purchase? That's just illegal...unless the market operates with temporal bias that I don't understand...
One additional question, unimportant question: How uncomfortable was it when that guy started yelling about being thrown into the street by FnF because he couldn't pay his mortgage?
Proof that Treasury had an agenda against common shareholders of the GSEs.
Credit for this goes to bryndon.fisher over at the google boards. This excerpt comes from the latest court case: Continental Western Insurance Co. vs. FHFA, Watt, US Treasury:
https://groups.google.com/forum/#!topic/freddienfannie/ivIgTSFGR08
80. Statements by both FHFA and Treasury provide further confirmation that the Net Worth Sweep violates FHFA’s statutory restrictions as conservator. Treasury, for example, said the Net Worth Sweep would “expedite the wind down of Fannie Mae and Freddie Mac,” and it emphasized that the “quarterly sweep of every dollar of profit that each firm earns going forward” would make “sure that every dollar of earnings that Fannie Mae and Freddie Mac generate will be used to benefit taxpayers.” Press Release, U.S. Dep’t of the Treasury, Treasury Department Announces Further Steps to Expedite Wind Down of Fannie Mae and Freddie Mac (Aug. 17, 2012). Indeed, Treasury emphasized that the Net Worth Sweep would ensure that the Companies “will be wound down and will not be allowed to retain profits, rebuild capital, and return to the market in their prior form.” Id. As early as December 2010, internal Treasury documents acknowledged the “Administration’s commitment to ensure existing common equity holders will not have access to any positive earnings from the [Companies] in the future.” Action Memorandum for Secretary Geithner (Dec. 20, 2010). The Net Worth Sweep thus implemented this internal Administration decision.
The cited source is a discovery document obtained by the Plaintiff's legal team from the Treasury. It provides direct evidence that 2 years prior to the 3rd PSPA amendment, an internal memo sent by Timothy Geithner (Sec. of Treasury at the time) mandated that common shareholders would see no benefit from any profits generated by the GSEs. This is highly ethically and legally inappropriate and goes against the very essence of free-market trading.
If you look at the 10K earnings releases (4th Q results) from the last 5-6 years for Fannie Mae, you will see that it is typically reported on the last Wed, Thur, or Fri of February. Freddie Mac's also is typically reported at the end of Feb or first week of March.
http://www.fanniemae.com/portal/about-us/investor-relations/quarterly-annual-results.html
http://www.freddiemac.com/investors/er/
I'm not really sure why anyone expects these to be significantly different this year? Perhaps I can be enlightened? If your answer is Google finance (or any other website) told you so, then unenlightened I will remain.
Those large trade blocks (for both FNMA and FMCC) posting after market close happened on thurs and fri of last week. I'll be interested to see if it happens again today...
News: Taxpayers near profit on Fannie/Freddie bailout
by Chris Isidore
http://money.cnn.com/2014/02/10/news/economy/fannie-freddie-profit/
The two mortgage financing companies that received whopping government bailouts in the financial crisis are on the verge of paying it all back.
Later this month, Fannie Mae and Freddie Mac are likely to report earnings that will result in them paying the U.S. Treasury more than the $187 billion they received starting in 2008.
Since the beginning of last year, Fannie and Freddie have been turning over virtually all profits to the government each quarter. Before that, they were paying a 10% dividend on the preferred stock held by Treasury.
That change has meant a windfall for Treasury, which controls 80% of each company's stock.
A recovery in the housing market, coupled with accounting rules that produced huge one-time gains at both firms last year, also resulted in much larger payments.
As a result, Fannie and Freddie paid $130 billion to taxpayers last year alone, after paying only $55 billion from 2008 through 2012.
While 2013's payments are unlikely to be matched this year or any time soon, the firms are likely to keep paying billions to Treasury in dividends, quarter after quarter, unless there is another sharp downturn in the housing market or Congress moves ahead with proposals to phase out both firms.
If the government hadn't changed the repayment rules, it would probably have been another six years before taxpayers could hope to recoup the billions the firms received.
Neither Treasury nor the firms will comment about the payments to taxpayers ahead of the fourth-quarter financial results. Since their combined dividends are only $2 billion below the original bailout amount, passing that threshold this quarter is virtually certain.
But not everyone is happy about the prospect of taxpayers being made whole for the rescue of the firms. In fact, there are two federal lawsuits challenging the current repayment schedule.
In one suit, hedge fund Perry Capital argues that the larger repayment violates the 2008 law that authorized the bailout. They contend that if profits are being returned to taxpayers, the government should give up some shares in return. That would increase the value of the shares held by private investors, including Perry Capital, that account for 20% of the firms' stocks.
Other private investors, who bought Fannie and Freddie before the housing bust, include community banks, pension funds, university endowments and foundations.
The other suit is brought by low-income housing groups, led by the Right to the City Alliance. They argue that the original bailout law also demanded that a fraction of future Fannie and Freddie profits go into a government trust fund set up to provide affordable housing to the low income and homeless.
But Rachel Laforest, the alliance's executive director, said that no money has ever gone into the fund. The suit estimates that if the law had been followed there would be $578 million now in the fund, and hundreds of millions a year in future contributions.
First Published: February 10, 2014: 9:52 AM ET
News: The disastrous idea for privatizing Fannie and Freddie
by Dean Baker
http://america.aljazeera.com/opinions/2014/2/fannie-mae-freddiemacprivatizationobama.html
In his State of the Union Address on Jan. 28, President Barack Obama briefly referred to his hopes for reforming Fannie Mae and Freddie Mac, the two government-sponsored and publicly traded entities that support the mortgage market by buying and securitizing mortgages. Both companies failed during the 2008 financial crisis and had to be taken over by the government.
By “reforming,” the president unfortunately doesn’t mean “improving.” Rather, he likely means “privatizing.” In fact the most likely form of privatization at this point would feature the sort mix of private incentives and government guarantees that makes another financial disaster virtually certain.
The smart money in Washington is betting on the Housing Finance Reform and Taxpayer Protection Act, sponsored by Sens. Bob Corker, R-Tenn., and Mark Warner, D-Va. The Corker-Warner bill, put together by two of the more centrist senators in both parties, does not simply get the government out of the mortgage guarantee business — an idea that actually has a plausible argument in its favor.
Instead, Corker-Warner would replace Fannie and Freddie with a new a system in which private financial institutions could issue mortgage-backed securities (MBSs) that carry a government guarantee. In the event that a large number of mortgages in the MBS market went bad, the investors would be on the hook for losses up to 10 percent of their value, after which the government would cover the rest.
If you think that sounds like a reasonable system, then you must have already forgotten the housing crash and ensuing financial crisis. At the peak of the crisis in 2008 and 2009, the worst subprime MBSs were selling at 30 to 40 cents on the dollar. This means the government would have been picking up a large tab under the Corker-Warner system, even if investors had been forced to eat a loss equal to 10 percent of the MBS price.
The precrisis financial structure gave banks an enormous incentive to package low-quality and even fraudulent mortgages into MBSs. The system laid out in the Corker-Warner bill would make these perverse incentives even larger. The biggest difference is that now the banks can tell investors that their MBSs come with a government guarantee, so they stand to lose at most 10 percent of the purchase price. If the banks had little difficulty selling junk-filled MBSs that carried no government guarantee at all, just imagine a Corker-Warner future with government subsidies.
Certainly the Justice Department’s treatment of the bankers who packaged fraudulent mortgages and misrepresented their quality to buyers will not discourage the same behavior in the future. None of these people went to jail, and in most cases they are much richer today than they would have been if they had pursued an honest career.
If you think an explicit government guarantee on subprime mortgage-backed securites is a stupid idea, you obviously haven’t spent enough time being convinced by lobbyists.
The changes in financial regulation are also unlikely to provide much protection. In the immediate wake of the crisis, critics demanded that securitizers keep a substantial stake in the mortgages that they put into their pools to ensure that they had an incentive to securitize only good mortgages. Some reformers were demanding as much as a 20 percent stake in every mortgage.
