Tuesday, August 6, 2013



President to Insist on System which Provides 30 Year Fixed Rate Loans


That was the headline essence in Tuesday’s Washington Post story --by Zach Goldfarb—regarding President Obama’s “housing speech, delivered later that day in Phoenix in which he joined the get rid of Fannie and Freddie chorus.

God must be giggling if not laughing out loud when the US Justice Department indicts Bank of America for mortgage fraud on the same day the US President calls for more bank investment in mortgages. 

Did anyone remind the Mr. Obama that—because of Fannie Mae and Freddie Mac--we have that vuirually every American family has that mortgage available now and that the only thing which threatens their access to them is legislative manipulation of the current mortgage finance system to permit the large commercial banks to dominate it, with their preference for offering short term adjustable rate loans or FRM with exorbitant margins?


On what planet has our President been living? 

Policy makers are twisting and contorting, telling lies about the GSEs and going through “all sorts of changes,” just to support a Senate bill which still has lots of gaps and which nobody can prove will perform better than what we have today. 

I’ll ask again, “Why the need to destroy Fannie and Freddie,” which performed well before the subprime debacle and  so superbly being since they were re-regulated in 2008. For the past several years, the two have held up the nation’s conventional residential mortgage market through some very bad times?


Smart policy is not blowing up the mortgage market structure and bringing in new machinery when the existing machinery works well and--with minor enhancements--can be made to work better, insuring the one product which most Americans—sorry AEI/Cato et al—truly want, the long term fixed rate mortgage.

Mr. President, it’s the big banks which—given options--don’t want to make FRM and Corker-Warner, as well as the dinosaur Hensarling bill are inviting the banks to take over more of the mortgage market. 

Congress is an “ass” when it comes to legislating and its all or nothing approach—in this mortgage market matter--adds to all of the other questions about their collective rationality/judgments. 

Keep it simple: Let F &F repay the Treasury, which on paper could occur in the next six months, and free them—to work in and among other mortgage lenders and investors--in whatever way the mortgage market demands. 

Maintain F&F's higher capital and their current regulatory structure--which keeps both companies away from financing anything but quality loans--and don’t carpet bomb the mortgage terrain, with zero understanding of what will emerge with F&F's destruction.


Isn’t that what the US did, literally, in Iraq and Afghanistan with very unhappy results, because our government didn't comprehend soon enough the consequences of its actions? 

Congress, look carefully at what you have and how it can work for you before you pitch it. 

(With the two expected top announce earnings in the next few days, be sure to watch how Treasury—no matter who proposes what —will hang onto the Fannie and Freddie business revenues long after the amount the two “borrowed” is repaid.)


Maloni, 8-5-2013



Thomas Goddard said...

Bill, great post!

The old adage applies to Obama here: absolute power corrupts absolutely. I believe the only possibility of justice for all, will come from the courts. The irony regarding the lawsuit against B of A on the same day that Obama talks about C-W as a solution, almost brings tears to my eyes. It's as though he's either telling a blatant lie about the cause of the subprime mortgage crisis, and repeating the false statements about how taxpayers were in a first loss position, or he's blissfully ignorant; ignoring the crash in FMCC/FNMA value, the FDIC's feeble role in bailing out the big banks, the lack of mortgage capital from private banks today, the numerous lawsuits against these same banks, and the massive stability/revenue that FNMA and FMCC have generated in helping restore the US economy. Save the superior performance of the GSEs compared with the private sector.

How on god's green earth, do we convince these bank driven, robot drones in the congress and senate, that there is a better way to move forward with a plan that supports a longterm recovery, and it's sitting right in front of their face? I am convinced that the answer is: YES, WE CAN'T!

Why NOT? Because the mortgage reform debate is not about facts; nor is it about the situation regarding the mortgage market. This is about the debt ceiling, and our governments inability to balance the budget, or reach any kind of compromise about how to settle their financial woes. This isn't about repaying they taxpayers, or even the concern about first loss during economic crisis. This is about the U.S. government, which is using private companies to create revenue for a bailout of their own.

This is definitely not about providing American families with a better opportunity to reach the American dream of owning a home. It's about eliminating any remnants of the dream, and making sure that even qualified, creditworthy buyers, pay the same exorbitant interest rates and fees as the impoverished, low-credit Americans.

Robert Mae said...

Damn. Here I was all prepared to address your other post's poster about the FnF lawsuit and, specifically, how the govt's leading witness was tossed out of court, and, BANG, you write another one.

You're a thing of beauty, Bill. I hope your grandkids know that.

Also: %$^& Obama

Anonymous said...

I have heard the argument that the government is stopped from placing the GSEs in receivership to avoid Fannie’s and Freddie’s debt onto the government’s books. But now that the GSEs are repaying the Treasury (and bailing out the government as suggested by another reader) how could the media depict the GSEs as insolvent and call for their dissolution?

Bill Maloni said...

Thanks Thomas and Robert, I am major league pissed off at this President.

He should but obviously doesn't know better.

How simple can it be, the banks can't handle the interest rate risk on long term fixed rate loans and only will originate them if there is a F&F intermediary or the federal government gives the banks a new subsidy and guarantees their mortgage bond losses, which is what the C-W bill does.

I don't make this stuff up. It's there for all to see.

As I noted to Thomas in an earlier exchange, now that the WH, the Senate, most of the media agree, the House Republicans will clog and kill the process and either learn to live with a continuation of F&F or swallow some C-W.

If the mess lasts through 2016, maybe a new President will see things differently.

Anonymous. Don't look for honesty about any of the dealings which put the two in "conservatorship" or the details of how their balance sheets were absorbed by the Treasury (I am hoping one or more of the law suits will get that info public). The impact of F&F debt on the federal budget--by virtue of the two not being able to technically "repay" the Treasury--is a major elephant in the room among budget cognoscenti.

Rather than accept a F&F pay down--which the Treasury Secretary can do on his own findings--I believe the government is borrowing the money to pay interest on its @$182 Bil of GSE-assumed liabilities.

Again, in the next week--maybe sooner rather than later--look for very healthy reported GSE earnings