Posted on 04/24/2016 7:43:59 PM PDT by Lorianne
According to a study released by the Federal Reserve Bank of New York in March of last year, U.S. taxpayers have already injected $187.5 billion into Fannie Mae and Freddie Mac, two companies that prior to the 2008 financial crash traded on the New York Stock Exchange, had shareholders and their own Board of Directors while also receiving an implicit taxpayer guarantee on their debt. The U.S. government put the pair into conservatorship on September 6, 2008. The public has been led to believe that the $187.5 billion bailout of the pair was the full extent of the taxpayers’ tab. But in an astonishing acknowledgement on February 25 of this year, the Government Accountability Office, the nonpartisan investigative arm of Congress, issued an audit report of the U.S. government’s finances, revealing that the government’s “remaining contractual commitment to the GSEs, if needed, is $258.1 billion.”
This suggests that somehow, without the American public’s awareness, the U.S. government is on the hook to two failed companies for $445.6 billion dollars. And that may be just the tip of the iceberg of this story.
The official narrative around the bailout of Fannie and Freddie is that they were loaded up with toxic subprime debt piled high by the Wall Street banks that sold them dodgy mortgages. While that is factually true, the other potentially more important part of this story is the counterparty exposure the Wall Street banks had to Fannie and Freddie’s derivatives if the firms had been allowed to fail.
(Excerpt) Read more at wallstreetonparade.com ...
Be back
We recently refinanced and after s month on the new loan, we got a letter saying our loan had been sold to Fannie May but there wasn’t going to be any paperwork other than the letter.
imho deserves reading in full.
:-(
I’m pretty certain that 95+% of all home mortgage loans are resold to Fan or Fred. This allows the originator to get their money back and originate another loan.
There is nothing inherently wrong with this setup, it worked beautifully for 40 years. What went wrong was when FNM/FRE completely eliminated the standards for the loans they would buy. There used to be this thing called a “conforming” loan. That was a loan that 1: had 20% down, 2: could be serviced by no more than 33% (estimate) of the borrower’s verifiable income 3: on a properly appraised property in a non-insane market 4: loan being under $625K. (IIRC)
When I bought my first two homes, if I didn’t have 20% down, the seller had take back a second to bring the effective downpayment into line. I had to show the income. You didn’t have those things, you didn’t get the loan, period. If the loan pmt was 34% of your income, you flat out did not get the loan. “Conforming”.
For 40 years, this produced giant bundles of mortgage loans with well under a 1% default rate that institutions treated as “good as gold”. They pretty much were.
When in the early 200x era Fan and Fed decided they would buy any damned mortgage of any quality or no quality, it created a criminogenic environment which encouraged originators to make bogus loans because they knew FNM & FRE would buy them sight unseen.
That’s what did it. Anyway, this story has been told a billion times.
“When in the early 200x era Fan and Fed decided they would buy any damned mortgage of any quality or no quality,”
What did it wasn’t that. There is nothing inherently wrong with high risk loans. The meltdown happened because they bundled together batches of crap loans, and sold them as high quality loans.
it was outright fraud and banks should have been left to collapse, European investors should not have been bailed out, and numerous people should have gone to prison.
But as the story goes, it was loan officers that worked at the office and homebuyers. The least sophisticated people in the whole equation somehow tricked the Harvard MBA hedge fund boys, international banksters, and the highest levels of government.
The woman at the quick pack store, who wanted a mortgage and was told it was normal, tricked em all with that first in her life transaction.
They were failed companies in the past. They may be failed companies in the future. Lately, they've been a big cash cow for the Treasury. They paid back the $187.5 billion and another $59 billion in profits.
While that is factually true, the other potentially more important part of this story is the counterparty exposure the Wall Street banks had to Fannie and Freddie’s derivatives if the firms had been allowed to fail.
Fannie and Freddie could have made money on these interest rate swaps.
From what I have read there’s about $1 quadrillion worth of derivatives on Wall Street. Can the Fed cover that?
$1 Quadrillion, that is only 1,000 Trillion dollar notes. They did it in Africa, surely our guys can print just as well.
Yet, Jaime Gorelick, Franklin Raines and James Johnson of Fannie Mae and Freddie Mac were given scores of million dollar bonuses.
As long as the traders get their bonuses, all is well.
True, but that's pissing in the wind around here.