Over the course of the debate that led to the Dodd-Frank financial-reform bill and subsequent rules formulated after its passage, this stake got ever smaller: Securitizers had to keep only 5 percent. And for mortgages meeting certain standards, they wouldn’t have to keep any stake at all.
In the view of some of those drafting proposals, only mortgages in which the homeowner had made a down payment of 20 percent or more passed this good-mortgage standard. That cutoff got lowered to 10 percent and then was dropped further, to 5 percent. Even though mortgages with just 5 percent down are four times as likely to default as mortgages with 20 percent or more down, securitizers will not be required to keep any stake in them when they put them into an MBS.
Anyone trusting that the bond-rating agencies would protect against the proliferation of junk MBSs missed what happened to the amendment proposed by Sen. Al Franken, D-Minn., in the rules-writing process of Dodd-Frank. The amendment, which passed the Senate with a huge bipartisan majority, would have eliminated the conflict of interest that results from having the banks issuing MBSs pay the agencies that assign ratings. The amendment proposed that the Securities and Exchange Commission (SEC) pick the rating agencies. This simple step would have taken away the incentive to rate every piece of junk as investment grade, as happened during the years of the real estate bubble leading to the financial crisis.
This change would have taken effect, except the SEC, after being inundated with industry comments, deciding that picking rating agencies was too complicated. As a result, we have the exact same system in place as we did during the bubble.
In short, the Corker-Warner plan to privatize Fannie and Freddie is essentially a proposal to reinstitute the structure of incentives that gave us the housing bubble and the financial crisis, this time with the added fuel of an explicit government guarantee on subprime MBSs. If that sounds like a stupid idea, you obviously haven’t spent enough time being convinced by lobbyists at one of Washington’s finest restaurants.
Dean Baker is co-director of the Center for Economic and Policy Research and author, most recently, of The End of Loser Liberalism: Making Markets Progressive.
Agreed. Watt's personal viewpoints and vision of the FHFAs mission to maintain a liquid and affordable housing market are of great interest. It has been over 1 month since he was sworn in as acting director of the FHFA and has been relatively silent. I expect to see him make some kind of announcement on his plans as admin and his feelings toward housing reform efforts, relatively soon. The past few years DeMarco authorized the release--usually early March--of a scorecard detailing goals/progress of the conservatorship. I would hope that Watt would release an updated scorecard in that same timeframe. This may be our first glimpses of a potential timeline or course of action.
Obit, the said FMCC trade does not have any of those designations...again, this information coming from the ihub app.
Yes obit, 16 not 15. I'm in central time and trades in the ihub app list at local time (weird...). Based on this, I assume it was a t trade since it posted several minutes after the close.
Good questions, Obit.
I see the same thing with FMCC. A trade going through at 15:12:34 for 2,200,000 shares @ 2.935.
Again, why the weird fractionation of price?
News: Why Fix Something Not Broken?
by Karen Hinton
http://www.huffingtonpost.com/karen-hinton/why-fix-something-not-bro_b_4733093.html
Ever since the federal government took control of Fannie Mae and Freddie Mac, Congress has put several plans on the table to "fix" them -- with the exception of one: Let them operate the way they always have, only this time, regulate them properly and ensure they have sufficient capital reserves.
This is largely what Congress did to "fix" the nation's biggest banks that had much more to do with the subprime mortgage crisis than the government-sponsored enterprises, also known as GSEs.
The only difference between now and then is that now the private sector is doing nothing to help low-to-middle income people with good credit become homeowners, and the federal government has actually done things to harm this sector of the housing marketplace.
Young families, military families and low-income people who may not make six digits but have good credit are, for all practical purposes, blocked from owning a home by requirements for high credit scores and down-payments.
The New York Times recently wrote: "Yet despite the confluence of promising signs, little in the vast system that provides Americans with mortgages has returned to normal since the 2008 financial crisis, leaving a large swath of people virtually shut out of the market... a significant amount of borrowers with less-than-perfect credit scores remain largely shut out of the market."
Meanwhile, Wells Fargo's mortgage lending is down 60 percent from a year ago; JPMorgan's, down 55 percent. This makes no sense.
The National Community Reinvestment Coalition, a client of mine, has called on Congress to bring back common sense into the housing market by re-instituting the affordable housing goals that have been credited with providing homes -- both owned and rented -- to American households.
Contrary to some conservative commentary, having affordable housing goals does not mean anybody and everybody will be able to get a loan, repeating what occurred in the mid-2000s. It wasn't the goals or low-income housing advocates who put brokers into poor neighborhoods, knocking on doors for signatures on mortgage applications rarely reviewed before closing. It was pressure from Wall Street and the banks that drove demand for more and more abusive mortgages that came to be known as liar loans.
Fannie and Freddie are making money again, while operating exactly as they did before the housing bubble, only under government control. They've already paid back most of the $188 billion in bailout funds. Bank profits are almost back to where they were in 2006 and 2007 before the recession. Yet, despite growing demand for homes, the private sector has not stepped up its mortgage lending, resulting in Fannie and Freddie securitizing 68 percent of all single-family home loans today.
The Corker-Warner bill and others under consideration would reward the banking industry for not lending to creditworthy Americans by handing over the GSEs' mortgage securities business to banks. They not only get the business, they also get the government guarantee to boot.
Corker-Warren also assumes enough private capital exists to cover the $4.5 trillion in mortgage-backed securities currently guaranteed by Fannie and Freddie today. That's unlikely. Also unlikely is that the affordable housing trusts -- established in the bill to replace the goals -- will provide as much affordable housing as before.
No one disputes Fannie and Freddie's historic role in helping to create one of the strongest middle classes in the world. Few dispute the financial industry's role in helping to destroy it.
Unbelievably, Congress wants to give these banks a government guarantee on the loans they make -- essentially subsidizing their operations - while the nation's attorney generals and the U.S. Department of Justice bring and settle lawsuits for actions that occurred both before and after the housing debacle.
Why not go back to the way we did it before, only this time the regulators do their jobs by requiring Fannie and Freddie to take its public mission seriously -- keeping the housing market stable and providing affordable housing for low-to-moderate income families with good credit -- something that is not happening now.
News: Kao’s Akanthos Capital Up in 2013 On Fannie Mae, Freddie Mac Prefs
by Michael Ide
http://www.valuewalk.com/2014/02/akanthos-capital-bullish-on-fannie-mae-freddie-mac/
Fannie Mae / Federal National Mortgage Assctn Fannie Mae (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) were among Akanthos Capital Management’s top five positive contributors for 2013, even though common stock holders didn’t actually receive any dividends from the two government sponsored enterprises (GSE) this year. The hedge fund managed by Michael Kao was up 5.18% in the fourth quarter and maintained less than 20% average exposure to equities, getting most of its gains from idiosyncratic events, according to a letter to investors reviewed yb ValueWalk.
Fannie, Freddie among top positive contributors
“Fannie Mae and Freddie Mac preferred securities gained as much as 50% in the quarter as both companies continued to report profits,” the company said in a recent letter to investors.
Many funds have become interested in the GSEs over the last year as they have managed to repay the $187 billion government bailout they received during the crisis, which few expected at the time, and are doing well by any measure. The risk has always been political, because the current plan is to wind them down without sending a penny to shareholders.
“Political rhetoric appears to have shifted towards more of a compromise and showed an improved understanding of the issues,” Akanthos writes. “We believe this is a sea change in attitude from the politicians and effectively takes the zero recovery tail scenario off the table.”
The letter points to comments from Senator Corker and former Representative Barney Frank (who’s support could still be influential) about finding a settlement with preferred holders, taking a step back from their previous hardline stances that investors weren’t entitled to any compensation. This is a positive development for investors, but it is still striking Akanthos’ confidence in the outcome is striking. Otherwise it would be hard to justify listing stocks that could be actual zeroes as top contributors.
