Fannie Mae and Freddie Mac reform: Would it add $5 trillion to US debt?

[KissMy]

Fannie Mae and Freddie Mac reform: Would it add $5 trillion to US debt?

The Obama administration turned its focus squarely on a $5 trillion question Tuesday: What to do with Fannie Mae and Freddie Mac, the giant financiers of US home mortgages that fell into a bankruptcy-style conservatorship two years ago.

These two corporations together own or guarantee about half the mortgage debt in America. What happens to them will affect the ability of the economy and the housing market to recover. It also has big implications for US taxpayers, who could foot even higher bailout bills if the mortgage-insurance business isn't fixed.

"We will not support a return to the system where private gains are subsidized by taxpayer losses," said Treasury Secretary Timothy Geithner, in remarks Tuesday that opened a day-long conference on how to reform these so-called government sponsored enterprises (GSEs).

Mr. Geithner cited the possibility of giving Fannie Mae and Freddie Mac an "elegant funeral." But that wouldn't mean a government exit from its prominent role in America's housing market. In fact, it could mean that the government agrees to stand explicitly behind the GSEs' obligations, while also putting in place a new system designed to ensure that mortgage credit is available even during recessions or a banking crisis.

"'Without such support, the risk is that future recessions could be more severe because the financial system would not have the capital to support mortgage lending on an adequate scale," Mr. Geithner said in his prepared remarks.

Other panelists at the conference echoed that view.

"The hit to the economy [from the recession] would have been measurably greater" without the GSEs and the Federal Housing Administration, said economist Mark Zandi of Moody's Analytics. By guaranteeing or insuring mortgages, these agencies enabled credit to keep flowing for typical home loans even as home values were falling and the private-sector channels of mortgage finance had dried up.

The Obama adminstration hasn't outlined its approach to GSE reform, which was notably missing in the financial-reform law the president signed recently. The conference represents a first step, at least in public view, toward developing a proposal.

The battle in Congress, expected to ramp up early in 2011, will reflect a sharp partisan split that's existed for years. Republican lawmakers emphasize the importance of scaling back government's role in the housing market and limiting taxpayer exposure to losses. Many Democrats emphasize the risks of providing too little support for the housing market, given housing's prominent role in family wealth and in the economy's ups and downs.

Both sides of this debate were represented in Tuesday's panel discussions. Many participants from the private sector – including Mr. Zandi – said the government should eventually scale back its role in the housing market significantly.

At the same time, many said government mortgage guarantees should continue to be available in some carefully managed forms.

At least one participant, bond-fund manager Bill Gross of the investment firm PIMCO, suggested that government guarantees should apply to virtually all mortgages. He said this results in mortgage interest rates that are about 3 percentage points lower than if the only mortgage insurance came from the private sector.

Whatever role the governemnt takes in the future, policymakers must also decide on a transition plan to get there.

Many panelists urged that Fannie and Freddie should not be reconstituted in something similar to their pre-crisis form: profit-seeking private corporations that, at the same time, have a government-chartered mission and implicit taxpayer backing.

An exit strategy could involve adding Fannie and Freddie's roughly $5 trillion in obligations, in effect, to a federal balance sheet that already includes $13.3 trillion in federal government debts. The GSE obligations would be a different animal, because those liabilities would need to be covered by taxpayers only if things went bad in the housing market.

But the nation has just seen things go bad in the housing market.

During the financial panic of 2008, investors who held GSE debts became increasingly worried about the solvency of those corporations. The Bush administration felt impelled to put Fannie and Freddie into a conservatorship, to avert a possible bankruptcy and to keep mortgage markets moving.

The companies weren't holding enough capital in reserve to cover likely losses.

As of March 31 this year, 6.3 percent of mortgages held by Fannie and Freddie are either seriously delinquent or in foreclosure. Although that's down slightly from the figure three months earlier, it represents a big one-year rise (from 3.9 percent in early 2009).

In the end, losses to Fannie and Freddie related to the financial crisis may cost taxpayers $305 billion, according to one estimate recently published by Mr. Zandi and Alan Blinder of Princeton University. But that figure could rise or fall depending on what happens with the economy – and with government policies on housing.