You’re wasting your time trying to explain this to some here. They won’t understand it take the time to learn about CRA lending, poor efforts by rating agencies, federal regulators sleeping in the job, lousy underwriting standards by mortgage brokers, banks that didn’t bother to check documents, investment banks creating odd tranches that offered a touch higher yields and buyers who didn’t bother to research their investments. You’re right, the old system worked until around the time Clinton and his party looked to expand things.
In trying to explain the event, that I may leave out one or more particular elements always seems to generate flak. My point was, the whole scenario would never had happened had not Fan and Fred dropped their pants in terms of loan standards. The bad loans would never have been originated in such numbers because there would have been no place to sell them. If there were no vanishing underwriting standards by FNM/FRE, there would have been no +15%/year acceleration in home prices which allowed the serial bogus refis and purchase loans. It was as Bill Black said “criminogenic”. It bred criminality.
I recall very well at the time as I was a mortgage broker going to a Countrywide rah-rah sales party. They presented all the “products” they sold. Walking out of that meeting, stunned, I believed I could get a mortgage loan for a family dog. The hinkier and hinkier products simply left more and more info off the loan application until the borrower’s name & SS # was all that was left, and then they claimed, if you can’t get THAT loan, call us and we will manually approve your loan. I got into the game late. My boss routinely took down $20K+ loan origination fees by getting loans for people guaranteed they would not make even 3 payments. I had trouble with it, I could see it was a pure fraud.
"What was that? (Scary music playing) Nothing. It was just the wind".
Peace
ig
It’s part of what Donald Trump has been educating people about. It’s called a ‘carry trade’ as in the lender carries funds at near 0% or 0% from a member bank of the Federal Reserve who in turn obtains the funds at 0% or negative% from the Federal Reserve who in turn creates the funds at a computer.
The funds are carried to you to purchase a home and the mortgage note is carried (deposited or ‘sold’) to Fannie May while the ‘lender’ who carried the note to FNMA collects origination fees and a part of the revenue stream of interest.
Donald is upset with such carry traders because they offset their enormous revenues with prospective or fictitious debt or loans in preparation, so that they pay ridiculously low amounts of tax such as 5% to 10% and their incomes can approach $250 million per year. And these are often just individuals who are part of a club of ‘authorized’ persons.
So when he says he wants to raise taxes on the rich, that’s who he’s talking about.
Historically, you are expected to pay off your mortgage in 30 years, but today there are myriad arrangements and terms. Then after you pay off the note, you retire and expire, meaning pass away, then via probate tax policy your home is “returned to inventory” of the Federal Reserve banking system. But because retirees were moving to states such as Florida, laws were passed to allow retirees to sell their homes and claim a one-time exemption up to a limit. Hopefully, you will have a nest egg from your home.
There was a time when Americans actually owned their home in life and in death in the sense of passing home or farm to their families who inherited the home or farm without tax consequences but this was seen as allowing wealth to concentrate and was also counter to the profits that could be made by the Fed system. Basically in 1913 bankers were greenlighted to own everything in America by creating debt.
Hopefully, this gives you and others reading a view of the larger picture of home ownership and banking. It’s not a bad system entirely except when enormous booms and busts occur and they do occur, often by design. In such booms and bust there are financial actuarial firms that calculate with engineering accuracy for banks the fallout from busts, so much so that they know very much what will happen against life expectancies, default rates, foreclosure rates and so forth. They even have historical maps of where such events and incidents are likely to happen. There’s a big profit in such business and it’s rather disgusting as it wreaks havoc on lives and families. But the argument is that it’s better than communism which it is. Today you need not fear communism as much as its contemporary updated version “Cultural Marxism”. If you’re interested in politics and how your life is affected, how your life is expected to play out, then you’ll read a bit about it.
I took no malice at all. Making all them bad loans was dumb, and I am sure the Gorelicks and the Raines of the world had no idea it would turn into an world-upending s**tstorm. They weren’t smart enough. The bankers, the wiseguys, you know, the guys hauled in front of Maxine Waters and Barney so she/they can think she is smarter than they are after 5 minutes of testimony as to sophisticated interest rate and default swaps...they too were among the geniuses who put the thing together.
Normally, when you haul a truckload of crap to the dump you have to pay to dump it. That era reversed things, you actually got paid to haul your load to the dump.
It would be an interesting experiment to pay people to haul crap to the dump. I mean, at the entrance to the dump. Would people clean up the streets, their neighborhoods? Some would.
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