Fannie Mae-No Politics (FNMA)

[Robert from yahoo bd]

Why did MC require International Commercial Bank Capital Ratios WHEN THE GSES ARE SIMPLY MONOLINE INSURANCE COMPANIES (I know Navy ESPECIALLY IS GOING TO MISS HIM POST COLLINS!)?:

"What to Do with Fannie and Freddie?

Because I am largely advocating a return to the originate-and-hold model, what should we do with the secondary market’s biggest players? There may well be value in a smaller secondary market and in the current GSEs. To retain whatever value there is, the current GSE charters should be converted to national bank charters and the GSEs reorganized as bank holding companies (BHCs). Not only could the GSEs continue to pool and securitize mortgages as BHCs, but they could also originate, collect deposits, and engage in other bank activities.

Given the high concentration among the largest banks, adding two large BHCs would immediately bring increased competition to that market. It would level the playing field between the GSEs and the largest banks, in both directions. This would require that the GSEs operate under the same rules as other BHCs. Securities law exemptions and favorable tax treatment would disappear. But the goodwill and human capital within the GSEs would remain. Shareholders would also benefit to the extent that the companies had value. This would require the GSEs to meet bank capital levels. Selling off the government’s preferred shares would assist in this regard.

It is worth noting that converting Fannie and Freddie to BHCs solves one problem while exacerbating another: the too-big-to-fail status of our largest banks. Ultimately all BHCs, including the newly created Fannie and Freddie BHCs, should hold substantially more capital. That capital should also largely be in the form of common equity and calculated on a non-risk-adjusted basis.

Conclusions

Securitization is a false god that failed us. While not without some value, its virtues have been exaggerated, if not illusionary, while its costs have been hidden or ignored. The same holds for government guarantees of credit risk. Hiding costs rarely reduces them. Painful experience has continued to show the opposite. A more stable and affordable housing market would be best served by returning to an originate-and-hold model of mortgage finance. The past failures of that model—its fragmented nature and its extensive government guarantees—can be more easily addressed without a continued resort to massive leverage. We need not prohibit securitization or even mandate originate and hold; we simply need to remove the various subsidies and distortions that tilt the field toward securitization. While modest tweaks of the current system might be more politically palatable, such small tweaks will only push off the issue until the next downturn in the housing market (and yes, there will be another housing downturn). The only responsible path is to fix the fundamental flaws in our current system."

https://www.urban.org/policy-centers/housing-finance-policy-center/projects/housing-finance-reform-incubator/mark-calabria-coming-full-circle-mortgage-finance