 

[william the wie]

The housing market is unlikely to hit bottom until the second year of the next administration. The four year presidential cycle and 10 year census cycle just interact that with the capital markets

 

[Toro]

They've already added $5,000,000,000,000 to the debt as they are insolvent and wards of the state.

 

[KissMy]

The housing market is unlikely to hit bottom until the second year of the next administration. The four year presidential cycle and 10 year census cycle just interact that with the capital markets

My bet is Nov 2012. That is when Sub-Prime, Alt-A, & Option-Arms are all finished resetting & Obama is voted out of office.

 

[CrusaderFrank]

The government needs to get the fuck out of the mortgage business

 

[KissMy]

Notes from Appraisal Institute’s 16th Annual Summer Conference

• 23% of prime borrowers are not making payments

• 47% of non-prime borrowers are not making payments

• 90% of properties are upside down on value-to-loan (60% owe more than 150% of value)

Many borrowers haven’t made a payment in more than two years and have yet to receive a Notice of Default.

These numbers are frightening when considering the inventory that may come into the market in the next few years. Norris added that lenders and the federal government have slowed the foreclosure process to prevent a further deterioration of housing prices. But this artificial slowing of foreclosures belies the fact that there are still major waves of residential mortgage defaults on the horizon. It will be interesting to see if this policy plays out for the best or backfires and causes another flood of foreclosure properties into the market

 

[KissMy]

Fannie-Freddie reform holds implications for rental housing

A consensus seems to be forming among policy makers on Capitol Hill: Housing subsidies need to be reduced over the next handful of years.

However, some legislative observers are worried about what that will mean for affordable rental homes. "I think we've not paid close enough attention to rental housing and the advantages of that," said Mark Zandi, chief economist at Moody's Analytics.

"Not everyone can or should have a single-family home, and I think government should think more clearly about how it can help with respect to rental housing," he said. The matter of rental units came up during a forum on housing finance and the role of government on Tuesday.

Fannie conference sees call for subsidy reduction

Participants at a housing finance conference Tuesday largely agreed that subsidies for housing need to be reduced but not eliminated even as they disagreed on how far government assistance to the mortgage market should be curtailed.

 

[Big Fitz]

Notes from Appraisal Institute’s 16th Annual Summer Conference

• 23% of prime borrowers are not making payments

• 47% of non-prime borrowers are not making payments

• 90% of properties are upside down on value-to-loan (60% owe more than 150% of value)

Many borrowers haven’t made a payment in more than two years and have yet to receive a Notice of Default.

These numbers are frightening when considering the inventory that may come into the market in the next few years. Norris added that lenders and the federal government have slowed the foreclosure process to prevent a further deterioration of housing prices. But this artificial slowing of foreclosures belies the fact that there are still major waves of residential mortgage defaults on the horizon. It will be interesting to see if this policy plays out for the best or backfires and causes another flood of foreclosure properties into the market

Those are some incredibly scary numbers.

This is like having an armed and counting down nuclear bomb in the economy.

 

[hipeter924]

Way this could have worked:

1. Waited for both to go bankrupt.

2. Bought them out and wiped the loans.

3. Close both companies and life goes on.

 

[KissMy]

For every person the Obamacrat government allows to continue living in a foreclosed home for free it kills many local Main Street jobs & local taxes but increases profits for mega multinational corporations on Wall Street & increases jobs in foreign countries like China. Government has inserted itself & wall street between local business & customers thus destroying the main street economy.

These slackers no longer pay their payments for property taxes or homeowners insurance so their local insurance agent fires all their employees & goes out of business. A big insurance company like AIG has deals with banks to put forced place coverage on homes that homeowners stop paying premium on. The slacker is likely not saving that money because he is going to file bankruptcy so he blew it on a Big expensive LCD HDTV made in China for a mega multinational corporation & sold by a Big Box store. Along with an expensive satellite HDTV subscription package. This all propped up Wall Street but killed the main-street economy, local taxes, & jobs in the USA.

