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Old 06-27-2013, 04:20 AM   #1
bimmerfan08
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The End of Fannie and Freddie?

Take into note this is an opinion piece. ***

On Tuesday, Senator Mark Warner, a Virginia Democrat, and Senator Bob Corker, a Republican from Tennessee, introduced a complicated bill that is intended to solve, once and for all, the problem known as Fannie Mae and Freddie Mac. You can be forgiven for missing this piece of news. Between Edward Snowden and the Supreme Court, it was easy enough to overlook.

But it’s not unimportant. It has now been nearly five years since Fannie and Freddie were put into conservatorship by the Treasury Department. Since then, we have been through the financial crisis, the housing crisis and the foreclosure crisis. Although the housing market has come a long way back, the market for private mortgage-backed securities — that is, bundles of mortgages sold to investors without a government guarantee — remains moribund. Believe it or not, the much-maligned Fannie and Freddie have kept the housing market alive by taking on the credit risk for most plain-vanilla mortgages, especially that most sacred of sacred cows, the 30-year, fixed-rate mortgage.

Indeed, ever since the creation of mortgage-backed securities in the 1970s, this has been a critical role of Fannie and Freddie; their “wrap” helped give investors the confidence to buy securities stuffed with thousands of mortgages they were never going to inspect individually. Currently, an incredible 77 percent of the mortgages being made in America are guaranteed by Fannie and Freddie.

Yet this can’t last forever. Conservatorship was supposed to be temporary. Although Fannie and Freddie are now making a gaggle of money, for complicated reasons having to do with the way the Treasury Department originally set up the conservatorship, that money is not reducing the government’s $180 billion bailout of the two companies.


Meanwhile, many Republicans have been screaming that the financing of housing should be left to the private market and that Fannie and Freddie must be put out of business. (They believe, wrongly, that Fannie and Freddie caused the financial crisis.) And the Obama White House — shocker! — has punted.

Thus we have Corker-Warner. (The bill has six other co-sponsors, three from each party.) The first thing to note about it is that, by god, it actually would eliminate Fannie and Freddie; the two companies are supposed to be wound down within five years.

But does that mean the private market will take over? Not a chance. Warner told me that although the bill would insist that private capital absorb the first 10 percent of any losses, the federal role remains critical. A new federal agency would be established to explicitly guarantee losses beyond that. And the bill would create programs to help make homeownership possible for low-income Americans, just like Fannie and Freddie once did. Those ads Fannie and Freddie used to run showing diverse Americans smiling in front of their home-sweet-homes could easily be replayed by supporters of Corker-Warner.

When I asked Corker how he planned to sell the bill to his fellow Republicans, he said, “This is a pragmatic approach. To have liquidity in the market, you have to have some government insurance.” He said it as if it were the most obvious thing in the world. As for the social mission, he told me that the country would be better served having that mission explicitly dealt with by the federal government than to have it “embedded” as part of two companies that were always more concerned with maximizing profits.

I don’t doubt that he’s right about that. One of the big problems with the old Fannie Mae-Freddie Mac model is that because they were publicly traded companies that also had a government component, their goals were constantly at war with each other. There was too much about them that was implied rather than stated outright. Warner and Corker both stressed that the country was better served by having things like government guarantees of mortgages out in the open, rather than implied as it was in Fannie’s and Freddie’s heyday.

Yet Corker-Warner has its own unstated assumption, namely that “the 30-year fixed mortgage is a social entitlement,” as Karen Petrou, the managing partner of Federal Financial Analytics, puts it. Almost no other country offers a 30-year fixed mortgage, because 30 years is unacceptably risky to the private market — without a government backstop. The 30-year fixed is also at the heart of the idea that owning one’s home is the American Dream. Part of the reason Corker-Warner is so complicated is that it has to do backward somersaults to create a mechanism that will maintain the viability of the 30-year fixed mortgage.

The question of whether the country should even have a 30-year fixed mortgage — or whether those who want one should pay for it, rather than relying on a broad government guarantee, or whether encouraging everyone to own their own home should be government policy — is what the country should be debating. By comparison, the debate about Fannie and Freddie is the same thing it’s always been: a sideshow.

http://mobile.nytimes.com/2013/06/27...d-freddie.html

Now that Fannie and Freddie are posting record profits, billions in the first quarter of this year alone, why won't the govenerment release them from conservatorship?
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Old 06-27-2013, 08:34 AM   #2
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Almost no other country offers a 30-year fixed mortgage, because 30 years is unacceptably risky to the private market — without a government backstop.
It's only a risk when you require little to no down payment for someone with less than impressive credit in a market where the value of a home is inflated.

But that's my opinion.
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Old 06-27-2013, 09:05 AM   #3
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It's only a risk when you require little to no down payment for someone with less than impressive credit in a market where the value of a home is inflated.

