Tag: Freddie Mac

FinReg: GOP Style

Lots and lots of words and speeches about the necessity for some sort of regs on the financial markets….Dems have a plan (one that does not go far enough, IMO) and there was suppose to be a vote sometime this week, but now the GOP is back to slowing down all bills in an attempt to under mine all of the Obama proposals…..

The NY Times is reporting:

Republicans, including Senator Richard C. Shelby of Alabama, have said they would use the procedural vote to block the start of debate on the Democrats’ bill unless the Democrats agree to make substantial changes in it. But in a political climate of public impatience and anger at Wall Street, it was not clear how long the Republicans could hold ranks in delaying the bill.

Republicans also said they would propose regulatory language aimed at the giant mortgage entities, Fannie Mae and Freddie Mac, which for practical purposes are now wholly controlled by the federal government. Some Republicans say the absence of the mortgage giants from the financial regulation bill is a glaring omission, while Democrats say they need to be dealt with in separate legislation.

More on the GOP FinReg Plan…..Their alternative proposal includes several similar provisions, including establishing a board to oversee systemic risk, consolidating banking regulation, and reducing Federal Reserve independence (though, to be fair, the GOP doesn’t expand Fed authority anywhere close to what the Obama plan does). The GOP’s plan disappointingly does not address attacks on hedge funds and derivative contracts, and it expands the role of the Securities and Exchange Commission (SEC). However, the Republicans are chiefly focused on ending the policy of “too big to fail” and are opposed to bailouts, which is very encouraging. Here is a comparison of three key provisions that favor the GOP:

Why do they continue to play a game…..why not sit down and negotiate with the Dems on the proposals they have?  There seems to be plenty of room for compromise in both plans.  Why is it necessary to hold press conferences and play games that Repub consultant Lutz diagrams for them?  Does that mean that Repubs have NO original ideas?  If they do why is this Lutz guy doing all the writing and talking points for them?

Once again……the games politicians play get in the way of REAL reform…….and where is the loud mouths in the Tea Party?  They started with the original bailout and morphed into the right wing spin machine….but yet they do not seem to have an opinion on FinReg…..so where are they?  Speak up people!

Things Are Not As Bad As They Seem

Are things at Freddie Mac that bad?

David Kellermann was recently promoted to the chief finanacial officer of Freddie Mac.  Mr. Kellermann, 41, began working nonstop, sometimes returning home only to change clothes, colleagues say. He was losing weight and telling friends that it seemed impossible to appease everyone — regulators, lawmakers, investors and other executives — given their competing demands. Someone was always angry with him, he told one friend. And no matter how many hours everyone worked, it seemed as if the economy and homeowners were still slipping farther into the abyss.

Early on Wednesday, Mr. Kellermann went to the basement of his brick home and hanged himself, according to people familiar with the situation who were not authorized to speak. His body was removed five hours later, through a throng of neighbors, television crews and others.

The roots and causes of suicide are often unclear. It is not known if Mr. Kellermann succumbed to the pressures of his job. But in the aftermath of his death, it is plain that at Freddie Mac, as at many of the companies in the center of this economic storm, there are forces so strong they can overwhelm almost anyone.

I have the feeling that when this crisis is over, there will most likely be even more such stories.

My Fav Couple: Fannie & Freddie

I recently asked in one of my post, just what the bailout was doing for Main Street.  Well here is my answer.

Fannie Mae and Freddie Mac, the largest U.S. mortgage-finance companies, will accelerate anti- foreclosure efforts by streamlining loan modifications to lower monthly payments for more struggling homeowners.

Fannie and Freddie, operating under a government conservatorship, will target loans in which borrowers are at least 90 days delinquent and have high loan-to-income ratios, officials from the Treasury and the Federal Housing Finance Agency said today at a press conference in Washington. The companies may offer homeowners reduced interest rates and longer terms of as much as 40 years to trim monthly payments.

“This new protocol will be a standard for the industry to quickly move homeowners into long-term sustainable mortgages,” Neel Kashkari, the Treasury’s interim assistant secretary, said in a prepared statement.

The initiative expands efforts by the Hope Now Alliance, a group of investors, advocacy groups and mortgage lenders and servicers such as Citigroup Inc. and Wells Fargo & Co. that Treasury Secretary Henry Paulson helped create last year. The success rate in the past for “curing” delinquent loans with modifications similar to what the government proposes was about 50 percent for both prime and subprime borrowers with damaged credit, according to data from the Mortgage Bankers Association

The effort to stem foreclosures and the depressed house prices they perpetuate entered a new phase on Tuesday as Fannie Mae and Freddie Mac announced a fast-track program meant to make hundreds of thousands of mortgages affordable to people who can’t currently meet their monthly payments. The roll-out follows on the heels of new loan modification programs at JP Morgan Chase and Citigroup, but the move at Fannie and Freddie, which together hold or guarantee some 58% of single-family home loans, has the potential to reach much farther since the mortgage industry often takes its cue from the two entities.

