- Jun 6, 2007
- 852
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Washington needs to stop its extremely crazy behavior on Fannie Mae & Freddie Mac. These businesses are mortgage financing businesses, that is, they buy home loans from banks paying these banks cash for these loans (so the banks can lend more) and bundle these loans into packages and sell bonds on these packages with the mortgage payments from the loans in these packages used to pay off the bond holders. Back in 2008, the Federal Government put Fannie and Freddie into conservatorship because of its losses and expected future losses; to date the Federal Government has put around $134 billion into Fannie and Freddie to keep them afloat. The big political question, which is frankly unnecessary at this point and widely recognized as though because the housing industry is on life support and will be for at least one and a half to three additional years, is what to do with these businesses - the Republicans want the Federal government out of these businesses because they view these businesses as private business where the government does not belong! The Obama administration has promised to announce a plan in January of 2011 for the future of these businesses!
The Federal Government should not seek to privatize Fannie and Freddie thus cutting all ties with these organizations which would make the Republicans and Wall Street happy! The U.S. economy like all free enterprise economies will always have recessions where people lose their jobs and can't pay their mortgages which makes investors that buy mortgage backed bonds pull back from investing in these bonds (because they are worried they won't receive the promised bond payments) and thus cause mortgage financing businesses to pull back in buying home loans from banks which reduces the availability of loans to home buyers thus if the economy is to be protected from this harm the Federal government will have to have controlling ownership in large mortgage financing businesses where it can force its businesses to continue to buy loans from banks during troubled times. To think the Federal government can produce an effective mechanism to achieve this goal without controlling mortgage finance businesses is extremely stupid for the government can't even get private businesses to modify mortgages to avoid foreclosures when foreclosure causes these businesses greater economic losses. The housing industry is too critical to the economy to allow market forces alone to control its well being; not only are home sales and new home construction at issue which are critical aspects of the economy but home prices are at play here which affects American families wealth which puts America's consumer confidence in jeopardy and with the US having a consumer-based economy the country can't afford such a risk to the economy. This mortgage financing power of the U.S. government would not only protect the economy against harm from "recessions' but also from "housing price bubbles when the bubbles pop", both realities the country is currently experiencing!
The bottom line here is that the Federal government should not seek to get out of the mortgage financing business it should just over time shrink Fannie's/ Freddie's business to a combined one-quarter or at maximum one-third of the home mortgage financing market. That is, they will be big enough that during recessions or housing price bubble collapses, the Federal government can quickly ramp up their market share and thereby insure a good availability of home loans to home buyers but they will not be so large that when recessions and the like hit they are exposed to overwhelming economic losses. The Federal government can seed private mortgage financing businesses by giving the Treasury Department the power to give out tax credits for such businesses to incentivize these businesses and get them up and running, moreover, the Congress could pass legislation directing the Federal Reserve to open a lending window to these mortgage finance businesses to loan them money so they can get up and running - during the past three years the Fed has opened up several lending windows to get credit industries back-up and running, no big deal one more time! The Federal Government could also promote private businesses to grow in this market by, as many commentators have said, have Fannie and Freddie increase the fees they charge banks to guarantee the loans bank make which will move banks to seek private mortgage finance businesses which charge less for this function.
The Federal Government should wait to shrink Fannie and Freddie until the country is through the home loan default and foreclosure crisis it is experiencing. At that time the Federal Government should also take steps to separate the Executive branch of the Federal Government from control of these two mortrgage finance businesses, having the Treasury Department in ultimate control of these businesses, as it is now, is too dangerous when the public spotlight turns away from these businesses over time the American people will see politics heavily involved in the operation decisions of these businesses with scandalous consequences. These businesses should be run by a seven or nine member board of directors (no Fannie/Freddie executives) where the President nominates candidates and the Senate confirms them and the terms should be long like four to six years (which will make the board strong and independent) and these directors should be paid decently (so they can make it a full-time job), directors should be restricted to serving on only one other board (publicly traded company) so that the board, by design, will provide engaged/strong/responsible management to run Fannie and Freddie like well run private businesses and these businesses profits should be turned over the Federal Treasury to fund the country's general budget. When the country enters recessions or troubled periods for the housing industry the Congress and the President through legislation can for a specified period of time give the Treasury Secretary special authority to use these businesses to aid the mortgage finance market for the American people in an extraordinary manner. The plan for Fannie/Freddie should be that these organizations should be prohibited from making political contributions, extensive lobbying or having large advertisement budgets to influence their regulation so America doesn't see the huge problems these activities in the past by Fannie and Freddie brought on the country! With the twenty-one percent private ownership of Fannie and Freddie which exist today when the country gets through this housing industry crisis it can just pay these private owners a fair price for their stock, the Federal Government is currently majority owner of these entities it should be able to approve a buy out offer for Fannie and Freddie stock.