Akanthos listed WMI Holdings equity (WMIH), Career Education Corp. equity (CECO), Alcatel Lucent common stock (ALU), and General Motors warrants (GM/WS/B) as the other four main positive contributors to both fourth quarter and 2013 year-end returns.
Akanthos avoided equities despite losses
The top five negative contributors for 2013 were Equity hedges (SPY, IWM), Credit hedges (IG index, Australia sovereign, CNP/UVV legacy positions), Gold options (GLD), Sanofi /Genzyme CVR (GCVRZ), and Chinese convertibles (STP, CMED).
Credit and equity hedges, along with gold calls, cost Akanthos 200 basis points of performance in the fourth quarter and 600 bp for 2013 overall. Even so, Akanthos kept its correlation with equities quite low.
“Unlike many other hedge funds that generated returns in excess of 30% this year by embracing market beta, we actually fought equity risk beta as well as credit risk beta every step of the way,” the company writes.
This is an old article but thought I'd repost it, in light of Ted Olson speaking at the Shareholder Respect Roundtable today. It's got some good info:
Treasury's Fannie Mae Heist
The government asked investors to shore up the two mortgage giants. Now those investors are being stiffed.
http://online.wsj.com/news/articles/SB10001424127887323309404578617451897504308
By THEODORE B. OLSON
July 23, 2013 7:22 p.m. ET
The federal government currently is seizing the substantial profits of the government-chartered mortgage firms, Fannie Mae FNMA +0.33% and Freddie Mac, FMCC +1.37% taking for itself the property and potential gains of private investors the government induced to help prop up these companies. This conduct is intolerable.
Earlier this month I filed a lawsuit to stop it, now known as Perry Capital v. Lew, and other lawsuits challenging the government's authority to demolish private investment are stacking up. Perhaps it's time for the government to change course.
When the nationwide mortgage crisis first took hold in 2007 and 2008, Fannie and Freddie shored up their balance sheets with some $33 billion in private capital, much of it from community banks, which federal regulators encouraged to invest in the companies. As the crisis deepened, the government determined that Fannie and Freddie also needed substantial assistance from taxpayers. Congress passed the Housing and Economic Recovery Act of 2008, and under that law the government ultimately plowed $187 billion into the companies.
Taxpayers should get their investment back, but once they do, so should the private investors who first came to Fannie and Freddie's aid. The government's scheme to wipe out these investors is bad policy and a plain violation of the law that respects private, investment-backed expectations and our constitutional protection of property rights.
When the government intervened in Fannie and Freddie in 2008, it faced a choice: It could place the companies into a receivership and liquidate them, or it could operate them in a conservatorship and manage them back to financial health. Conservatorship, the government agreed, offered the best chance of stabilizing the mortgage market while repaying the taxpayers for their investment.
Today, Fannie and Freddie are back. Last quarter, Fannie announced a quarterly profit of over $8 billion; Freddie made $7 billion.
Rather than allow private investors to share in these profits, the federal government unilaterally decided to seize every dollar for itself. Last summer the government changed the terms of its investment from a fixed annual dividend of 10%—a healthy return in this market—to a dividend of nearly every dollar of the companies' net worth for as long as they remain in operation.
So, at the end of last month, Fannie and Freddie sent a whopping $66 billion to the Treasury as a dividend. None of this money went to pay down the government's investment. Whatever amount of money the government takes out of Fannie and Freddie, the amount owed to the government is never to be reduced, meaning there can never be any recovery for private investors.
It's a splendid deal for the government: The president's budget estimates, over the next 10 years, that the government will recover $51 billion more than it invested in the companies—and that's on top of tens of billions in dividends the government took out of the companies from 2008-12. But it's a complete destruction of the investments of private shareholders.
That is unlawful for at least three reasons. First, the government's authority to revise its investments in Fannie and Freddie expired more than three years ago. Its change in the payment structure was utterly lawless.
Second, the Housing and Economic Recovery Act expressly requires the government to consider how its actions affect private ownership of the companies. The government has evidently given no attention to that requirement.
Third, that same law requires the government, operating Fannie and Freddie as a conservator, to safeguard their assets, but the government's new dividend scheme conserves nothing. In fact, the government has acknowledged it intends to facilitate the companies' ultimate liquidation. That is the opposite of conservatorship and it violates virtually every limitation that Congress imposed on the government's authority to intervene in Fannie and Freddie.
Some have suggested that this illegal extinction of private investment is justified by the extraordinary levels of support that taxpayers provided to Fannie and Freddie during the financial crisis. Certain recent legislative proposals even purport retroactively to legalize the government's cash-grab in the name of ensuring the taxpayers are repaid. But the companies' return to profitability means that taxpayers likely will be repaid in full, with interest, by the end of next year.
In these circumstances the right thing to do is to permit the companies to pay down what they owe to the government's investment so that private investors also might have the opportunity to earn returns on theirs. Yet, the "right thing" here is not just what the law requires. It may benefit the taxpayers as well. If Fannie and Freddie ever return to private ownership, the government has rights to 80% of the companies' common stock.
The government's recent cash grab squanders that opportunity, but it threatens even more serious harms. The United States has the most liquid securities markets in the world only because of its strong commitment to the rule of law and respect for private property. The government's actions here are an affront to those commitments.
Mr. Olson, a former U.S. solicitor general, is a partner at Gibson, Dunn & Crutcher.
I never root against Fannie, but could this thing touch the damn 50-day SMA already!
If anyone is eagerly waiting ER this week, I posted this the other day.
---------
bmp152 Monday, 02/03/14 12:42:19 PM
Re: mikoli007 post# 173122
Post # of 173533
Historically, Fannie has released their 10K statements on:
http://www.fanniemae.com/portal/about-us/investor-relations/quarterly-annual-results.html
2008 - Feb 27 (Wed)
2009 - Feb 26 (Thu)
2010 - Feb 26 (Fri)
2011 - Feb 24 (Thu)
2012 - Feb 29 (Wed)
2013 - Apr 4/2 (Tue) -- likely a one time exception due to DTA considerations
2014 - ? -- my guess is the last Wed (26th), Thu (27th), or Fri (28th) of this Feb
Therefore, perhaps 3 more weeks of this sideways momentum. I could very well be wrong...
Looks like Fannie is setting up for (hopefully!) another bounce of the 50 day SMA... support at 3 just broke...
Haha. I hope that was MH!
I wouldn't put a lot of faith in any of the online brokers/services to predict an earnings release. They typically base it off the previous similar release date. In any case, if you believe TD, then why not believe Bloombergs estimate of 4/2/2014?
I'd bet on observation of historical precedence, but to each their own.
Regardless, I'm happy with the way the GSEs have been trading technically in the meantime.
Historically, Fannie has released their 10K statements on:
http://www.fanniemae.com/portal/about-us/investor-relations/quarterly-annual-results.html
2008 - Feb 27 (Wed)
2009 - Feb 26 (Thu)
2010 - Feb 26 (Fri)
2011 - Feb 24 (Thu)
2012 - Feb 29 (Wed)
2013 - Apr 4/2 (Tue) -- likely a one time exception due to DTA considerations
2014 - ? -- my guess is the last Wed (26th), Thu (27th), or Fri (28th) of this Feb
Therefore, perhaps 3 more weeks of this sideways momentum. I could very well be wrong...
President's current stance on housing reform.
