What We’re Hearing: Killing the GSEs Is Not an Option, Really
/ An Irony for GOP Mortgage Pros / Don’t Forget to Factor in
G-Fee Money Under the Payroll Tax Cut / NAR Weighs In on G-Fees
/ Getting Comfortable with Subprime /
By Paul Muolo pmuolo@imfpubs.com
Kill Fannie Mae and Freddie Mac? What are you, crazy? The two GSEs – under government control for almost eight years now – posted a combined net profit of $3.94 billion for the second quarter, most of which will be transferred to the holder of its senior preferred stock: the U.S. Treasury Department. A president who understands cash flow would presumably look at this money and might rationally think: why should I kill two gooses laying such golden eggs? Of course, the GSEs are a complicated political issue – and a financial one as well…
Any professional who makes his/her living off the residential finance industry knows Fannie and Freddie are the linchpin to the mortgage market. Remove them and the business collapses. Many mortgage professionals who are Republicans live with the irony of not wanting too much government interference in their industry, but know full well their businesses would be in ruins without the government guaranty on conventional mortgages…
By the way, as Inside Mortgage Finance’s John Bancroft points out in his story on the GSEs this week, the 2Q earnings figures for Fannie and Freddie do not include the 10 basis points of guaranty fee income that borrowers pay as a result of the 2011 Temporary Payroll Tax Cut Continuation Act. In 2Q, the GSEs collected $732 million of such fees, passing them along to the Treasury Department…
Meanwhile, industry trade groups see the huge GSE profits posted in 2Q and are becoming more vocal regarding what they view as high guaranty fees charged by Fannie and Freddie. These fees are baked into the cost of a mortgage and ultimately are paid by the consumer. National Association of Realtors president Tom Salomone this week issued a statement, noting: “These results show what we’ve suspected all along: that current fees and pricing simply don’t reflect the improved profitability or reduced credit losses that the GSEs experienced throughout 2015. NAR will continue to push FHFA and the GSEs for robust underwriting guidelines that put homeownership above profitability so that conventional borrowers aren’t priced out of the market…”
Fairholme Capital Management, a huge investor/speculator in GSE preferred stock, issued its portfolio manager’s report to investors this week. The PE firm, which is among many suing the federal government over the quarterly net worth sweep (or profit confiscation as some view it), told its backers, “Fannie and Freddie are two of the best businesses ever owned by the funds.” It encouraged them to think of the GSEs as public utilities, “just like your electric company…”
Presidential candidate Donald Trump late this week unveiled his economic team, which includes hedge fund maven John Paulson, who made a killing shorting something called the ABX Index at the beginning of the financial crisis. The ABX allowed investors to bet against the performance of subprime MBS. Paulson made roughly $15 billion shorting the index. Yes, that figure is right: $15 billion…
We’re beginning to hear new rumors regarding additional nonprime lenders being launched. Several of the firms operating today are third-party funders, though not all. One subprime industry veteran is preparing to launch a retail effort, we’re told. If you’re looking to get a true picture of the “new” and improved subprime sector, Inside Mortgage Finance will hold a webinaron the topic in mid-September. For more information, visit: Tapping Into Non-QM Originations.