Some experts on this overall problem advocate the Federal government should insure all mortgage backed securities even by private businesses. This is a colosally stupid idea it could make the Federal government and thus the American people liable for trillions and trillions of dollars worth of mortgage backed securities and practically with Uncle Sam backing up these securities it will remove moral hazards and eventually the country will see shotty underwriting standards used in issuing mortgages and housing price bubbles w/ collapses with terrible human and economic consequences. There is no need for Uncle Sam to guaranttee mortgage backed secuirities a non-government backed system largely worked in the past and it can work well in the future. If one thoroughly thinks about it by their very nature mortgage backed securities are less risky than securities backed by credit cards, auto loans, etc.. because people often pay their mortgage bill first because they can't afford to lose their roof over their head.
The White House should not be afraid of the critics that say the Federal Government is taking over everything and its involvement with Fannie and Freddie is just one example of this, the so-called TARP fear. By general election season 2012, the U.S. government will have sold all its stock in GM and sold a large portion of AIG stock with a worse case scenario modest government losses sustained from these bailouts, with the TARP bank bailouts the results are in and the Federal Government didn't lose any money. History will record that "TARP" was a resounding success, it kept the country from falling into a depression and helped quickly heal important parts of the economy, that is not to say it was perfect, there was a real problem with "TARP" recipient businesses paying their employees large and excessive bonuses and the Federal Government should really enact laws giving businesses the right to legally get out of employment contracts mandating such bonuses when these businesses take government financial help! The point here is the White House should do what is best for the American People on the issue of government divestiture of Fannie and Freddie, the political costs of the "government taking over everything" label is a red-herring issue!
Anyone that really delves into the country's housing/home mortgage industry problem has to recognize that the issue of American families "underwater" on their home mortgages, that is they owe more on their mortgage that their home is worth because of the drop in home prices since 2007/2008, is a real source of instability and weakness in America's economic recovery not to mention a grave injustice to those American families that find themselves underwater and I would bet something these families are for a long time to come going to let their politicians know they need and deserve help with! The figures are significant 22% of homes that have mortgages have underwater mortgages and many of these homes have dropped in value thirty to forty percent since the peak in home prices back in 2007. Many American homeowners who have been underwater since the housing price bubble burst and could afford to continue to pay their underwater mortgage payments have "walked away" from their homes and allowed these homes to be foreclosed on rationalizing their behavior that it is the banks that are fully guilty for this housing price bubble and its subsequent burst because of their support for lax lending standards to home mortgage borrowers so it is completely fair that the banks take the loss from the loan default. Banks and the investment community probably don't want to hear this but it is ethically and morally completely legitimate for underwater homeowners to walk away from their homes and default on these mortgages under the situation that exists with America today because of the reason cited; the government and America's financial institutions are the guilty parties on this "homes underwater" problem. These guilty parties need to get their systems in gear and solve this underwater problem for these victim families, here is three options. The governmant could mandate that banks and financial institutions use twenty percent of their net income to pay down the principle on underwater mortgages to the market value of the respective homes on mortgages they either made, own, owned or service and use a lottery system to select the mortgage that receive this fix; the federal government itself could do this fix on all underwater mortgages and recoup the cost by assessing a ten-percent fee on net income on all financial institutions until the cost is fully paid, or; the federal government could help all these underwater mortgage owners default in a manner that gives them strong rights to hold onto their homes and at a controlled rate to stop any significant decrease in home sale prices in communities that have a siginificant number of underwater homes - the federal government could do this by passing a law that gives underwater homeowners the federal government so designates the legal right to buy the home the designee had owned that had been foreclosed on for the same price that the mortgage owner plans to sell it for (it is a right to buy at match price) and these designees could be preapproved with loans from the Federal Housing Administration (FHA) and the FHA would finance the foreclosed home purchase for the designee. Washington politicians and Wall Street want to sweep this underwater mortgage problem under the carpet, sensible thinking would say it won't fit!