I'm not sure if anyone has posted this yet, but here is the President's feelings toward housing reform, as highlighted in his notes prepared for the state of the union address. This is found on the last page of the document and thus does not appear to be of priority. Moreover, note the same careful rhetoric we heard back in August, "as we know them". To me that suggests change but not shut down. Find a way to get the taxpayers off the hook (Emergency Housing Trust Fund, private capital...?) and let FnF continue to serve the needs of the middle class. IMO, of course.
http://www.whitehouse.gov/sites/default/files/sotu_2014_main_fact_sheet.pdf
"Ending Fannie and Freddie as We Know Them. The President has made clear that it is time to
turn the page on an era of reckless lending and taxpayer bailouts, and build a new housing finance
system that will provide secure homeownership for responsible middle class families and those
striving to join them. The President is encouraged by the leadership of Senate Banking Committee
Chairman Johnson and Ranking Member Crapo in seeking to forge bipartisan legislation. The
President is also appreciative of the bipartisan efforts of other members of the Senate, such as Senator
Warner and Senator Corker. As the President outlined in his housing address in August 2013, he
stands ready to work with members of Congress in both parties to enact legislation based on four core principles for reform that will (i) put private capital at the center of the housing finance system, (ii) end Fannie Mae and Freddie Mac’s failed business model so taxpayers are never again on the hook for bad loans and bailouts, (iii) ensure widespread access to safe and responsible mortgages like the 30-year fixed rate mortgage, and (iv) support affordability for creditworthy first-time buyers and access to affordable rental housing for middle class families and those aspiring to join their ranks."
News: US wants Bank of America to pay $2.1B in penalties
US asks for $2.1B in penalties from Bank of America, more than double its previous request
Associated Press
http://finance.yahoo.com/news/us-wants-bank-america-pay-155309780.html
[$$] U.S. Seeks $2.1 Billion From Bank of America The Wall Street Journal
Bank of America: Mortgages Originations Drop, But Losses Shrink The Wall Street Journal
FBI Says BofA Traders Employed ‘Unsophisticated Tradecraft’ Wall St. Cheat Sheet
Bank of America fourth-quarter profit rises as bank shakes off financial crisis Reuters
Bank of America's 10 Biggest and Most Expensive Blunders Motley Fool
NEW YORK (AP) -- Federal prosecutors wants a judge to order Bank of America to pay $2.1 billion in penalties for knowingly selling bad home loans, more than double the amount the government had sought in the case.
In documents filed Wednesday, the government said it wants Bank of America to make a payment based on its total revenue from the fraud instead of the profit it made.
The U.S. had wanted Bank of America to pay about $864 million over losses it incurred after it bought thousands of home loans made by Countrywide Financial in 2007 and 2008 during the housing boom. A jury found Bank of America liable for knowingly selling the bad loans to mortgage giants Fannie Mae and Freddie Mac. The jury also returned the verdict against Countrywide and a former executive, Rebecca Mairone.
U.S. attorney Preet Bharara made the request for the penalty — saying it is the maximum allowed — in documents filed Wednesday with the U.S. District Court in Manhattan.
Bank of America spokesman Lawrence Grayson said the government is seeking too much money and has conceded that the losses from the loans were less than $864 million.
"This claim bears no relation to a limited Countrywide program that lasted several months and ended before Bank of America's acquisition of the company," he said. "We will present the relevant facts in a detailed response soon."
Countrywide, once the biggest mortgage lender in the U.S., played a major role in the collapse of the housing market because of its heavy reliance on subprime mortgages. Facing serious financial challenges, it was acquired by Bank of America in 2008 in an all-stock deal valued at about $4 billion.
Fannie Mae and Freddie Mac received about $187 billion in aid from taxpayers when the government rescued them during the financial crisis, after they incurred massive losses on risky mortgages.
The two companies don't directly make loans to borrowers. They buy mortgages from lenders, package them as bonds, guarantee them against default and sell them to investors. That helps make loans available.
Grayson said Bank of America has until Feb. 26 to respond to the latest filing, and oral arguments are scheduled for March 13.
Shares of Charlotte, N.C.-based Bank of America rose 18 cents to $16.86 in midday trading.
Very sorry to hear the sad news Fredspal. Best wishes to you and your family.
News:Fannie Mae: No Other Way To Preserve 30-Year Mortgages, Says Bove
by VW Staff January 29, 2014, 11:30 am
http://www.valuewalk.com/2014/01/fannie-mae-freddie-mac-mortgages/
From Rafferty Capital Markets’ Richard X. Bove on Home Ownership
Last evening, as most Americans did, I listened to the President give his annual State of the Nation Speech. I was struck by the following words: “And since the most important investment many families make is their home, send me legislation that protects taxpayers from footing the bill for a housing crisis ever again, and keeps the dream of homeownership alive for future generations of Americans [emphasis added].”
Fannie Mae
The key part for me was the words that stated that the dream of homeownership should be kept alive. They are important words because in A Report to Congress: Reforming America’s Housing Finance Market prepared jointly by the Department of the Treasury and the Department of Housing and Urban Development in February 2011, the following statement is made: ”The government must also ensure that all Americans have access to quality housing that they can afford. This does not mean our goal is for all Americans to be homeowners [emphasis added].
Roadblocks to home ownership
This Administration has worked hard to put in place a series of regulations which make it virtually impossible for low income households to ever get the financing to own their own home. It is striving to eliminate Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and with it 20 and 30 year fixed rate mortgages. In sum, it has put in place a series of obstacles to homeownership for millions of American households.
Now the President is asking Congress to return to the goal of putting every American into his/her own home (the dream of homeownership). This is the key to my belief that Fannie Mae will be returned to its historical status. The nation needs this company in order to achieve the social and economic goal of letting Americans achieve their dreams.
Fannie Mae is only real option
Moreover, by returning Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) to its old status the American taxpayer gains tens of billions in profits. I think that there is no alternative to maintaining the prices of housing in the United States than keeping 20 and 30 year fixed rate mortgages in place. Only Fannie Mae can do that.
The stock is worthy of speculation.
I guess that's a possibility. Although, the yearly retained amount by FnF is not $3B. It WAS $3B last year, but has since decreased by 15% this year and will continue to do so until that yearly capital requirement reaches $0. That being said, FnF need to retain some money to run their business, expand, and contribute to activities outlined by the FHFA regulator. They can't afford to take financial hits by the NHTF and CMF, so that leads me to believe that money would have to be accounted for out of the sweep going to Treasury. The only way to do that would be via an amendment... Of course, I wouldn't be surprised if some other shady deal was worked out...all IMO.
My question is this: if much of the democratic senate favors recapitalization of the NHTF and CMF via profits generated by the GSEs, how do they propose that mechanism?
As it stands now, all profits are swept to the Treasury minus a yearly depreciating capital quota. Would there not have to be an additional amendment to the SPSA to allow transfer of this money from Treasury's pockets to these funds? In doing so, may this precipitate an executive proposal to end the sweep and reinstitution of the 10% dividend? This is all IMO, but just wondering the board's collective thoughts...
For anybody wanting to see a copy of the letter, see below:
Press Release of U.S. Senator Barbara Boxer
http://www.boxer.senate.gov/en/press/releases/012414.cfm
For Immediate Release: January 24, 2014
Reed, Boxer, Warren, Sanders, Colleagues Urge FHFA Director Watt to Revive the Housing Trust Fund and the Capital Magnet Fund
With Fannie Mae and Freddie Mac Now Generating Profits, Money Should be Allocated to Funds Created to Support Affordable Rental Housing Projects
Washington, D.C. – Today, U.S. Senators Jack Reed (D-RI), Barbara Boxer (D-CA), Elizabeth Warren (D-MA), Bernie Sanders (I-VT) and 29 colleagues sent a letter to Federal Housing Finance Agency (FHFA) Director Mel Watt, urging him to help support affordable housing projects across the country by allowing the allocation of funds to the National Housing Trust Fund (NHTF) and the Capital Magnet Fund (CMF). The funds were created to support affordable housing for low-income families, but neither has been funded in five years.
“Since passage of the Housing and Economic Recovery Act in 2008, the number of homes that are affordable to renters with incomes at or below 30 percent of area median income decreased by more than 1 million units,” the Senators wrote. “… Funding the NHTF and CMF would help ameliorate this crisis.”
The Housing Trust and Capital Magnet Funds were designed to send grants to states and nonprofits primarily for affordable rental housing projects. In 2008, however, the FHFA suspended allocations to both funds when Fannie Mae and Freddie Mac were placed in conservatorship. Fannie and Freddie have both since begun generating profits, and now have paid more than $185 billion in dividends to the U.S. Treasury. In light of these profits and the dramatically improved financial conditions of both Enterprises, the withholding of these resources to support affordable housing can no longer be justified.
