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Sunset Fannie and Freddie Before They Take America Down With Them!

The Wall Street Journal column by Nick Timiraos titled, "Fannie Mae Falls Back Into The Loss Column" is a serious wakeup call to every taxpayer in America. Nick points out that, " Fannie Mae reported a net loss of $6.5 billion for the first quarter as a weakening housing market dashed hopes that the company had stabilized."

Nick reports that, "Fannie said Friday [May 6th] it would ask the government for a fresh taxpayer infusion of $6.2 billion after paying dividends to the Treasury. The loss follows net income of $73 million during the previous quarter."

Red ink as far as the eye can see.

This comes on top of Michael Cembalest, the Chief Investment Officer of JP Morgan Private Bank, revised his 2009 account of what caused the financial crisis. Under the general heading of “Retractions - the primary catalyst for the US housing crisis” he wrote:

US Agencies played a larger role in the housing crisis than we first reported. In January 2009, I wrote that the housing crisis was mostly a consequence of the private sector… However, over the last 2 years, analysts have dissected the housing crisis in greater detail. What emerges from new research is something quite different: government agencies now look to have guaranteed, originated or underwritten 60% of all “non-traditional” mortgages, which totaled $4.6 trillion in June 2008. What’s more, this research asserts that housing policies instituted in the early 1990s were explicitly designed to require US Agencies to make much riskier loans, with the ultimate goal of pushing private sector banks to adopt the same standards.”

Michael concludes: “As regulators and politicians consider a wide range of actions designed to stabilize the global financial system, some reflection on the role that policy itself played in the collapse would seem like a critical part of the process. It’s not clear that it is.”

My good friend Ed Pinto points out Cembalest’s account cites Peter Wallison's dissent from the majority report of the Financial Crisis Inquiry Commission and Ed's forensic study.

Ed Pinto, fellow at the American Enterprise Institute, co-authored with Peter J. Wallison and Alex J. Pollock, a White Paper titled, "Taking the Government Out of Housing Finance: Principles for Reform...". The White Paper recommends that the U.S. housing finance market of the future should be governed by four basic principles:

Principle I: The housing finance market can and should principally function without any direct government financial support.

Principle II: Ensuring mortgage quality and fostering the accumulation of adequate capital behind housing risk can create a robust housing investment market without a government guarantee.

Principle III: All programs for assisting low-income families to become homeowners should be on-budget and should limit risks to both homeowners and taxpayers.

Principle IV: Fannie Mae and Freddie Mac should be eliminated as government-sponsored enterprises (GSEs) over time.

I agree with Ed, Peter and Alex. Until banks do what they are supposed to do - make loans and take all the risks in making those loans - we the taxpayers will continue to hold more and more bad paper. Today banks simply pass thru the loan and collect their fees. Banks make the loans but immediately sell the loan to you an me (a.k.a. Fannie and Freddie). You and I are taking all the risks while banks make huge profits. Banks have no skin in the game. If the loan goes South it is the American taxpayer that takes the hit, not the bank or even the person who took out the loan.

Time to sunset Fannie and Freddie.

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Comment by Robert L. Voelsing Sr. on May 12, 2011 at 12:07am

Michael Loeb wrote a great post,,,,Fannie & Freddie WERE good when they started,,but not anymore,thanks to greedy lefty Pols like Frank & Dodd.      The federal CANNOT create wealth,,,it can only CONSUME wealth. I believe that mortages should be local by banks & lenders within the States,,with oversight by a neutral Fed site.

That would make it fair & open to better competition.  My opinion only.     Can you just imagine Dodd & Frank in the same cell in a Max Security prison,,,instead of one of the Min Security types,,which by comparison are 'country clubs'.    Oh what a scream that would be.  If they ever got out,,the 1st thing they would yell for is Prison Reform ,,hahaha!!!!

Comment by Michael Loeb on May 10, 2011 at 12:28am

Fannie and Freddie were fine until they became the political playground for the likes of Frank, Dodd, Waters, Clinton, Carter, etc.

Prior to Fannie Mae there was no 30 year fixed mortgage.  Banks played fast and loose with the notes and mortgages which tied homes to those notes.  Callable at any time, interest rates negotiable at a moments notice, never in the benefit of the homeowner. 

Just remember those old B&W movies of grandma losing the house / farm  to the bankers.  Not because she wasn't paying, but because the bankers called the note.  Because the property was worth more than the outstanding principal, yet more than the homeowner had in cash. 

Couldn't go to another bank in town because they operated in collusion with each other.  No bank would take the other bank "out" in a refinancing.

Hard to believe that bankers could act in such a way?  No, not really. 