Under the new program, homeowners with mortgages held by Fannie and Freddie who are at least 90 days delinquent will be eligible to have their monthly payment reduced to 38% of gross income, as long as they’re not in bankruptcy and can illustrate a hardship or change in financial circumstances. This model, based heavily on a streamlined loan modification program the FDIC is implementing at the failed lender IndyMac, is a strong endorsement of the idea that doing a lengthy analysis of homeowners’ finances is taking too long to make a dent in the nation’s housing woes.

But the details of how, exactly, monthly payments will be lowered has raised concern in certain quarters. In a news conference explaining the program, James Lockhart, who runs the agency that oversees Fannie and Freddie, highlighted three tacks: reducing interest rates, extending the length of loans and, in some cases, deferring payment on part of the principal. There is a big difference, though, between permanently reducing an interest rate and doing it temporarily. And the new program doesn’t forgive principal, only defers it, which may not go very far at a time when some 18% of mortgage holders owe more to the bank than their house is worth. “If all they’re doing is lengthening the loan maturity, it may reduce the economic stress a little bit, but it doesn’t deal with the main problem, which is you have an underwater loan,” says Richard Green, director of the Lusk Center for Real Estate at the University of Southern California.

Sorry to say thast this is just anotrher band-aid for a gunshot wound.  Fan and Fred hold only a small percentage of the mortgages and this will only help a small percentage of trouble homeowners.  Sorry, my question is still valid, what and when can Main Street expect help or is Wall Street the only concern?

This Is For All You Commie Haters

I remember back in the day all those haters of socialism said that if it was to come to the US then all the economy would be in the hands of the government.  Remember those days?  Well, dipsticks, what do you think the bailout of Fannie and Freddie are?  Do not hurt yourself–it is a form of nationalization, something that you say the commies want to bring.  Let us begin with my favorite couple–Fannie and Freddie, poster children of corporate greed.

The Financial Times has hailed the effective takeover of Fannie Mae and Freddie Mac by the US government as “what could become the world’s biggest ever financial bail-out.” Treasury secretary Henry Paulson has promised he will pump in ‘unlimited liquidity.’ Don’t you wish the government would grant you unlimited liquidity? When it comes to the food and fuel bills of the poor and the working class, the British and American governments find that the cupboard is bare. But now it’s not bare. Predictably markets all over the world have breathed a sigh of relief. Fannie and Freddie have effectively been nationalised – and big business thoroughly approves!

In the Financial Times (08.09.08), Clive Crook comments, in an article significantly entitled ‘Nationalisation in all but name,’ “The eventual cost to taxpayers is unknown. If the housing market rallies before long, it could be in the low tens of billions of dollars. If things keep getting worse, it could be in the hundreds of billions. But Fannie and Freddie have made themselves indispensable to any housing market recovery: the cost, whatever it is, will have to be paid.”

Like it or not….my favorite couple has been nationalized.  The best part about it is that it is being done by Republicans, who for years have seen hidden commies everywhere.

Fannie And Freddie Parasites Of The People

The bailout of Fannie Mae and Freddie Mac sets the stage for an intensification of the crisis in the coming months. At heart, the demise of the mortgage firms, which account for 80 percent of new home mortgages in the US and have a combined liability of $5.3 trillion in mortgage-backed securities which they own or guarantee, is a result of the collapse of the colossal credit bubble which sustained the super-profits of US banks and investment firms and the seven- and eight-figure salaries of their top executives.

It is the product of an economic system that has increasingly based itself on speculation and various forms of economic parasitism, while gutting the productive base of the country—at the cost of millions of jobs and the living standards of the American working class.

The decay of American capitalism has produced an economy that is drowning in debt and is dependent on massive inflows of capital from abroad for its survival. Now, the assumption by the government of the debt of the mortgage companies, carried out to protect the financial interests of banks and big investors, has placed a question mark over the solvency of the US government itself.

Do Fannie And Freddie Have A History?

No Irene, this is not something from the soap, “As The Stomach Turns”. The financial giants!

Fannie Mae was set up by the federal government in 1938 as part of the New Deal to inject capital into a mortgage market mired in the Great Depression. It was a public agency with the explicit mission of providing government credit so that average families could buy homes.

In 1968, it was turned into a private but government-sponsored corporation with the aim of getting mortgage debt off of the government’s books under conditions in which the Vietnam War was creating growing fiscal pressures. Freddie Mac was created in 1970 as a similar “government sponsored enterprise.” By the 1990s, the two agencies became central to the speculative housing bubble that underlay the profit boom on Wall Street that preceded the current crisis of the world financial system.

Both of the mortgage giants had been involved in previous accounting scandals. Freddie Mac underwent a shakeup in 2003 after it was revealed that earnings figures had been falsified to the tune of $5 billion, while at Fannie Mae, the company was accused of “accounting errors” totaling $6.3 billion. Both Freddie and Fannie were forced to pay fines and replace their chief executives, but no criminal investigations were initiated and no substantive change was initiated in the companies’ operations.

