Posted on 12/12/2013 6:45:34 AM PST by whitedog57
It doesn’t look like any GSE (housing finance) reform will be taken up in 2013. Partly because the leading contender, the Corker-Warner housing finance “reform” bill is so flawed.
What does Corker-Warner do exactly? It shuts down two enormous mortgage insurance companies (Fannie Mae and Freddie Mac) and creates one gargantuan government insurance company (Federal Mortgage Insurance Corporation). Ah, nationalized mortgage insurance. This is particularly bizarre given that the FHA already exists as a national mortgage insurance agency for mortgages.
Like single-payer healthcare systems (as in UK’s NHS), you take what the government decrees for you. But Obamacare is really an income redistribution scheme rather than healthcare reform, but Corker-Warner is no reform either.
We need a Federal mortgage insurance corporation AND a Federal mortgage insurance agency? The private-public partnership between Fannie Mae and Freddie Mac blew up, so Corker-Warner wants to repeat the same mistake.
The problem, of course, is the government guarantee that still resides with Corker-Warner. Whether you call it a government backstop or insurance, it is still a government guarantee.
Corker-Warner claims that lenders take a first-loss position (similar to a healthcare insurance deductible), no problemo! The problem is controlling the size of the first loss stake. Is it 10%, 5% or will they gradually lower it to 0%? There are a lot of interested parties who want the government to take all the risk (just like Fannie Mae and Freddie Mac having no capital).
Remember that U.S. Treasury has changed the terms of the Fannie Mae and Freddie Mac conservatorship after the fact. This is called an “illegal taking.” Treasury, of course, denies this allegation. Therein lies the problems. The government can always changes the rules when they have the power.
Bottom line: there are no safeguards in Corker-Warner that limit the powers of Congress to tamper with the safeguards. The new FHFA Director Mel Watt may very well proceed with unwinding Fannie Mae and Freddie Mac (although they could have kept Ed DeMarco if that was the Administration’s true goal), but then replace them with one BIG insurance corporation? Who is the new regulator? Who are the insurance company board members? How are they appointed? Etc., etc.
Mel Watt is allegedly considering reviving the 40 year fixed-rate mortgage in an attempt to lower mortgage payments versus the 30 year fixed-rate mortgage. Of course, this increases the risk of loss to whoever holds the 40 year mortgage. Will they increase the guarantee fee accordingly? Why not just use 5/1 ARMs which also lower the mortgage payment? No, Watt and the affordable housing crowd want fixed-rate mortgages and Uncle Sam to bear the losses.
Much like a single-payer healthcare system. The government pays for it and take what the government decrees.
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