The Senators wrote, “The time is long overdue to lift the current suspension of contributions to the NHTF and CMF, and we ask your full and fair consideration of our request.”
The full text of the letter follows:
January 24, 2014
The Honorable Mel Watt
Director
Federal Housing Finance Agency (FHFA)
400 7th Street, SW
Washington, DC 20024
Dear Director Watt:
We write first to congratulate you on being confirmed and sworn in as Director of the Federal Housing Finance Agency (FHFA). We also share your concern about the need for more affordable rental housing in this country and ask that you end the suspension of contributions to the National Housing Trust Fund (NHTF) and the Capital Magnet Fund (CMF), in a manner fully consistent with all applicable laws, rules, and regulations.
The affordable rental housing crisis that prompted Congress, on a bipartisan basis, to create the NHTF and CMF has only gotten worse in the last five years. Since passage of the Housing and Economic Recovery Act in 2008, the number of homes that are affordable to renters with incomes at or below 30 percent of area median income decreased by more than 1 million units. According to the Harvard Joint Center for Housing Studies, there is currently a national shortage of nearly 5 million units affordable and available to extremely low-income renters. Funding the NHTF and CMF would help ameliorate this crisis.
We are all committed to reforming the mortgage finance system and do not believe Fannie Mae and Freddie Mac should be returned to their previous form. However, directing much needed funding for affordable rental housing should not wait until Congress and the President are able to agree on a new system. The time is long overdue to lift the current suspension of contributions to the NHTF and CMF, and we ask your full and fair consideration of our request.
We look forward to hearing from you in a timely fashion and working with you as FHFA Director on this and other important matters.
Sincerely,
Jack Reed
United States Senator
Barbara Boxer
United States Senator
Elizabeth Warren
United States Senator
et al.
News: Government's motion to dismiss: Fisher, et al. v. United States
Link to motion:
https://docs.google.com/viewer?a=v&pid=forums&srcid=MDUxNDQwNjExMTIwMzQzNjc3NDIBMTQxNjgwMjQ0MDQyNDIwMTgzNDEBWDBlUHNtNVdja0FKATQBAXYy
Discussion:
https://groups.google.com/forum/#!topic/freddienfannie/GOxQTdh9JUQ
News: U.S. Senators urge Fannie, Freddie to aid lower-income households
By Margaret Chadbourn
http://finance.yahoo.com/news/u-senators-urge-fannie-freddie-191135242.html
WASHINGTON, Jan 24 (Reuters) - More than 30 Democrats in the U.S. Senate called on Friday for the regulator of government-controlled Fannie Mae and Freddie Mac to direct the companies to resume contributions for affordable housing initiatives.
The senators focused on two unused funds that Congress established in 2008 to finance low-income housing with a portion of Fannie Mae and Freddie Mac's revenue. The Federal Housing Finance Agency, the companies' regulator, suspended payments into the funds in November of that year, after the government seized the companies as mortgage losses mounted.
After suffering huge losses, the companies have turned the corner and are now seeing record profits. The 33 lawmakers, led by Democrats Jack Reed of Rhode Island and Elizabeth Warren of Massachusetts and independent Bernie Sanders of Vermont, want the agency to resume contributing to the fund to help ameliorate a shortage of affordable housing for low-income Americans.
"The time is long overdue to lift the current suspension of contributions, and we ask your full and fair consideration of our request," the letter to newly installed FHFA Director Mel Watt said.
Fannie Mae and Freddie Mac have taken $187.5 billion in U.S. aid since they became state wards in September 2008. They have since paid about $185.2 billion in dividends to the government thanks to a surge in the U.S. housing market.
Congress created the two housing trust funds to build a revenue source for low-income housing. The trust funds provide funds to finance new rental housing or rehabilitate existing units for families with very low incomes.
The group of Democrats cited a study from the Harvard Joint Center for Housing Studies that found many renters remain caught in a pinch due to falling wages and rising rents. According to the study, the country faces a shortage of nearly 5 million units that are affordable and available for extremely low-income renters.
Using the trust funds "would help ameliorate this crisis," the letter said.
President Barack Obama and lawmakers from both parties have said they want to wind down the two mortgage finance giants, which own or guarantee 60 percent of all U.S. home loans, but an overhaul process is years off.
In the meantime, their return to profitability has led to competing demands.
Nonprofit housing groups have sued the FHFA, challenging the decision to suspend payments to the trust funds, while a large hedge fund that owns preferred shares of the companies is challenging the terms of their taxpayer bailout, which requires them to sweep most of the profits into the U.S. Treasury.
News (actual transcript of Stegman speech): Remarks Of Counselor To The Secretary For Housing Finance Policy Dr. Michael Stegman Before The ABS Vegas 2014 Conference
http://www.realestaterama.com/2014/01/22/remarks-of-counselor-to-the-secretary-for-housing-finance-policy-dr-michael-stegman-before-the-abs-vegas-2014-conference-ID023664.html
January 22, 2014by RealEstateRama
As prepared for delivery
WASHINGTON, D.C. – January 22, 2014 – (RealEstateRama) — Thanks to the Structured Finance Industry Group for giving me this opportunity to discuss the Administration’s housing priorities for short-term action and comprehensive housing finance reform.
Let me begin by emphasizing how important it is for Congress to renew as soon as possible the Mortgage Forgiveness Debt Relief Act, which expired at the end of the year. Since 2007, distressed borrowers who received principal reduction—as part of a mortgage modification, short sale, or deed-in-lieu of foreclosure—did not have to pay taxes on the forgiven principal. Failing to extend this provision could force struggling families to settle for a less effective mortgage modification, or choose foreclosure over better alternatives for families and their community. Congress often passes tax extenders late in the year and makes them retroactive to the beginning of the tax year. While this is generally well understood and incorporated into firms’ decision-making, it does not work for families in danger of losing their homes today. Congress should do the right thing and extend this targeted tax forgiveness now.
As many of you know, one of the most successful crisis-era housing programs is the Home Affordable Refinance Program. Nearly 3.0 million homeowners with a GSE-backed mortgage have completed a streamlined refinance, including close to one million who owed more than their home was worth. More than 2.0 million homeowners are still HARP-eligible and we believe that the current marketing campaign that FHFA and the GSEs are pursuing is a good way to make sure that homeowners with little or no equity in their homes know about this opportunity.
Some have suggested that the eligibility date for HARP should be changed so that borrowers who took out mortgages after the May 31 2009 cutoff date could also obtain a HARP refinance. Treasury believes there should be no change in the HARP eligibility date. Very few homeowners whose loans were originated after the cut-off date are underwater and advancing the date would do more harm than good by prolonging market and investor uncertainties.
At the same time, we must not forget about the inability of performing underwater borrowers whose loans are held in private label security trusts to access refinancing. This has motivated some communities whose housing markets have yet to recover to consider using eminent domain to help families refinance and “right size” their mortgage debt. While we understand their frustration, we think refinancing legislation is a better way to go. So as we work to reform the housing finance system, we will seek to ensure that neither the source of one’s mortgage nor who owns the credit risk should determine a borrower’s eligibility for refinancing or mortgage assistance.
Any future system must include a healthy and robust non-agency private label securitization market. Increasing guarantee fees to crowd in private capital is necessary, but not sufficient to attract private capital back into this space. And as I think about the three critical focal points for leadership in housing finance reform, I see one glaring void.
There is now a confirmed director of the Federal Housing Finance Agency with broad responsibilities to wind down the GSEs and ensure a smooth transition to a future system whose contours and role of government will be determined by the Congress. And there is strong bipartisan commitment to housing finance reform by the leaders of the Senate Banking Committee, with whom the Administration has been intensively engaged. But where can we turn to find the focal point for reforming and reinvigorating the private label securities sector? Where is the center of gravity for addressing standards around reps and warranties, trustee obligations, data and disclosure, loss mitigation, and related issues? In the absence of an apparent leader, Treasury plans to coordinate a series of conversations with relevant regulators, market participants, and other stakeholders to help accelerate necessary reforms in the non-agency space.
