Posted on 06/10/2013 6:14:00 PM PDT by whitedog57
Senators Corker (R-TN) and Warner (D-VA) have a new bill on what to do with Fannie Mae and Freddie Mac. Warner-Corker Draft
Here are some of the key provisions of the draft bill:
The draft bill would create the Federal Mortgage Insurance Company, an agency that would provide catastrophic reinsurance for mortgage-backed securities. The agency would be governed by a five-member board and replace the FHFA, the existing regulator and conservator of the GSEs.
The FMIC would operate a mortgage insurance fund modeled on the Federal Deposit Insurance Corporation’s insurance fund. Guaranty fees and other payments made to the agency would provide the money for the Mortgage Insurance Fund. Under the bill, the fund must have at least 2.5% of outstanding principal balances insured by the agency.
The FMIC must ensure that the private market entities are in a first loss position and develop appropriate credit risk-sharing standards within five years. The draft bill says the first loss position must be “adequate to cover losses that might be incurred as a result of adverse economic conditions.” Such losses should be “not less than 10% of the principal of” a covered security.
Additionally, the bill says the pools of mortgage securities should be pulled from loans that are geographically diverse and include borrowers with different risk characteristics.
The FMIC would be responsible for creating standards across the secondary mortgage market including for servicing and private mortgage insurance.
The draft bill requires the FMIC to ensure equal access to mortgage securitization platforms by community banks and credit unions. Under the legislation, the FMIC could create a mutual securitization company to meet the securitization needs of smaller institutions, if the agency determined it was necessary.
The bill calls for the creation of the Market Access Fund, an office within the Department of Housing and Urban Development designed to promote rental housing and assist low-income and underserved areas.
The bill would wind down the existing investment portfolios at the GSEs at 15% annually until they are liquidated, likely leaving nothing for current preferred or common shareholders.
The bill would cut single-family conforming loan limits by roughly $42,000 a year over six years to $417,000, b down from $625,000. Guarantees on existing single-family mortgage-backed securities would be assumed by the Treasury, while multi-family guarantees would be transferred to the FMIC without at no cost.i
This seems reasonable on first. But is it?
We used to have a Federal insurance company for the S&L industry called FSLIC (Federal Savings and Loan Insurance Company). It was deeply insolvent by 1989 and it was disbanded (FIRREA). But until it was disbanded, S&Ls were the primary lenders in the mortgage market.
Who took the place of the S&Ls? The GSEs, Fannie Mae and Freddie. And their regulator was OFHEO (Office of Federal Housing Enterprise Oversight) which has been replaced by FHFA (Federal Housing Finance Agency). So market share of S&Ls seamlessly transferred to to the GSEs.
So, this bill wants to unwind Fannie Mae and Freddie Mac BUT form a replacement for the failed S&L insurance company model?
AND there will be an affordable housing component to the insurance company. Don’t we already have HUD and the FHA doing that? As well as the USDA?
Summary: this bill replaces Fannie Mae and Freddie Mac with an S&L-type insurance company that has an affordable housing mission.
In other words, the apparatus for a credit-driven housing bubble remains in place as long as the Administration and Congress can manipulate lending/insurance standards.
Good try, Gentlemen. But not enough safeguards from government tinkering. Imagine someone like Mel Watt as Director?
Why not simply rename Fannie Mae and Freddie Mac as Fannie Mao and Fredo Mac? It would be a lot simpler. Or cancel Fannie Mae and Freddie Mac’s charter and let them soldier on as private corporations without government ties.
I like the catastrophic insurance idea, by the way. As long as there are safeguards in place against “turning up the dials.”
Here are some of the less than appetizing elements of the bill. Such as unconstitutional taking!
– Sec. 502(d) – The Treasury seizes without compensation the existing mortgage guarantee books of each company, where the guarantee fees 502(d)(3) far exceed the obligations assumed.
– Sec. 601 – The new FMIC agency seizes without compensation the existing multi-family mortgage guarantee business of each company.
– Sec. 502(e) – The Treasury gives no credit for the hugely valuable assets seized or for money already received in connection with the government’s investment in the company, but liquidates other assets and puts the un-credited government obligation first in line (double-dipping, in bankruptcy talk), with the resulting mandate to maximize the return for the senior preferred shareholders (i.e. the government) and not for other shareholders. 502(e)(3) and (4) The Treasury Secretary and the new agency head (executive branch officials) decide who gets what, without any process to maximize value, principles of allocation such as absolute priority, or judicial review of the allocation. 502(e)(2)
– Sec. 503 – Deletes mandate of conservator to “preserve and conserve the assets and property of the regulated entity” and to “perform all functions of the related entity… consistent with the appointment as conservator or receiver”.
Well, so much for the Constitution!
Te Gumment owns most of the residential mortgage paper now through the big go Banks, and Ocwan...so this is designed to “redistribute” our homes to the Chosen Ones...
The crap never ends does it?
Why should they stop?
We as conservatives, people who “care”, don’t do anything but complain about what is going on. We don’t actually do ANYTHING about these scum bags crapping all over us and the constitution.
It’s gonna get worse cause we are nothing but talk. “Oh ill never vote for these guys again!”
OOOOHHHH, they’re really scared aren’t they?
As a TN I will not vote for the liberal Corker.
How about we get the federal government out of the home mortgage business once and for all?
We can't. Beck was right, they would go around the balance of power and just do **it, and they have. And yes, Boehner is a woose, that doesn't help.
“Coker and Warner piss on the constitution.
“Coker and Warner piss on the constitution.”
Actually it’s the special interests that wrote the legislation that are pissing on the constitution. Coker and Warner are just holding their Johnsons for them.
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Ping
Might show up on a PRISM action item for that comment!!!!!
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