RESPA and FED lending rules and Fannie Mae put a stop to it.  Yes, it actually did serve a fine purpose at one point.  But now that the Liberals have killed the golden goose they no longer want that dead carcass around. 

 

Frank and Dodd and a slew of others need to be roomies in a Federal Penitentiary.   They need to be tried for high crimes against this country, THEY are the root of all evil.  Not Fannie and Freddie.  Not the FHA, not the VA. 

 

Just my 2 cents from a guy in the mortgage business.

Comment by Cherylo on May 9, 2011 at 9:04pm

How about the millions that taxpayers are paying to defend Fannie CEO, Franklin Reines, who is accused of having tied bonuses to a performance scale that never lost the bonus.  Last look ten million to defend so far, and when will that trial come to an end? 

There must be a way to freeze spending and sell chunks to the private sector.  Most of all, no more political spending by GSE's, which is the main reason it is still open for biz.

Until they are closed down,I think their opulent buildings should be rented out for meetings, granduations, proms and weddings until they pay off the taxpayer.

 

 

Comment by Kate Svagdis on May 9, 2011 at 7:48pm
email the speaker, your reps, your senators-NO bailout for fannie and freddie-remember democrats shunned Bush's auditor (Gonazalez?) and called him racist
Comment by Thomas E Hales on May 9, 2011 at 5:05pm
IN READING EVERYONES COMMEMENTS WE HAVV ONCE MORE BEEN MOVED OFF TRACK  .WE AGREE THESE  CORP SHOULD NOT BE PAY OFFS FOR POLITITIONS AND SHOULD NOT BE NATIONALIZED BUT UNTILLL WE CAN COME UP WITH REFORM THAT CAN BE MONITORED OR ASYSTEM THAT WORKED SO WELL BEFORE 1999 WE SHOULD NOT TURN IT OOVER TO THE PEOPLE WHO COUSED THE CRISIS WE NEED DISCUSSIN WITH OUT POLITICIANS OR PEOPLE WHO HAVE AN AGENDA THAT IS TO SERVE THE AMERICSSCAN PEOPLE FAIRLY
Comment by Spetus Bixus on May 9, 2011 at 4:54pm

The whole problem is Obama and Americans stupidity!

There is a huge problem with known GOP members!

Chenney gave high marks to Obama because UBL. Huge mistake.

He just played Demo game. He had two choices: shut up or bring

back the water boarding thing. Laura Bush during 2008 campaign

also gave Michelle Obama high marks and criticized Palin! What

kind of Republicans they are? Obama do not deserve any credit

at least from Republicans. What are those people problem?

That way 2012 wil be easier for Obama.

Shame on Laura Bush, Shame on Chenney. Shame on GOP.

Comment by Ralph Kennard Sr, on May 9, 2011 at 3:12pm
Fannie and Freddie and the Democratic Party are leeches on the public money that is been stolen from the taxpayer. The whole lot of them should be removed permanently!
Comment by Mike Hampton on May 9, 2011 at 2:58pm


Mortgage Meltdown


The current state of the economy has put this nation on a collision course between a free market economy and federal government intervention. We are placing the economic future of our country in the hands of politicians rather than relying on the economic principles with which this country was founded. The role of the Federal Government with regards to the economy was very basic; protect the people from illegal force in the buying and selling of goods, fraud, elimination of competition by monopolies and controlling the sale of illicit products (in other words, the Federal Government was to protect the free market but not regulate or control its growth).

Many economists believe that the intervention of the Federal Government is largely responsible for our economic decline, with the mortgage crisis being right in the center. The Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) are government sponsored enterprises (GSEs) created by Congress. Fannie Mae was created in 1938 to subsidize home ownership and Freddie Mac was created in 1970 as a competitor to Fannie Mae. Prior to 1970, Fannie Mae held a basic monopoly over the secondary mortgage market. These GSEs, which are now supposedly privately owned and operated by shareholders, are protected financially by the support of the Federal Government. That support includes: access to a line of credit through the U.S. Treasury, exemption from state and local income taxes and from oversight from the U.S. Securities and Exchange Commission. Since these organizations are not technically owned by the Federal Government and are considered privately held, they are free to give campaign contributions. On September 11, 2008 the Center for Responsive Politics reported that from 1989 - 2008 members of Congress received a total of $4.8 million from Fannie and Freddie with Democrats collecting about 57% of the booty. Estimates also show that in 2007 Congressman had up to $1.7 million of their own money invested in Fannie and Freddie. What a sweet deal! These GSEs control approximately three-quarters of all new home mortgages today.