As we work to expand the pool of qualified borrowers who can obtain mortgage credit during the transition and in the new system, we must also work to ensure borrowers are prepared for homeownership and equipped with tools to be successful homeowners. One lesson from the crisis has been that providing housing counseling at the time of purchase and during the loan modification process is a cost effective investment for all parties.
A study by Freddie Mac of mortgages made to first-time homebuyers and low- to moderate-income families between 2000 and 2008 indicates that pre-purchase housing counseling may reduce, by an average of 29 percent, the likelihood of the homebuyer becoming seriously delinquent. An evaluation of the National Foreclosure Mitigation Counseling program found that counseled borrowers were 67 percent more likely to remain current on their mortgage nine months after receiving a loan modification than non-counseled borrowers. Given such evidence, the mortgage and investor communities should find a way to ensure that quality housing counseling is funded, and remains available for borrowers that will benefit from it.
It is also critical that we pursue comprehensive housing finance reform. Many of the structural flaws of the legacy GSE-centric mortgage finance system have not been fixed. After more than 5 years, Fannie Mae and Freddie Mac are still in conservatorship; a duopoly with a combined current market share by dollar volume of more than 61 percent of mortgage originations for which the American taxpayer is directly at risk. Indefinitely continuing a taxpayer-backed duopoly is neither sustainable nor sensible public policy.
Yet, some stakeholders mistakenly argue that housing finance reform is no longer needed – that the GSEs are so financially flush and with the confirmation of FHFA Director Mel Watt—the Administration can achieve virtually all of its housing policy priorities without legislation. We could not disagree more. The Administration is still firmly committed to comprehensive housing finance reform.
It is good news that the GSEs have generated record earnings over the past several quarters. It reflects positive trends in the housing market, and that is good for American families, taxpayers, and the economy. But we believe that their recent financial results may significantly overstate the true financial condition of the enterprises, especially on a go-forward basis. For example, approximately $75 billion of combined GSE net income through the third quarter of 2013 was in one-time tax reversals; another $11 billion in comprehensive income was due to the release of loan loss reserves; and $10 billion came from one-time settlements of legacy MBS litigation. Excluding these one-time gains, in the first nine months of 2013, more than 60 percent of the rest of the GSEs’ combined income was generated through their retained investment portfolios, which are required to shrink by 15 percent per year on a go-forward basis under Treasury’s Preferred Stock Purchase Agreements.
From a high of $1.65 trillion in March 2009, the retained portfolios still have a combined balance of nearly a $1 trillion and are currently a significant source of income, but also remain a continuing source of volatility and taxpayer risk. At the time they were taken into conservatorship, the GSEs’ used their portfolios like hedge funds. They took advantage of their lower government subsidized borrowing costs to invest in both their own securities as well as in higher risk, higher yielding private label mortgage backed securities that became the source of very large losses.
Recent financial results at the enterprises have also benefited significantly from strong home-price appreciation and low interest rates, both of which may moderate in future periods.
We believe that keeping the GSEs’ in a conservatorship whose contours and restrictions were defined by emergency legislation is not the best framework for broadening the availability of mortgage credit over the longer term. The GSEs in conservatorship have done an exceptional job of maintaining a deep and liquid secondary market in and following the recent crisis. However, we believe that continued uncertainty about their political future will continue to be a headwind impeding access to credit especially for average families with less than pristine credit. For all these reasons, comprehensive housing finance reform remains a top Administration priority.
Last August, the President outlined the Administration’s objectives for housing finance reform legislation: require private capital to play the dominant role in providing mortgage credit; ensure creditworthy borrowers, including first time homeowners, have broad access to safe and responsible mortgages; put in place strong safeguards to protect taxpayers; and help ensure access to affordable rental options for middle class families and those who are working toward joining the middle class.
We are actively engaged with the Senate Banking Committee, providing our technical expertise and helping to shape policy that is in line with our principles. We are hopeful that comprehensive, bipartisan housing finance reform is achievable this year.
While there are many choices that must be made in standing up the new system, in the remainder of my remarks, I will briefly discuss several Administration priorities for reform that should make the new system work for consumers and for market participants.
Let me begin by reiterating the Administration’s commitment to preserving a deep and liquid TBA market. A full faith and credit catastrophic government guarantee of qualified mortgage backed securities standing behind substantial private capital in a first loss position is critical to maintaining market liquidity and preserving broad access to the 30-year fixed rate mortgage. Avoiding segmenting and compromising the liquidity of the TBA market also requires that the GSEs’ legacy securities receive the same full faith and credit government guarantee that would be operative in the reformed system.
A good first step toward a single security-based future system that could be taken during the transition is to reduce the price gap at which Freddie Mac securities trade relative to Fannie Mae’s securities by linking the two securities. This would reduce the cost to taxpayers and improve liquidity in the TBA market. We think it is worth pursuing and are looking to find a workable solution that would not disrupt markets.
We also believe that in a reformed system, the holding of credit risk or syndicating credit risk to the capital markets should be separated from the act of securitizing mortgages. Separating the holding of credit risk from the issuance of government-backed securities would help prevent a situation where entities holding credit risk are too important to fail because they also control the pipes and infrastructure needed to create securities. This separation would also improve competition by lowering the barriers to entry for new players willing to take credit risk since they will have to build less infrastructure in the new system. Our preference would be that all single-family mortgages that receive a government-backed wrap be securitized through a single, non-profit securitization utility that would issue standardized mortgage backed securities. The securitization utility would replace the securitization functions that the GSEs perform today.
To attract significant private capital to take credit risk, the regulator should be able to approve various forms of first loss as long as they meet specified criteria. Markets evolve, risk appetites change, and it is not possible to predict what the next period of severe stress will look like. Allowing different types of first loss mechanisms can help attract a wide source of private capital to take credit risk. But making sure any approved mechanism promotes an alignment of interest, with the government taking the catastrophic risk, is critical.
There are two phases of the mortgage credit cycle in which alignment of interest issues arise between the first loss-taker and the government: (1) when mortgage pools are formed; and, (2) throughout life of the loan — as credit risk is managed through the servicing and loss mitigation cycle. Where there is a well-capitalized guarantor responsible for paying all credit losses on a given pool that triggers the government guarantee only when all of its capital is exhausted,–here, the interests of the Guarantor entity and the government are powerfully aligned.
In capital markets executions, where there is a stop loss at the MBS level, after which the government guarantee is used to cover all subsequent pool level losses, interests are less well aligned. In capital markets transactions, you may need some minimum requirements on size and diversification of pools backing a security to prevent gaming.
If a misalignment of interests is inherent in a stop-loss risk structure, there could be a higher likelihood of triggering the government guarantee. This may warrant charging a higher fee for the catastrophic wrap for capital markets executions to make up for this additional risk. Additionally, national loss mitigation standards, including net present value frameworks, and standardized pooling and servicing agreements are necessary to help reduce diversification uncertainty and misalignment of interests in capital markets first loss executions. Loss mitigation standards should also set out treatment of second liens when the first lien is modified, taking into consideration lien prioritization. And while setting subordination levels for capital markets executions is critical, even more critical is translating those requirements into the equivalent capital requirements for guarantor entities. It is important that guarantors be able to compete with capital markets first loss executions in good times so that they are available during downturns when capital markets investors withdraw from the marketplace.
Creditworthy borrowers in all geographies, and with varying income levels, must have access to the system. In line with Administration principles, all originators, guarantors, and aggregators that deliver loans to be included in government guaranteed securities will be required to provide mortgage credit on an equitable and non-exclusionary basis. They must serve credit-worthy borrowers of all backgrounds, including in traditionally underserved areas. Additionally, guarantors and aggregators who deliver eligible loans will be required to provide equitable access for lenders of all sizes. A strong independent regulator should enforce compliance and take action if an entity has a pattern of violating fair lending laws. The reformed system cannot just work for a privileged class. It needs to work for the entire country and these requirements will help achieve that.