The Federal Government should not seek to privatize Fannie and Freddie thus cutting all ties with these organizations which would make the Republicans and Wall Street happy! The U.S. economy like all free enterprise economies will always have recessions where people lose their jobs and can't pay their mortgages which makes investors that buy mortgage backed bonds pull back from investing in these bonds (because they are worried they won't receive the promised bond payments) and thus cause mortgage financing businesses to pull back in buying home loans from banks which reduces the availability of loans to home buyers thus if the economy is to be protected from this harm the Federal government will have to have controlling ownership in large mortgage financing businesses where it can force its businesses to continue to buy loans from banks during troubled times. To think the Federal government can produce an effective mechanism to achieve this goal without controlling mortgage finance businesses is extremely stupid for the government can't even get private businesses to modify mortgages to avoid foreclosures when foreclosure causes these businesses greater economic losses. The housing industry is too critical to the economy to allow market forces alone to control its well being; not only are home sales and new home construction at issue which are critical aspects of the economy but home prices are at play here which affects American families wealth which puts America's consumer confidence in jeopardy and with the US having a consumer-based economy the country can't afford such a risk to the economy. This mortgage financing power of the U.S. government would not only protect the economy against harm from "recessions' but also from "housing price bubbles when the bubbles pop", both realities the country is currently experiencing!
The bottom line here is that the Federal government should not seek to get out of the mortgage financing business it should just over time shrink Fannie's/ Freddie's business to a combined one-quarter or at maximum one-third of the home mortgage financing market. That is, they will be big enough that during recessions or housing price bubble collapses, the Federal government can quickly ramp up their market share and thereby insure a good availability of home loans to home buyers but they will not be so large that when recessions and the like hit they are exposed to overwhelming economic losses. The Federal government can seed private mortgage financing businesses by giving the Treasury Department the power to give out tax credits for such businesses to incentivize these businesses and get them up and running, moreover, the Congress could pass legislation directing the Federal Reserve to open a lending window to these mortgage finance businesses to loan them money so they can get up and running - during the past three years the Fed has opened up several lending windows to get credit industries back-up and running, no big deal one more time! The Federal Government could also promote private businesses to grow in this market by, as many commentators have said, have Fannie and Freddie increase the fees they charge banks to guarantee the loans bank make which will move banks to seek private mortgage finance businesses which charge less for this function.
The Federal Government should wait to shrink Fannie and Freddie until the country is through the home loan default and foreclosure crisis it is experiencing. At that time the Federal Government should also take steps to separate the Executive branch of the Federal Government from control of these two mortrgage finance businesses, having the Treasury Department in ultimate control of these businesses, as it is now, is too dangerous when the public spotlight turns away from these businesses over time the American people will see politics heavily involved in the operation decisions of these businesses with scandalous consequences. These businesses should be run by a seven or nine member board of directors (no Fannie/Freddie executives) where the President nominates candidates and the Senate confirms them and the terms should be long like four to six years (which will make the board strong and independent) and these directors should be paid decently (so they can make it a full-time job), directors should be restricted to serving on only one other board (publicly traded company) so that the board, by design, will provide engaged/strong/responsible management to run Fannie and Freddie like well run private businesses and these businesses profits should be turned over the Federal Treasury to fund the country's general budget. When the country enters recessions or troubled periods for the housing industry the Congress and the President through legislation can for a specified period of time give the Treasury Secretary special authority to use these businesses to aid the mortgage finance market for the American people in an extraordinary manner. The plan for Fannie/Freddie should be that these organizations should be prohibited from making political contributions, extensive lobbying or having large advertisement budgets to influence their regulation so America doesn't see the huge problems these activities in the past by Fannie and Freddie brought on the country! With the twenty-one percent private ownership of Fannie and Freddie which exist today when the country gets through this housing industry crisis it can just pay these private owners a fair price for their stock, the Federal Government is currently majority owner of these entities it should be able to approve a buy out offer for Fannie and Freddie stock.