But that's my opinion.
i can't believe some of these house prices in my area.....a 2 family house that needs total renovation (i mean has to be TOTALLY gutted and everything replaced except the boiler) is going for upwards of 800k...what the fvck.
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Old 06-27-2013, 09:10 AM   #4
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i can't believe some of these house prices in my area.....a 2 family house that needs total renovation (i mean has to be TOTALLY gutted and everything replaced except the boiler) is going for upwards of 800k...what the fvck.
I live in a neighborhood where you're paying for the property and not the home that's sitting on it. It's not uncommon for people to close on a house an immediately bulldoze it to build a new one.
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Old 06-27-2013, 09:14 AM   #5
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I live in a neighborhood where you're paying for the property and not the home that's sitting on it. It's not uncommon for people to close on a house an immediately bulldoze it to build a new one.
yeah i'm in a neighborhood where and empty lot costs upwards of 1.2 mil. they save on demolition costs and removal of the materials left after bulldozing. those are usually bought by a corporation. there used to be a lot more "parking lots" in my neighborhood.
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Old 06-27-2013, 10:27 AM   #6
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So back to my question. Is the government holding onto Fannie and Freddie because all the dividends go to the US treasury or does the government really want to revamp mortgage backing and slowly wind down the 2 firms?
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Old 06-27-2013, 10:35 AM   #7
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So back to my question. Is the government holding onto Fannie and Freddie because all the dividends go to the US treasury or does the government really want to revamp mortgage backing and slowly wind down the 2 firms?
If the Government has a tight hold on both companies and are able to recover costs associated to the bailout due to their current successes then I see no reason to cut ties. But according to the article:

Although Fannie and Freddie are now making a gaggle of money, for complicated reasons having to do with the way the Treasury Department originally set up the conservatorship, that money is not reducing the government’s $180 billion bailout of the two companies.


So perhaps the benefit is overstated and we should get out before **** hits the fan again. After all, aren't we all still waiting on that free oil from Iraq?
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Old 06-27-2013, 03:14 PM   #8
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A bipartisan group of senators issued a bill to extinguish the existing government-sponsored enterprises Fannie Mae and Freddie Mac Tuesday.

The legislation calls for a new government issuer, known as the Federal Mortgage Insurance Corp., which would replace the GSEs.

Sens. Bob Corker, R-Tenn., and Mark Warner, D-Va., are leading a group of eight senators who want to wind down the government-sponsored enterprises within a period of five years.* The draft bill is known as the Housing Finance Reform and Taxpayer Protection Act of 2013.

Mortgage professionals took to their soapboxes Tuesday to discuss the bill's introduction — surprisingly, cheers were heard all around for the senators’ efforts.

Bipartisan Policy Center Housing Commission co-chairs commended the senators for proposing new housing finance legislation, saying they hope such legislation will signal a renewed focus in Congress to repair the mortgage finance system.

"As we approach the fifth anniversary of the government’s takeover of Fannie Mae and Freddie Mac, the government dominates the housing market in a way never seen before in our nation’s history," the co-chairs expressed.*

They added, "Today, the government touches more than 90% of mortgages. This government-dominated status quo is undesirable and unsustainable and exposes taxpayers to unnecessary risk. Recent developments such as rising home prices and the return to profitability by Fannie Mae and Freddie Mac should not lull us into a false sense of complacency."*

The proposed bill incorporates many of the elements of the housing finance reform plan proposed earlier this year by the Bipartisan Policy Center’s Housing Commission.*

Both plans include a new system in which private entities are responsible for the majority of the mortgage system’s functions — not only as originators, but also as issuers of mortgage-backed securities.

"The introduction of this legislation is proof that bipartisan cooperation is possible, even on an issue as complex as housing finance reform," the co-chairs explained.

During a press conference, the eight senators officially announced the bill, noting that even though all of them come from various political backgrounds, they came to the consensus that some type of reform needs to happen immediately.

"The last piece of rebuilding the economy is housing," said Jon Tester, D-MT. "This bill will provide certainty to the housing market."

The American Bankers Association commended the bipartisan group on the introduction of the Housing Finance Reform and Taxpayer Protection Act of 2013 to address the government’s dominant role in the mortgage market.*

"This bi-partisan legislation is a positive first step in what is certain to be a long process toward creating a sustainable, rational and limited role for the federal government in supporting and regulating a mortgage market that is appropriately and predominately filled by the private sector," said Frank Keating, president and CEO of ABA.

He added, "The bill follows principles long advocated by the ABA, and builds upon the framework detailed by the Bipartisan Policy Center’s Housing Commission on which I served."*

During the question-and-answer session of the conference, Warner addressed an audience member’s concern about eliminating Fannie Mae and Freddie Mac completely.