Owning a home is not right for everyone and the future system must provide liquidity to the rental market. While Fannie Mae and Freddie Mac– and now the taxpayers–guarantee virtually 100 percent of the credit risk on their single-family books of business, their multifamily business models are different. The GSEs operate successful multifamily programs that feature private capital taking significant first-loss risk, which is consistent with the President’s housing finance reform principles. Our intention is to enable these and other types of risk-sharing models to be prevalent in the future. The new system should have many more participants and be more competitive than the current marketplace, where the two Enterprises dominate.
While we support the repeal of GSE affordable housing goals, we would incorporate affordability standards for multifamily housing into the new system to help ensure that the beneficiaries of guaranteed mortgages use their funding advantage to produce or preserve broadly affordable rental homes.
We also believe that data accuracy and transparency would be significantly improved by establishing a national mortgage database. During the housing and financial crisis, regulators, policymakers, investors, and other market participants were severely hampered by the low quality and idiosyncratic coverage of mortgage data. Investors were not able to assess their true risk because data was often incomplete. It was tough to connect subsequent liens to first liens in commercially available databases. Points, fees, borrower income, and other critical fields to assess risk were often unreliable. A comprehensive database covering residential loans and liens would be a significant step to improve these data failures.
Finally, transition must be done in a way that does not disrupt liquidity and access to credit. Any transition from our current market facilitated by the government-sponsored enterprises to one centered on private capital in front of a government guarantee on MBS will take time – at least five years. There needs to be annual, public reports on the transition. Clear benchmarks must be set, progress must be documented, deficiencies reported, and addressed—all in a transparent process. In the lead up to a successful transition, the GSEs should ramp up their risk sharing transactions, and make strong progress on their Common Securitization Platform, since a single securitization utility is central to the future system. We also would want to see a number of new guarantors during the transition period prior to terminating the GSEs’ authority to do new business. These steps are important so that we get transition right without disrupting the flow of mortgage credit.
In closing, let me congratulate you, Richard, and the Structured Finance Industry Group for building this organization in such a short time into one whose voice and positions command attention by market participants and public decision-makers alike. We look forward to more opportunities to discuss some of the issues I have raised this morning, and others important to your members and those here today.
News: Five Takeaways: Treasury Official Outlines Mortgage-Market Priorities
http://blogs.wsj.com/economics/2014/01/22/five-takeaways-treasury-official-outlines-mortgage-market-priorities/
A top Treasury Department adviser on housing policy outlined a series of initiatives that the Obama administration could undertake in 2014 to overhaul the nation’s mortgage market, even if Congress doesn’t succeed in shepherding a bipartisan overhaul of Fannie Mae and Freddie Mac.
Michael Stegman, a senior Treasury adviser, offered greater detail in a speech Wednesday about what kind of mortgage infrastructure should be built to take the place of Fannie and Freddie, and he outlined transition steps that could become a priority for the Federal Housing Finance Agency, which has a new director in former Rep. Mel Watt.
Here are some of the highlights of the speech he delivered at an industry conference in Las Vegas:
REFINANCING, PART ONE: The Treasury Department doesn’t support changing the cut-off date for the Obama administration’s Home Affordable Refinance Program, or HARP, which allows homeowners with a mortgage backed by Fannie Mae or Freddie Mac to refinance even if they have no equity. HARP is only open to loans originated before June 2009, and some Democrats have pushed for extending that cut-off date to June 2010. Bond investors would lose money if more borrowers were allowed to refinance, which could lead them to demand slightly higher prices in the future given the potential for other policy changes:
Some have suggested that the eligibility date for HARP should be changed so that borrowers who took out mortgages after the May 31 2009 cutoff date could also obtain a HARP refinance. Treasury believes there should be no change in the HARP eligibility date. Very few homeowners whose loans were originated after the cut-off date are underwater and advancing the date would do more harm than good by prolonging market and investor uncertainties.
REFINANCING, PART TWO: Mr. Stegman endorsed creating a HARP-like program for loans that aren’t backed by Fannie and Freddie, which he said could reduce the urgency in a handful of hard-hit communities to seize those loans via eminent domain. Such a plan, for which he also voiced support last year, would require congressional action, which seems difficult in the current political environment:
We must not forget about the inability of performing underwater borrowers whose loans are held in private-label security trusts to access refinancing. This has motivated some communities whose housing markets have yet to recover to consider using eminent domain to help families refinance and “right size” their mortgage debt. While we understand their frustration, we think refinancing legislation is a better way to go.
OVERHAULING FANNIE AND FREDDIE: Mr. Stegman said that the status quo in which Fannie and Freddie remain in some form of government-controlled limbo shouldn’t be allowed to continue, even as the crisis becomes a distant memory now that companies are hauling in huge profits. For one, many of those profits are either one-time gains or they’re being generated by the firms’ large investment portfolios that are being wound down, he said:
It is good news that [Fannie and Freddie] have generated record earnings over the past several quarters…. But we believe that their recent financial results may significantly overstate the true financial condition of the enterprises, especially on a go-forward basis…. Recent financial results at the enterprises have also benefited significantly from strong home-price appreciation and low interest rates, both of which may moderate in future periods.
Part of an overhaul, he added, should address price differences between the securities issued by Fannie Mae and Freddie Mac, which have resulted in higher costs for Freddie.
A good first step … that could be taken during the transition is to reduce the price gap at which Freddie Mac securities trade relative to Fannie Mae’s securities by linking the two securities. This would reduce the cost to taxpayers and improve liquidity in the [mortgage bond] market. We think it is worth pursuing and are looking to find a workable solution that would not disrupt markets.
BROADENING ACCESS TO MORTGAGE CREDIT: The Obama administration continues to argue that mortgage standards are too inflexible—potentially locking creditworthy borrowers out of the mortgage market. Overhauling Fannie and Freddie, Mr. Stegman said, would be an important way to address some of these rigid credit standards:
We believe that keeping [Fannie and Freddie] in a conservatorship whose contours and restrictions were defined by emergency legislation is not the best framework for broadening the availability of mortgage credit over the longer term. The [companies] in conservatorship have done an exceptional job of maintaining a deep and liquid secondary market in and following the recent crisis. However, we believe that continued uncertainty about their political future will continue to be a headwind impeding access to credit especially for average families with less than pristine credit. For all these reasons, comprehensive housing finance reform remains a top administration priority.
RESTARTING PRIVATE MORTGAGE SECURITIZATION: Mr. Stegman has suggested in the past that the lower cost of government-backed lending isn’t the only reason privately-issued securitizations have been slow to restart. Other technical barriers remain unaddressed:
Are you speaking about the 15% reduction? That is outlined pretty clearly in Fannie Mae's 2012 10k filing. I think it is mandated by the 3rd SPSA amendment. See here, page 26:
http://www.fanniemae.com/resources/file/ir/pdf/quarterly-annual-results/2012/10k_2012.pdf
"Mortgage Assets Covenant. The mortgage assets covenant contained in the agreement was amended to accelerate the reduction of our mortgage asset portfolio, decreasing our mortgage asset cap to $250 billion by 2018, rather than by 2022. Limits on the amount of mortgage assets we may own are described in “Covenants under Treasury Agreements—Mortgage Asset Limit.”
News: U.S. Treasury Opposes Extending Cutoff Date for HARP Refinancing
By Clea Benson Jan 22, 2014 12:25 PM CT
http://www.bloomberg.com/news/2014-01-22/u-s-treasury-opposes-extending-cutoff-date-for-harp-refinancing.html?cmpid=yhoo
The U.S. Treasury opposes allowing borrowers with mortgages originated after mid-2009 to become eligible for the Home Affordable Refinance Program, the agency’s chief housing-finance adviser said.