The same goes for the local land lords who buys foreclosed homes & used to rent them to the slacker that now lives for free & lets the house fall apart around him & even steals the copper wiring & plumbing if he ever leaves. Government is propping up home prices so land Lords cant buy them & expand. It hurts the property managers, property maintenance companies, lawn care companies. The slacker blew his excess money on some expensive expensive sneakers, clothes & I-Phone made in China & sold by a Big Box store. He upped his cell phone plan to an expensive plan that include data. This propped up Wall Street but killed the main-street economy & jobs in the USA. These local companies used to invest their earnings right back into their local economy. Now the Big Multinational Companies invest in China.

This all slowed home sales which wiped out local realtor's, loan officers, home inspectors, movers, painters, carpenters, tree services, news paper advertising, direct mailers, office equipment service technicians, & the list goes on. The slacker spent his money on a vacation to Europe on a foreign airline & blew his wad over there. This just killed the main-street economy & jobs in the USA. These local companies used to invest their earnings right back into their local economy. Now the Big Multinational Companies invest in China.

The free market is the best path to prosperity & Obamacrat communism is just trickle up poverty.

 

[Big Fitz]

Way this could have worked:

1. Waited for both to go bankrupt.

2. Bought them out and wiped the loans.

3. Close both companies and life goes on.

The way it SHOULD have happened.

 

[KissMy]

Wall Street Aristocracy Got $1.2 Trillion in Loans from Fed

Morgan Stanley $107.3 billion
Citi $99.5 billion
Bank of America $91.4 billion
RBS $84.5 billion
UBS $77.2 billion
Hypo Real Estate $28.7 billion
Barkleys
GE
Ford
Cat
Hypo Realestate

 

[hipeter924]

Way this could have worked:

1. Waited for both to go bankrupt.

2. Bought them out and wiped the loans.

3. Close both companies and life goes on.

The way it SHOULD have happened.

I still haven't lost the irony that this bailout mess was meant to save the global economy, all it has done is lay the groundwork for a double dip recession. This should have been all over and done with in 2009.

 

[editec]

Real estate was and is STILL over priced when compared to typical incomes.

I don't own any stock in Fannie or Freddy.

Neither did I own any stock in any of t6he BANSTERS who'd have gone teats-up had the US government not come to their aid.

Face it kids, the Banksters greed, coupled with their absolute domination of the government lead to the worlds hugest example of a tragedy of the commons.

Those boys mostly got their asses bailed out.

However holders of real estate are now, and will continue to pay the price of those bailouts.

WELFARE Socialism for the RICH, cutthroat capitalism for the workers.

THAT's what we've got today, and far as I can tell, that's how it is going to be for the rest of our lifetimes.

 

[hipeter924]

Real estate was and is STILL over priced when compared to typical incomes.

I don't own any stock in Fannie or Freddy.

Neither did I own any stock in any of t6he BANSTERS who'd have gone teats-up had the US government not come to their aid.

Face it kids, the Banksters greed, coupled with their absolute domination of the government lead to the worlds hugest example of a tragedy of the commons.

Those boys mostly got their asses bailed out.

However holders of real estate are now, and will continue to pay the price of those bailouts.

WELFARE Socialism for the RICH, cutthroat capitalism for the workers.

THAT's what we've got today, and far as I can tell, that's how it is going to be for the rest of our lifetimes.

Well generally it takes a few thousand years for a proper revolt if the French revolution is the judge. But I think the anarchist communist P.Kropotkin put revolution in its place, a revolution can only work if society as a whole agrees with it and understands where it is going.

