Free Republic

House Financial Services Committee Chairman Jeb Hensarling spoke yesterday in Texas on housing reform. Hensarling pointed out that the Protecting American Taxpayers and Homeowners (PATH) Act specifically: * Ends the costly Fannie and Freddie bailout; * Protects and restores the FHA by defining its mission; * Increases mortgage competition, enhances transparency, and maximizes consumer choice; and * Breaks down barriers for private investment capital. Here is a markup of the PATH bill. The PATH bill is superior to the Senate’s Corker-Warner bill that proposes winding down Fannie Mae and Freddie Mac, but creates yet another government insurance corporate (The Federal...

Buoyed by an improving housing market, President Barack Obama on Tuesday proposed a broad overhaul of the nation's mortgage finance system, including winding down government-backed Fannie Mae and Freddie Mac. He declared that taxpayers should never again be left "holding the bag" for the mortgage giants' bad bets. Obama outlined his proposals in Phoenix, the once foreclosure-riddled city at the epicenter of the nation's housing crisis. The housing market in Phoenix, as well as in many other parts of the country, has rebounded robustly, with prices in the southwestern city up 66 percent from the low point in 2011...

Fannie and Freddie have been in operation for decades without problems until recently. Fannie began in 1938 as a quasi-governmental agency making affordable homes available to people by making the financing easier and funds more readily available by establishing a secondary market for mortgages. Previously banks had held onto their mortgages in a system called portfolio mortgages and were made mostly to their own account holders. With the homes as collateral, the banks then lent out that same money again to other local borrowers. If you remember the scene from It's a Wonderful Life when there is a run on...

After President Obama’s rousing speech on housing this week in Phoenix, I thought a review of homeownership would be in order. Homeowneship has been dropping since 2004 after hitting a high of just over 69%. Back in 1999, Fannie Mae CEO James A. Johnson said that the homeownership rate would reach 70& by 2010. The rate stands at 65%. nhown60s Starting with President Roosevelt in 1930s, the Federal government began creating institutions to support homeownership. 1932: Emergency Relief and Construction Act of 1932, creating the Reconstruction Finance Corporation (RFC) 1932: Federal Home Loan Bank Act (the Bank Act) 1933: Home...

President Barack Obama on Wednesday, in his speech on the U.S. economy, spelled out the beginning of the end for federally controlled mortgage buyers Fannie Mae and Freddie Mac. “We’ll work with both parties to turn the page on Fannie and Freddie, and build a housing finance system that’s rock-solid for future generations,” Obama said, according to a copy of his prepared remarks. See more Obama speech coverage. That might take a while. True, both the House and the Senate are working on legislation to get rid of the giants, which were took under control by the federal government in...

Freddie Mac’s risk-sharing MBS is off to a slow start. 1 month Libor +350bps for M1 mezz piece and 1 month LIBOR + 750bps for the M2 mezz piece. freedierisk Freddie Mac agency credit-risk bonds price talk widens to 1ML+350bps for M1, 1ML+750bps for M2s. • Guidance from earlier this week was +250bps, +725-750bps; was even wider before deal announcement • May price as soon as July 22 • Information from two people familiar with offering who declined to be identified because terms aren’t set If we look at the term sheet, fredtermsheet, the ‘first loss’ piece is not being...

Traditionally, Fannie Mae and Freddie Mac (along with Ginnie Mae) have focused on interest-rate risk in their mortgage-backed securities, not credit risk. But a question arose about the future of Fannie Mae and Freddie Mac: would there be a demand for MBS without a government guarantee for credit risk? Freddie Mac has begun marketing a new product, dubbed Freddie Mac Structured Agency Credit Risk (STACR) securities, designed to offload the first-loss piece of certain government-guaranteed MBS into the private capital markets. Here is the Preliminary Term Sheet for $400,000,000 (approximate) offering. fredtermsheet Here is the loan tape. STACR 2013-DN1 Investor...

Earlier, I wrote about the various proposals circulating through Washington DC on the future of housing finance in the USA. Virtually every one had a government guarantee in their proposal, as if the mortgage market would collapse without Uncle Sam. As Nancy Pelosi once famously stated, we need to look at government guarantee “away from the fog of the controversy.” Several economists at The Federal Reserve produced a nice graphic on prime versus subprime borrowers. Essentially any loan with a down payment of less than 20% is considered subprime and credit scores of 660 are prime if the down payment...

According to Nick Timiraos of the Wall Street Journal, “Lawsuit Challenges Takeover of Fannie Mae, Freddie Mac.” “Three shareholders of Fannie Mae and Freddie Mac sued the federal government Monday, alleging that the U.S. had improperly taken over the mortgage-finance companies in 2008 and that the government’s latest revision of certain bailout terms constituted an illegal taking of the firms’ assets. The plaintiffs include the City of Austin Police Retirement System in Texas and Washington Federal, a Seattle-based bank. The shareholders, who filed suit in the U.S. Court of Federal Claims in Washington, D.C., said they are seeking $41 billion...