Some experts on this overall problem advocate the Federal government should insure all mortgage backed securities even by private businesses. This is a colosally stupid idea it could make the Federal government and thus the American people liable for trillions and trillions of dollars worth of mortgage backed securities and practically with Uncle Sam backing up these securities it will remove moral hazards and eventually the country will see shotty underwriting standards used in issuing mortgages and housing price bubbles w/ collapses with terrible human and economic consequences. There is no need for Uncle Sam to guaranttee mortgage backed secuirities a non-government backed system largely worked in the past and it can work well in the future. If one thoroughly thinks about it by their very nature mortgage backed securities are less risky than securities backed by credit cards, auto loans, etc.. because people often pay their mortgage bill first because they can't afford to lose their roof over their head.
The White House should not be afraid of the critics that say the Federal Government is taking over everything and its involvement with Fannie and Freddie is just one example of this, the so-called TARP fear. By general election season 2012, the U.S. government will have sold all its stock in GM and sold a large portion of AIG stock with a worse case scenario modest government losses sustained from these bailouts, with the TARP bank bailouts the results are in and the Federal Government didn't lose any money. History will record that "TARP" was a resounding success, it kept the country from falling into a depression and helped quickly heal important parts of the economy, that is not to say it was perfect, there was a real problem with "TARP" recipient businesses paying their employees large and excessive bonuses and the Federal Government should really enact laws giving businesses the right to legally get out of employment contracts mandating such bonuses when these businesses take government financial help! The point here is the White House should do what is best for the American People on the issue of government divestiture of Fannie and Freddie, the political costs of the "government taking over everything" label is a red-herring issue!
Anyone that really delves into the country's housing/home mortgage industry problem has to recognize that the issue of American families "underwater" on their home mortgages, that is they owe more on their mortgage that their home is worth because of the drop in home prices since 2007/2008, is a real source of instability and weakness in America's economic recovery not to mention a grave injustice to those American families that find themselves underwater and I would bet something these families are for a long time to come going to let their politicians know they need and deserve help with! The figures are significant 22% of homes that have mortgages have underwater mortgages and many of these homes have dropped in value thirty to forty percent since the peak in home prices back in 2007. Many American homeowners who have been underwater since the housing price bubble burst and could afford to continue to pay their underwater mortgage payments have "walked away" from their homes and allowed these homes to be foreclosed on rationalizing their behavior that it is the banks that are fully guilty for this housing price bubble and its subsequent burst because of their support for lax lending standards to home mortgage borrowers so it is completely fair that the banks take the loss from the loan default. Banks and the investment community probably don't want to hear this but it is ethically and morally completely legitimate for underwater homeowners to walk away from their homes and default on these mortgages under the situation that exists with America today because of the reason cited; the government and America's financial institutions are the guilty parties on this "homes underwater" problem. These guilty parties need to get their systems in gear and solve this underwater problem for these victim families, here is three options. The governmant could mandate that banks and financial institutions use twenty percent of their net income to pay down the principle on underwater mortgages to the market value of the respective homes on mortgages they either made, own, owned or service and use a lottery system to select the mortgage that receive this fix; the federal government itself could do this fix on all underwater mortgages and recoup the cost by assessing a ten-percent fee on net income on all financial institutions until the cost is fully paid, or; the federal government could help all these underwater mortgage owners default in a manner that gives them strong rights to hold onto their homes and at a controlled rate to stop any significant decrease in home sale prices in communities that have a siginificant number of underwater homes - the federal government could do this by passing a law that gives underwater homeowners the federal government so designates the legal right to buy the home the designee had owned that had been foreclosed on for the same price that the mortgage owner plans to sell it for (it is a right to buy at match price) and these designees could be preapproved with loans from the Federal Housing Administration (FHA) and the FHA would finance the foreclosed home purchase for the designee. Washington politicians and Wall Street want to sweep this underwater mortgage problem under the carpet, sensible thinking would say it won't fit!