He claims that while some market experts — particularly investors — would like to see the enterprises have initial public offerings on the New York Stock Exchange again, it would still leave taxpayers extremely exposed.*

"It’s a brand new system that puts private capital at risk," Warner said. "I just don’t think incorporating the government is a viable approach."

The Federal Housing Finance Agency welcomes the proposed bill and is committed to working with members of both the Senate and House to move the process forward.

"Fannie Mae and Freddie Mac have been in conservatorship for almost five years and Congressional action is needed to resolve this situation and expand private sector participation in the U.S. housing finance market," the housing agency concluded.
www.housingwire.com
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Individuals make choices and take actions. Sometimes their race informs their choices and actions, sometimes it does not.
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Old 06-27-2013, 03:19 PM   #9
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Republicans and Democrats working together on something? This either means it's really really good.... or really really bad
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Old 06-27-2013, 03:20 PM   #10
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Republicans and Democrats working together on something? This either means it's really really good.... or really really bad
"The word bipartisan means some larger-than-usual deception is being carried out". George Carlin

Honestly, we're all usually better off when nothing gets done...because when "nothing" gets done the actual important stuff still gets done.
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Last edited by Act of God; 06-27-2013 at 03:21 PM.
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Old 06-27-2013, 03:31 PM   #11
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Fannie and Freddie going away.........

I guess Barney Frank and Chris Dodd got out just in time.
They would have to find another way to make money in the back rooms.

I don't think they will be closed.
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Old 07-12-2013, 03:10 PM   #12
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Investors Challenge Fifth Amendment "Taking" by Treasury Department After Fannie Mae/Freddie Mac Bail-Out

Read more here: http://www.sacbee.com/2013/07/12/556...#storylink=cpy

WASHINGTON and RADNOR, Pa., July 12, 2013 /PRNewswire/ -- Preferred shareholders of Freddie Mac and Fannie Mae yesterday filed a class action lawsuit challenging the US Government's appropriation of their dividend, liquidation, and related distribution rights in August 2012.

As part of the 2008 federal bail-out, mortgage giants Fannie Mae and Freddie Mac issued the US Department of Treasury$189 billion of senior preferred stock. These new securities entitled the Government to be paid dividends on their investment in Fannie and Freddie at a rate of 10% per year. The junior preferred shareholders received no dividends in the interim.

In 2012, as the real estate market stabilized and began to improve, Fannie and Freddie began generating consistent and growing profits, enabling them to repay the government and resume dividend payments to junior preferred stockholders. Instead, the US Department of Treasury and the Federal Housing Finance Administration––both arms of the U.S. Government––unilaterally amended the Treasury's senior preferred stock agreements to grant the Government the right to receive all of Fannie and Freddie's profits and net worth as dividends (or as a liquidation preference). None of these dividend payments are being applied towards paying down the principal of the senior preferred stock; rather, the Government has structured the new contracts to effectuate a "cash sweep" of all of Fannie and Freddie's profits and keep these entitles in a perpetual state of distress.

Plaintiffs allege that the Government's unilateral amendment of the senior preferred stock agreements constitutes a "taking" under the Fifth Amendment to the US Constitution requiring payment of just compensation. They seek to represent a class of Fannie and Freddie junior preferred shareholders who owned their preferred shares on August 17, 2012, and therefore suffered the complete loss of their dividend and liquidation rights.

Plaintiffs are represented jointly by Hamish Hume of Boies Schiller & Flexner and Lee Rudy and Eric Zagar of Kessler Topaz Meltzer & Check. Preferred shareholders interested in participating in the lawsuit and protecting their right to receive a recovery are urged to contact plaintiffs' counsel below.

About Boies Schiller:

Boies, Schiller & Flexner LLP, founded in 1997, has grown to over 250 lawyers practicing in offices strategically located throughout the United States. Over the past ten years BSF has tried more than 350 cases before juries and judges in federal and state courts throughout the United States and participated in more than 150 international arbitration proceedings throughout the world. The Firm regularly serves as lead counsel on complex, high profile global matters. Boies Schiller is currently litigating a class action complaint against the United States related to the appropriation of the economic and voting rights of AIG's shareholders.

About Kessler Topaz:

Kessler Topaz is a 100-lawyer firm based in Radnor, PA and San Francisco, CA that specializes in class action litigation, primarily on behalf of pension fund investors. The firm has recovered billions of dollars for investors, including most recently as co-lead counsel in In re Bank of America Securities Litigation (SDNY 2012) ($2.425 billion class settlement), and as co-lead counsel in In re Southern Peru Copper (Del. Ch. 2011) ($2.1 billion trial verdict).

The full case caption for the Fannie Mae/Freddie Mac class action is Cacciapelle v. United States of America, 13-cv-00385-MMS.

http://www.sacbee.com/2013/07/12/556...amendment.html
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