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...

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...

According to Bloomberg Briefs, there has been a jump in non-fixed rate notes. And this occurs whenever Treasury yields rise. But if we look at The Fed, Fannie Mae and Freddie Mac, they are currently invested primarily in fixed-rate products. The ARM (adjustable rate mortgage) share of mortgage applications has risen to 6.4% in recent months, but is well below historic highs. As we argued in a Mercatus research paper, “Do We Need the 30 Year Fixed-rate Mortgage?“, Mike Lea and I say no. In fact, ARMs have decided advantages over their fixed-rate cousin such as risk-sharing with the lender...

Sheila Bair, former FDIC Commission, and Barney Frank, former Congressman, penned a misleading op-ed in Fortune/CNN Money entitled “Watch out. The mortgage securities market is at it again“. Here is the misleading sentence: Big, ugly giants with names like Countrywide Financial and New Century packaged huge pools of mortgages, sliced them up into securities, and sold them to investors, who now bore the risk if the loans defaulted. It turns out that “big, ugly giants” with names like Fannie Mae and Freddie Mac did exactly the same thing. They packaged huge pools of mortgages, sliced them up into securities, and...

Fed Chair Ben Bernanke testified this morning in the US Senate. Afterwards, US Treasury 10 year yield rose by around 9 basis points. Fannie Mae MBS current coupon rates have been rising. And the Bankrate 30 year spread over the Fannie current coupon rate remains about 100 basis points. The primary/secondary spread remains elevated from before Fannie and Freddie were put into conservatorship. And as Treasury rates trend upward, Fannie MBS durations are also rising. This results in a slower burn off rate for The Fed’s massive portfolio.

When you watch “It’s a Wonderful Life” with James Stewart from 1946, you are given the impression that banks (as represented by Henry F. Potter) are stingy and evil. Savings and Loans (S&Ls) (as represented by George Bailey) are kind-hearted and good. A ridiculous stereotype, of course. Tell that to taxpayers who had to bail out the S&L industry to the tune of more than $124 billion. Bert Ely has a nice discussion of what happened to the S&L industry here. In short, S&L’s were regulated as to how much interest they could pay on deposits (Reg Q) and when...

Like the recent positive earnings report from Freddie Mac, Fannie Mae reported quarterly net income of $58.7 billion. This is not surprising given the general decline in seriously delinquent mortgages And rising house prices since March 2012. • Fannie Mae reported quarterly net income of $58.7 billion following release of a $50.6 billion valuation allowance on its deferred tax assets. • Beginning this year, pursuant to August 2012 amendments to the terms of Treasury’s bailout, Fannie Mae and Freddie Mac will pay quarterly dividends to Treasury equal to their net worth in excess of a gradually declining capital reserve. The...

The Federal Housing Finance Agency (FHFA) announced today that it is directing Fannie Mae and Freddie Mac to limit their future mortgage acquisitions to loans that meet the requirements for a qualified mortgage, including those that meet the special or temporary qualified mortgage definition, and loans that are exempt from the “ability to repay” requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). In January, the Consumer Financial Protection Bureau (CFPB) issued a final rule implementing the “ability to repay” provisions of Dodd-Frank, including certain protections from liability for loans that meet the criteria of a qualified...

It is time to close both Fannie Mae and Freddie Mac—the government-sponsored mortgage giants. Both entities distort the country’s housing finance market by issuing mortgage-backed securities with subsidized government guarantees that the mortgages will be repaid. If guarantees are necessary, they should be priced and issued by the private sector, not by the state. Financial institutions expert David C. John details specific steps to achieve this shutdown carefully and methodically without further upsetting the delicate housing market—and without making the situation worse.

HUD Secretary Shaun Donovan said Congress and the Administration “should move forward this year with plans for overhauling the U.S. mortgage finance system,” including GSEs Fannie Mae and Freddie Mac, which were “seized by the government in 2008.” Donovan is quoted as saying, “Reform of the failed model of the GSEs, the private gains and socialized losses model, is a top priority and it’s critical that we make progress this year toward that goal.” There have been rumblings of GSE “reform” for the past several years. But the stock answer has been “But not now.” Fannie Mae’s record profits for...

The title of the WSJ’s Nick Timiraos article couldn’t be more ironic: “Economist Eyed for Fannie Watchdog.” It is ironic in a couple of ways. First, Zandi has no regulatory experience (as far as I know). Second, he is on record touting every government loan modification and principal reduction program. See, for example, his New York Times editorial with Joseph Stiglitz. The current FHFA Acting Director, Edward DeMarco, has been a champion of shrinking Fannie Mae and Freddie Mac’s footprint in the market and consolidating their operations. According to Timiraos: Without clear direction from the White House or Congress, Mr....