The reason for the admonition by our founding fathers to keep government and free enterprise two separate and distinct entities are starting to unfold. We can only imagine the leverage Fannie Mae and Freddie Mac had within the banking system. On September 30, 1999 the New York Times ran this article: “In a move that could help increase home ownership rates among minorities and low income consumers, Fannie Mae is easing credit requirements on loans…Fannie Mae has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits…”. There was also the resurgence of the Community Reinvestment Act that basically threatened lawsuits to banks that did not meet a percentage of minority loans as required by federal regulatory agencies. This was also responsible for lowering lending standards. Remember the previous leverage part? You now have the Federal Government interfering with long established credit requirements created by the banking industry to protect itself and its lenders from economic ruin. Let’s usher in the Federal Reserve. The Federal Reserve was created by Congress in 1913 and is the central bank of the United States. The Federal Reserves’ ultimate accountability is to
Congress. The Fed, for all intent and purpose, has discretionary control over the fluctuation of interest rates. The Fed lowers interest rates thereby creating more lending which necessitates an injection of money supply into the economy. From 1990-2000 the target federal fund rate ( the rate at which banks lend to one another overnight, and which usually drives other interest rates) was an average of 5.35%. From 2001 – 2008 the rate was an average of 3.15% with an ending rate, just barely above zero, at .25%. There were more dollars created by the Federal Reserve from 2000 – 2007 than in the rest of United States history. Concurrent to the target federal fund rate, the average fixed mortgage rate between 2000 - 2007 was 9.2% and in 2005 rates were at an average of 6.0% with 1 year ARMS at 4.7%.

With all of this said, it becomes clear that the involvement of the Federal Government to push lending requirements to ridiculously low standards coupled with the availability of cheap money from the Federal Reserve ultimately contributed to the unprecedented housing bubble. The free market principle of supply and demand was artificially altered by the interference of the government and the Feds. These two factors fueled a frenzy of home purchases from buyers and investors and ultimately raised the price of housing to unsustainable levels. Many markets became saturated with homes by developers hoping to cash in on the buying frenzy only to end up in bankruptcy, home prices skyrocketing to unsupportable values which quickly began to decline, homeowners stuck with payments they could not afford nor could get out of due to decreased home values and all of this culminated into the mortgage meltdown we have today. Many Americans share the blame because they bought into the system by extending credit and debt to levels their income could not support.

But not to worry, the Federal Government has once again stepped in to help us out. They have seized control of Fannie Mae and Freddie Mac, there is talk of nationalizing the banking system, there are bail-outs flying left and right; America, when are we going to learn!

It is up for debate whether or not the original conception of these Federal mortgage companies were beneficial in the long term for home ownership, but it is very clear the influence and affect that it ultimately had on the banking system will not soon be forgotten. We must take back control of our Federal Government and return to the free market system that made this nation the greatest economic power in history!


“I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them.”
Thomas Jefferson

Comment by James R. Norris on May 9, 2011 at 2:56pm

Follow government orders or face stiff fines and penalties or worse?  Seems like we fought an un-civil war about this some time ago.  We the People lost.  The wrath of one central government dictating policy and procedure to the individuals and individual states rather than individuals and individual states dictating the same to one central government has cost us dearly.  Recently (last fifty or so years), we have been forced to follow Federal standards for building roads and bridges, farming, trucking, real estate loans, and just about everything else right down to desegregating our public schools, or face the loss of those precious federal funds handed out to the sheeple.  The roads and bridges are falling apart before their time, more small businesses and financial institutions are failing, and the average reading level of education for a high school graduate in LA is about the same as it was in the predominately colored schools in the sixties.  We didn't loose that Federal money though.  We took the money, followed orders, and fell right into the sewer.  Can we get out?  I doubt it.  The only way is to cut off the money to the feds and stand on our own two feet.

Comment by edward pearse on May 9, 2011 at 2:18pm

It is easier said than done. We have a financial housing structure in place that cannot be just whisked away without a replacement in place before (not after) is taken away. The idealists that are suggesting the disappearance of Fanny and Freddie are only half right because they fail to suggest and describe a mechanism that could take their place "before" (emphasis in before) their demise.

To do the first half only, or before, it would mean the wreaking of the housing and construction industry that represent 17% of the GDP of the US. Watch out - 1930's and 2008, you haven't seen anything yet!

This is better left to the adults, of which, I agree, the Obama Administration has none. But pushing the Republicans to do the irresponsible first half with out the second half will do the conservatives - including the Tea Party - no good.

Tea Partiers need to read "The Friend of My Enemy is a Better Friend Than The Friend of my Friend" at http://www.robbingamerica.com 

   (and this is a conservative site friendly to the Tea Party).

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