It’s fun being right and it’s easy to be right when making predictions about a House and Senate (both sides of the aisle) which has done little but shame themselves for the past few years.
In a blog last week, I noted that Congress—as a “pay for” for its end of session actions--was contemplating a new Fannie Mae/Freddie Mac user fee that would be charged to Fannie/Freddie customers (mortgage lenders), with new revenue bypassing conmpany coffers and flowing directly to the Treasury.
This bipartisan idea had been kicking around for months, since the “work” (ha, ha!) of the Select Deficit Committee. A responsible media practioner told me that the idea first came from House Majority Whip Eric Cantor (R-Va.), but I cannot independently confirm it.
Last Friday, the Senate approved that fee to pay for the two month extension of the lower payroll tax, an Obama Administration priority due to expire at the end of this month. The bill then was sent to the House, where it will be voted on it early this week.
Livid House conservatives are angered by the brief two month extension and the belief that it represents too big a political win for the Democrats. They may reject the plan—causing angst for their leaders and joy for the Tea Party--not because of the Fannie/Freddie “tax” (my word, but trust me, it is), but for political reasons.
I’ve said this before and I will repeat, bipartisan support on any revenue raiser is rare and, as such, this new fee—which mortgage lenders only will pass onto borrowers—will be utilized either now or shortly thereafter when Congress again seeks revenue for “deficit reduction purposes.”
The Fannie Freddie fee likely then slowly will become a national fact of life and work its way into mortgage rates for some time. That also suggests—unless Congress does something entirely unpredictable (which involves work and intelligent legislating)--Fannie Mae and Freddie Mac will stay in place.
Despite all of the gnashing of political teeth, the latter is a positive because, systemically, the two are needed to support a mortgage finance market still shaky and working out its post-2008 relationships.
(I love the irony that so many Senators and Congressmen, by using this approach as a “pay for,” likely have breathed life into two entities they have spent the past several years excoriating.)
For the naïve who argue that raising the former GSEs prices will bring in fresh “private capital” (read banks, which because of all of their federal support mechanism, are hardly “private”) don’t bet on it.
When the legislative/political dust settles and the fees take hold, the higher Fannie/Freddie mortgage rates will be used by big bank lenders as a baseline to increase their pricing on conforming and non-conforming loans.
To those in Congress who still don’t get it, it’s not making the loan that is a bank problem (since most bank mortgage originations are sold to Fannie and Freddie), the problem is bank unwillingness to hold the mortgage risk on their books. That won’t change near term.
Happy holidays to all and please try and remember those less fortunate—especially the kids--and help them in whatever way you can.
Below are links to pieces discussing the congressional action reviewed above.
http://www.foxnews.com/politics/2011/12/17/mortgage-fees-would-rise-under-payroll-tax-cut-deal/
http://politicalticker.blogs.cnn.com/2011/12/17/how-will-congress-pay-for-the-payroll-tax-cut-extension/?hpt=hp_t2
http://www.cnn.com/video/?hpt=hp_t1#/video/bestoftv/2011/12/18/exp-sotu-senators-12-18-blunt-menendez.cnn
Maloni, 12-18-11
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3 comments:
commercial banks holding mortgages--Never! We used to have depositories for just that purpose. They were called savings and loans. The GSE secondary market made them obsolete never to return.
Damn GSEs!!
But, I beg to differ. It was rapidly escalating interest rates, coming out of the Vietnam War, which screwed the S&Ls, not Fannie and Freddie.
The thrifts couldn't match their short term deposit liabilities with their long term fixed rate mortgage assets and started bleeding red uink and never stopped.
If rates had stayed low or just steady for years, the old thrift
"1-3-3" business model--take in deposits and pay 1%, lend the money for mortgages at 3%, and be on the golf course at 3 PM--still would be working.
As it was, the S&L industry asked Congress for new bank-like powers, didn't have the skils to use them, and were like pussy cats in a financial jungle full of lions and tigers.
It also bears noting that the S&L's asked Congress--which again complied--to create their own secondary mortagge market facility, Freddie Mac, to which on thrifts could sell their loans.
Damn GSEs!!
But, I beg to differ. It was rapidly escalating interest rates, coming out of the Vietnam War, which screwed the S&Ls, not Fannie and Freddie.
The thrifts couldn't match their short term deposit liabilities with their long term fixed rate mortgage assets and started bleeding red uink and never stopped.
If rates had stayed low or just steady for years, the old thrift
"1-3-3" business model--take in deposits and pay 1%, lend the money for mortgages at 3%, and be on the golf course at 3 PM--still would be working.
As it was, the S&L industry asked Congress for new bank-like powers, didn't have the skils to use them, and were like pussy cats in a financial jungle full of lions and tigers.
It also bears noting that the S&L's asked Congress--which again complied--to create their own secondary mortagge market facility, Freddie Mac, to which on thrifts could sell their loans.
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