Socialist politicians, radicals, neglected geniuses of journalism, stump orators, middle-class citizens, and workmen hurry to the Town Hall to the Government offices, and take possession of the vacant seats. Some rejoice their hearts with galloon, admire themselves in ministerial mirrors, and study to give orders with an air of importance appropriate to their new position. They must have a red sash, an embroidered cap, and magisterial gestures to impress their comrades of the office or the workshop! Others bury themselves in official papers, trying, with the best of wills, to make head or tail of them. They indite laws and issue high-flown worded decrees that nobody takes the trouble to carry out-- because the revolution has come. To give themselves an authority which is lacking they seek the sanction of old forms of Government. They take the names of "Provisional Government," "Committee of Public Safety," "Mayor," "Governor of the Town Hall," " Commissioner of Public Weal," and what not. Elected or acclaimed, they assemble in Boards or in Communal Councils. These bodies include men of ten or twenty different schools, which, if not exactly "private chapels," are at least so many sects which represent as many ways of regarding the scope, the bearing, and the goal of the revolution. Possibilists, Collectivists, Radicals, Jacobins, Blanquists, are thrust together, and waste time in wordy warfare. Honest men come into contact with ambitious ones, whose only dream is power and who spurn the crowd whence they sprung. Coming together with diametrically opposed views, they are forced to form arbitrary alliances in order to create majorities that can but last a day. Wrangling, calling each other reactionaries, authoritarians, and rascals, incapable of coming to an understanding on any serious measure, dragged into discussions about trifles, producing nothing better than bombastic proclamations, yet taking themselves seriously, unwitting that the real strength of the movement is in the streets.

http://dwardmac.pitzer.edu/anarchist_archives/kropotkin/conquest/ch2.html
True revolution or change comes from popular mandate from the people, combined with a firm idea from the people of what they want their society to be. Otherwise its political posturing, nothing more; and the old system comes back, all the blood spilled and lives destroyed for naught.

 

[CrusaderFrank]

Said it before, I'd make it a Federal criminal offense, punishable by death for F/F to ever buy or hold another single family home mortgage.

They should both be liquidated.

They're too big and they failed the country, and it was intentional too.

 

[CrusaderFrank]

Again, Soviet war planner are laughing themselves sick at how they wasted all that time planning to take out our infrastructure with a first strike when all they had to do was help Democrats get power at the Federal government.

Hard to imagine a first strike causing any more damage than Dem programs and policies

Social Security is broke and F/F pulled down the US residential housing market, that's real meagtons of damage

 

[Valerie]

Wall Street Aristocracy Got $1.2 Trillion in Loans from Fed

Morgan Stanley $107.3 billion
Citi $99.5 billion
Bank of America $91.4 billion
RBS $84.5 billion
UBS $77.2 billion
Hypo Real Estate $28.7 billion
Barkleys
GE
Ford
Cat
Hypo Realestate

Yep.

Guess How Much Wall Street Borrowed From Fed During Crisis While Americans Went Bust?

After months of litigation and an act of Congress, Bloomberg has an exclusive on the massive lending by the Federal Reserve to Wall Street banks during the height of the financial crisis in 2008.

On top of the $160 billion in loans from the Treasury Department, banks — including those based overseas — borrowed $669 billion from the Fed, with the Fed's peak balance at one point reaching a staggering $1.2 trillion.


According to Bloomberg, the $1.2 trillion is about the same amount as homeowners owe on 6.5 million delinquent mortgages, three-times the size of the federal deficit in 2008, and more than the total earnings of federally insured banks in the last decade.

The Fed had refused to disclose the specific sums it lent to the banks in 2008 — but was compelled to by the Dodd-Frank regulatory reform law.

Guess How Much Wall Street Borrowed From Fed During Crisis While Americans Went Bust? | Daily Ticker - Yahoo! Finance

 

[KissMy]

Again, Soviet war planner are laughing themselves sick at how they wasted all that time planning to take out our infrastructure with a first strike when all they had to do was help Democrats get power at the Federal government.

Hard to imagine a first strike causing any more damage than Dem programs and policies

Social Security is broke and F/F pulled down the US residential housing market, that's real meagtons of damage

Russia sent their commies over here & infiltrated the unions & democrat party.

 

[CrusaderFrank]

Again, Soviet war planner are laughing themselves sick at how they wasted all that time planning to take out our infrastructure with a first strike when all they had to do was help Democrats get power at the Federal government.

Hard to imagine a first strike causing any more damage than Dem programs and policies

Social Security is broke and F/F pulled down the US residential housing market, that's real meagtons of damage

Russia sent their commies over here & infiltrated the unions & democrat party.

The Communist Party and Democrat Party Platforms are interchangeable