Posted on 01/30/2012 8:45:04 AM PST by whitedog57
Chris Arnold at National Public Radio (NRP) posted this story today: “Freddie Mac Betting Against Struggling Homeowners.” The article quotes Chris Mayer from Columbia University, one of the authors of the Boyce, Hubbard and Mayer (MHM) streamlined mortgage refi plan.
Streamlined mortgage refis come at a cost to Fannie Mae, Freddie Mac, pension funds and foreign investors who trusted the U.S. to play be the rules. I don’t really care if the benefits outweigh the costs since I am opposed to massive government intervention into the free market. It never works as expected and usually generates unintended consequences.
Why isn’t the President’s streamlined mortgage refi Executive Order an easy policy to implement? The answer is that Fannie Mae, Freddie Mac and their regulator, FHFA, and living under a dual mandate. On the one hand, Fannie Mae and Freddie Mac are tasked with reducing borrowing costs for borrowers. On the other hand, FHFA is tasked with protecting taxpayers from losses at Fannie Mae and Freddie Mae. Therefore.an inevitable conflict of interest surfaces.
The gist of the NPR story is that Freddie Mac was placing bets that homeowners would not be able to refinance their mortgages. This action occurred in their investment operations. This does not mean that Freddie Mac is resisting the Obama Administration’s Executive Order. Rather, it means that the investment side of Freddie Mae does not think that the streamlined refi effort will be particularly effective (which I have been arguing all along).
As in the movie Jurassic Park, Fannie Mae and Freddie Mac will fight to survive and it is difficult to control (despite FHFA’s efforts). That is, life will find a way (Ian Malcolm).
(Excerpt) Read more at confoundedinterest.wordpress.com ...
The Obama Administration is trying to destroy the Middle Class.
A story from yesterday detailed the other avenue -- Obama is actively seeking (and rewarding) people who dredge up additional poor people who actively need handouts from the govenrment. Obama wants to get more people taking government money.
1) Destroy the Middle Class
2) Overwhelm the welfare state and bring it to collpase.
Classic Cloward-Piven.
I understand your point and I imagine that the author does too. But his point is that taking money from taxpayers and giving it to others is wealth redistribution. Pure and simple.
But his bigger point is that the government is so chaotic that it can’t ever deliver sensible policies anymore. Or maybe they never could.
Mortgage instruments contain a vehicle for payment of principal (the lender doesn't want to lose money) and a vehicle for payment of interest (the lender wants to profit). In this case, the lender is Uncle Sam. Well, Uncle Sam has sold off the vehicle for payment of principal. Uncle Sam isn't going to lose money, and the principal payments of the homeowners do not have an impact on Uncle Sam.
The problem is that Uncle Sam retained control of the vehicle for collecting interest payments. Uncle Sam is charging homeowners 7% interest on their mortgage. Uncle Sam likes this. That's big money for Uncle Sam. The homeowners can refinance their mortgage (to below 4%) but only if Uncle Sam says it's OK. But Uncle Sam isn't allowing that -- because Uncle Sam likes to profit from the 7% interest rate.
In the private sector, this would not happen, but the government can do this. The government is screwing Middle Class homeowners with FHA loans, pure and simple.
But it is only for loans owned by Fannie or Freddie, and made before May 2009.
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