Only borrowers with loans originated by May 31, 2009, are currently eligible for the HARP program, which allows homeowners with mortgages backed by Fannie Mae and Freddie Mac to refinance even if they owe more than their properties are worth.
“Very few homeowners whose loans were originated after the cut-off date are underwater and advancing the date would do more harm than good by prolonging market and investor uncertainties,” Michael Stegman, the Treasury’s housing adviser, told an audience at the Structured Industry Finance Group conference in Las Vegas.
Analysts including those at JPMorgan Chase & Co. and FBR Capital Markets predicted the cutoff date would be changed after Melvin L. Watt took over this month as director of the Federal Housing Finance Agency, regulator of Fannie Mae and Freddie Mac. Watt is a former Democratic congressman selected for the post by President Barack Obama.
Nearly 3 million homeowners have completed refinances under the HARP program, including close to 1 million who were underwater. Another 2 million borrowers could be eligible even if the cutoff date is not changed, Stegman said.
Treasury will continue to push for legislation that would allow borrowers with loans in private-label securities to be eligible for HARP, Stegman said.
Meetings Planned
Treasury officials plan to meet with regulators and market participants to discuss changes to private-label securitization, Stegman said.
Comprehensive housing finance reform “remains a top priority” for the Obama administration, he said. In the meantime, Treasury is also looking to move toward a system in which Fannie Mae (FNMA) and Freddie Mac issue a single security, he said.
“A good first step toward a single-security-based future system that could be taken during the transition is to reduce the price gap at which Freddie Mac securities trade relative to Fannie Mae’s securities by linking the two securities,” he said.
News: Treasury's Stegman says home refinancing program shouldn't be extended
Reuters
http://finance.yahoo.com/news/treasurys-stegman-says-home-refinancing-193844038.html
WASHINGTON, Jan 22 (Reuters) - The Obama administration on Wednesday argued against expanding a program that allows some borrowers with Fannie Mae and Freddie Mac loans to lower their interest rates even if they owe more than their homes are worth.
Currently, homeowners whose loans are backed by the government-owned housing finance giants can qualify for the program if they took out loans by May 31, 2009. Some housing advocacy groups and lenders have lobbied to allow people to qualify if they took out more recent loans as well.
But U.S. Treasury Department's housing adviser Michael Stegman, in a speech delivered in Las Vegas at an industry conference, said changing the HARP eligibility date is unnecessary. He said altering the program would do "more harm than good by prolonging" market and investor uncertainties.
"Very few homeowners whose loans were originated after the cut-off date are underwater," Stegman said at the Structured Industry Finance Group conference, according to a text of his remarks.
Nearly 3 million homeowners have refinanced under the HARP program, including close to 1 million who owed more than their home was worth. More than 2 million borrowers are still HARP-eligible, Stegman said, and could refinance even if the cutoff date is not changed.
Such a policy change would impact bond investors who might lose money if more borrowers ended up refinancing.
Stegman also backed the creation of a HARP-like program for non-Fannie and Freddie loans, which would help the real-estate markets hit hardest by the housing boom and bust. The effort would require action by Congress.
"We must not forget about the inability of performing underwater borrowers whose loans are held in private label security trusts to access refinancing," he said.
He said Fannie Mae and Freddie Mac are still ripe for reform, despite the consecutive quarterly profits the companies have posted since 2012.
It is "good news that (Fannie and Freddie) have generated record earnings," but many of those profits are one-time gains or the firms will see changes in their investment portfolios since they are required to shrink by 15 percent per year going forward, he said.
Comprehensive housing finance reform remains "a top administration priority," he said. "We are hopeful that comprehensive, bipartisan housing finance reform is achievable this year."
Until Congress finds a solution to overhaul the mortgage market, Treasury will aim to transition towards a system in which Fannie Mae and Freddie Mac issue a single security, he said.
"This would reduce the cost to taxpayers and improve liquidity," he said.
The companies almost collapsed in 2008 as a growing number of loans they backed went sour. The government kept them alive with $187.5 billion in taxpayer aid. They have since returned to profitability and paid about $185.2 billion in dividends to the government thanks to a surge in the U.S. housing market.
News: Co-author of House Democrat housing reform plan presses forward.
http://blogs.marketwatch.com/capitolreport/2014/01/21/co-author-of-house-democrat-housing-reform-plan-presses-forward/
Rep. John Carney says he will be meeting with industry and White House officials as well as with lawmakers in the Senate in the coming weeks to advance a new housing-reform package that he and two other House Democrats have put forward.
“We want to introduce something by March. Things are going to happen in the Senate and House that we need to be able to react to,” the Delaware member of the House Financial Services Committee said in a phone interview with MarketWatch.
The window, Carney concedes, is “fairly narrow.” With midterms later in 2014, and housing reform not yet on the list of this year’s priorities for the House Republican leadership, the scope for an ambitious effort to replace government-seized Fannie Mae and Freddie Mac is admittedly limited.
And it won’t be easy to get any housing reform plan through Congress a time when the housing market has been on an upswing, with prices up by double-digits and sales at the best levels since the recession. Carney acknowledges this challenge but points out taxpayers are backing north of 90% of mortgages. “We saw what happened in 2007 and 2008 there,” he says.
Carney repeatedly pitches his plan as “meeting the right balance.” It would effectively replace the current mortgage system with one where private capital would backstop the first 5% of mortgage securitizations, with Ginnie Mae and more private money backing the rest. A bipartisan proposal from Sens. Bob Corker and Mark Warner would have private capital backstop the first 10% of MBS. The Protecting American Taxpayers and Homeowners of House Financial Services Chairman Jeb Hensarling would phase out Fannie Mae and Freddie Mac entirely over five years, by contrast. ”We’d like to strike a good, moderate balance between the proposals out there,” he said.
Using analysis provided by Moody’s chief economist Mark Zandi, his office estimates the cost to the average 30-year mortgage would be less than the 94 to 119 basis points under Corker-Warner and the 146 to 156 points under the PATH Act. The current system adds 52 basis points, per the Zandi analysis.
The plan also would hold out some hope for existing shareholders of Fannie Mae FNMA and Freddie Mac FMCC , since in time they would be privatized, though Carney said he hasn’t really focused on that element.
– Steve Goldstein
FNMA is trading on technicals perfectly; yet another bullish triangle. In my opinion, without a massive spike in volume we still have a day or two of trading before it is forced to make a decision to go up or down at the 3.30 mark to break the resistance trendline. Hopefully up!
hey stockprofitter, I don't have the ability to PM. Although I've reposted your question here, I hope you don't mind. I think it's good discussion for the board:
"can the government sell anything while fnf under conservatorship??
Would they not have to be released from conservatorship first??
would the government have any say after Fnf are released from conservatorship??"
My response is: I have no idea how this proposal would work. As conservator the FHFA has a fiduciary duty to maintain the soundness and solvency of the GSEs. Selling them outright may likely violate that duty. And even if the sale doesn't violate their profitability, certainly reducing their marketshare to 30% does. As you point out, if FnF are released from conservatorship, then what authority does FHFA have to mandate their sale? Seems to me like a catch 22 that hasn't been well thought out in terms of feasibility.
I proposed this in a post the other day. I don't see why Fannie and Freddie cannot retain their market share, but backed by an explicit government guarantee and be required to contribute 5% of equity/earnings/revenue to a Housing Emergency Relief Fund that would protect against a cyclical and unavoidable housing collapse in the future. To me, there is no reason for Ginnie Mae to be transitioned into the role that FnF are already serving well.
Thoughts?
BigBen, those are great questions that I do not have the answer to. Perhaps somebody more versed in business/legal work can answer that.
So, it looks like Ginnie Mae is proposed as the new Fannie/Freddie, aside from 5% private capital down to protect taxpayers moving forward. Why not just allow Fannie/Freddie to put down 5% and call it done? Political spin I suppose...