As the New York Times described these operations, the two firms used the implicit government commitment to bail them out “to borrow money at below-market rates and lend money at above-market returns,” turning them into “what amounted to gigantic hedge funds operating with only a sliver of capital to protect them from unexpected surprises.”

Dodd Feels Misled On Fannie/Freddie

AS written on The Crypt on Politico

For more than a year, Senate Banking Chairman Christopher Dodd has been at the epicenter of everything having to do with the Fannie Mae and Freddie Mac meltdown.

But when the Bush administration gave him a heads up on Friday that it was about to seize control of the mortgage giants, he was caught off guard.

“I was led to believe that this was something that started over the weekend, but now I believe this was started weeks ago,” Dodd said in a conference call with reporters Monday afternoon. “… I’d be hard pressed to find out this all happened Friday afternoon.”

Dodd and other leading Democrats were surprised that Treasury Secretary Henry Paulson exercised his takeover authority so quickly after Congress gave him that power in the housing bill passed this summer. Now, Dodd is demanding that Paulson appear before the Banking Committee for a hearing to investigate how the decision was made, because clearly Congress was left in the dark.

Paulson had been getting along famously with congressional Democrats this year, engineering a major economic stimulus bill in January while helping negotiate the housing bill earlier this year. But now the relationship seems shaky.

“I’m not opposed to this [the federal seizure] but I want to know more,” Dodd said. “I’m going to be much more cautious this time around … fool me once, shame on you. Fool me twice, shame on me.”

CEO Exit Pay

Democrats on Tuesday criticized the multimillion-dollar pay packages awarded to the former chief executives of Fannie Mae and Freddie Mac at a time when taxpayers could foot a massive bill for the companies’ bailout.

In a joint letter to Fannie and Freddie’s regulator, Senators Charles Schumer of New York and Jack Reed of Rhode Island said the combined pay and bonus packages of about $24 million should be revised.

“We find it way out of line,” they said in the letter, saying the severance pay for former Fannie Mae CEO Daniel Mudd and former Freddie Mac CEO Richard Syron should be questioned especially if any financial losses could have been caused by errors in management.

The U.S. government takeover came as worries heightened over shrinking capital at the congressionally chartered companies, which had combined losses of nearly $14 billion in the last four quarters.

U.S. Treasury Secretary Henry Paulson has said the final price tag for taxpayers cannot be estimated until the extent of the declines in the mortgage market is fully known.

What Does The Bailout Mean?

As the New York Times acknowledged Sunday, “The plan to bail out the firms will probably do little to stop home prices from falling further. And foreclosures are almost certain to rise.

“The bailout will give the mortgage industry a stability that we haven’t had in a couple of years,” Rich Cosner, president of Prudential California Realty told the Associated Press. “But frankly no, it won’t help (struggling borrowers) to refinance.”

Its real aim is to bail out the banks which bought Fannie’s and Freddie’s unsecured debts as investments with the understanding that the US treasury ultimately stood behind these so-called “government-secured enterprises.”

The immediate cost of the bailout will be borne by taxpayers as well as shareholders, who will see their investments wiped out. Part of the plan announced Sunday authorizes the government to buy up existing assets at a nominal price of less than a $1 a share. A significant portion of these investments are held by mutual funds handling 401K plans that constitute the sole retirement savings for large sections of the American workforce.

One of the triggering factors in the government intervention was apparently the dumping of Fannie-Freddie holdings by Asian and other foreign investors. Bank of China, the country’s third-largest bank, announced at the end of August that it had shed some $3.14 billion in debt holdings from the two companies over the previous two months. Other central banks were apparently following suit.

Russia’s central bank, meanwhile, reportedly dumped some $40 billion in Fannie Mae, Freddie Mac and Federal Home Loan Bank securities over the course of this year and further cuts were expected.

The flight from investment in these government-backed companies clearly raises the specter that a similar pull-out could be threatened from US government securities. At present, the US economy is dependent upon foreign investors, principally in Asia, purchasing up to $20 billion in US agency debt monthly.

But wait!  Would this be a form of nationalization?

Fannie And Freddie

Treasury Secretary Henry Paulson said in an interview with U.S. radio broadast on Monday that a plan to take control of Freddie Mac and Fannie Mae had been structured in a way to protect U.S. taxpayers.

He also said the move had been taken after the Treasury had found “major structural flaws” in the two agencies.

“We structured this very carefully to protect the taxpayers,” he told WAMU radio, monitored via internet in London. “And to the extent that taxpayers are going to put preferred stock into this entity it will be structured so that the first losses will be borne by the existing shareholders.”

Now ask yourself …who does this takeover really help?  They expect a 200 pt rise in the Dow….does that really help homeowners or speculators?  And at what cost to the taxpayer?  But did not Bush say that he would not bailout speculators?  Are not heavy investors in the markets, speculators, in a sense?