Capitalizing Fannie and Freddie

Fannie Mae and Freddie Mac have more than repaid the $188b they received in federal bailout monies in just 6 years.  Why are they still remitting 100% of their profits to the Treasury every quarter, prohibiting them from increasing their capital and net worth to offset potential losses due to future market fluctuations?

The Treasury needs to modify the 2008 agreement and allow Fannie and Freddie to re-capitalize.  In 2014 the combined profits of the two GSE’s will near $25b.  Once re-capitalized a case can be made to lower the higher fees being charged to consumers and make the GSE mortgage offerings less costly to taxpayers.

We need to insist that our government keep these agencies intact and allow them to refinance themselves, out of current profits, and continue to provide this most valuable government service to U.S. homebuyers, as they have for over 60 years.  The GSE’s, established in the 30’s to stimulate affordable home ownership, were a great idea then and still are today.

Remember...the $188b that was re-paid to the U.S. Treasury did not come from “all” taxpayers, as the politicians would have you believe.  Every penny has been re-paid by just those taxpayers who took out a mortgage, and paid higher loan fees, since 2008, which was a very small percentage of “all” U.S. taxpayers.

Independent Mortgage Banks

Ginnie Mae, Fannie Mae and Freddie Mac exec’s all applauded the efforts of independent mortgage banks, like Frost Mortgage, at their recent annual meeting, for stepping up since the mortgage melt down and originating government sponsored mortgage products.  While commercial banks were backing away from the residential mortgage business, independent mortgage bankers were increasing market share and becoming the premier residential mortgage resource to the consumer.

Independent mortgage banks now have a 50% share of Ginnie’s business, up from 14% in 2010, a 40% share of Fannie’s business and a 33% share of Freddie’s.

Once upon a time there was a Savings & Loan industry in this country that, in the early 80’s, enjoyed even higher percentages of Ginnie and GSE business…that is before they were legislated out of business by federal regulators pandering to the agenda of commercial bankers.

Beware of the “too big to fail banks” who may soon decide that they want back into the residential mortgage lending business, once we independent mortgage bankers show them, once again, how to profitably originate well underwritten home loans that perform.  Don’t you just long for a return to the 60 day loan processing & underwriting cycles that several of the “bigs” offered just a few short years ago?

We independent mortgage bankers need to fund our lobbyists and keep our faces in our legislators’s offices on capitol hill to insure that our industry doesn't get blindsided once again.

Disclosure of Congressional Fees in New Mortgage?

Federal Housing Financing Agency Director, Mel Watt stated that GSE funding of several affordable housing trust fund initiatives, targeting rehabilitation and management of low income rental housing, enacted by congress back in 2008 and never implemented, because of the mortgage melt down, will begin January 1, 2015.

His mandate, that a small portion of revenues at Freddie Mac and Fannie Mae be earmarked for these initiatives, has Republican lawmakers livid.  However, their arguments centering around some future cataclysmic financial crises necessitating the status quo, a restructure or replacement of the GSE’s is being undermined by their profitability.  Fannie and Freddie stand to earn combined profits of $25b in 2014.  

Remember, only those who have taken out a mortgage since 2008 have repaid the U.S. Treasury for the $188b bail out.  It was paid for with increased fees charged to borrowers.  This funding of the affordable housing initiatives will be paid for with these increased fees which will be collected from current and future borrowers.

Home owner taxpayers are paying more for their mortgages in order to fund social programs that they are, for the most part, unaware of.

Dodd-Frank limits what I can charge you for your mortgage and mandates my full disclosure to you, of all charges you are paying. I am subject to dire financial consequences if I, or my staff, do not fully comply with these disclosure regulations.

Why is Congress not required to fully disclose it's actions to it's taxpayers?

Did you know that, in addition to the taxes you are paying, several extra dollars are being added to your mortgage closing costs in order to fund  public and low income housing grants?  Did you?
I believe that maintaining Fannie Mae and Freddie Mac is probably worth using them as a conduit for the distribution, to low income tenants, of these extra charges to home buying taxpayers.  It would just be nice for our lawmakers to have to play by the same “transparency” rules that we in the mortgage industry have been mandated by them to follow.

The GSE's And The American Taxpayer

Regardless of what you’ve heard, Fannie Mae and Freddie Mac aren’t going anywhere.  The two GSE’s, vilified by an angry, albeit unknowledgeable press, as a major contributor to the mortgage credit collapse have weathered the storm.  After years of inquiry and reflection, the prevailing “urban legend” that the two GSE’s were playing Russian roulette, with the nations mortgage credit has been proved false.  The GSE’s, though flawed in some ways, were not culprits, but severely damaged when Countrywide and a few large investment bankers high jacked the mortgage industry.

Look for regulations to re-fund the agencies out of their current profits (which have been taken by the U. S. Treasury, each month, since the GSE’s were placed into receivership) and to create one mortgage backed security (MBS) to be used by both agencies, thus saving Freddie Mac close to $400m a year in Mortgage Adjustment Payments (MAP) that they are currently paying to subsidize the value of their MBS to match Fannie’s.  The loans perform the same...no need for two different securities.

The American taxpayer has enjoyed access to low cost mortgage credit via very effective and stable GSE’s since the late 1930’s. Don’t throw the baby out with the bath water.  Modify the business model, fix the operational disparities, regulate to eliminate potential transgressions and let’s got back to stimulating housing.

I am sick to death hearing about the multi-billion dollar bail out, how it cost American taxpayers so dearly and how Washington must make sure that it never happens again.

Fact:  all the bailout monies advanced to the mortgage industry have been repaid, with interest, in just 6 years.

Fact:  all American taxpayers did not pay for the bailout.  It was paid for by those few, who chose to obtain a mortgage to purchase a home since 2008. Those taxpaying homebuyers paid back the TARP advance by paying increased fees and costs to various government agencies to obtain their mortgages.

Fact:  the total advance of TARP funds to the mortgage industry was equal to the cost of one stealth bomber or one new navy cruiser.  No uproar from Congress or the President, about the poor American taxpayer, when the military makes these regular expenditures.

Opinion:  What better place for a government to return tax dollar benefits to its’ citizens than to be actively involved in contributing to the process of homeownership.  Congress and the President scream like stuck pigs that the government should get out of housing.  Why?  A healthy housing market drives the domestic economy.  When housing is strong, people are working.  Goods and services are mined, harvested, manufactured, sold, purchased and used in the homebuilding process. Homes are designed, appraised, built, inspected, marketed, sold, financed, titles transferred, city utilities hooked up, streets paved, curb & gutter poured….gee…..so many citizens involved and so many citizens so positively affected by the process.

Why shouldn’t our government continue to have line item expenditures, in the national budget, to support something as beneficial, to so many of its’ citizens, as housing?  

Direct Sales To Fannie And Freddie Are Up

Non-bank mortgage lenders are increasing their direct sales to Fannie Mae and Freddie Mac. Fannie purchased 475 (47.5%) of its business from non-bank mortgage lenders last year, up from 33% in 2012. Freddie saw increases to 20% in 2013 vs 8% in 2012. This is, no doubt, in response to a sharp decline in chartered bank mortgage originations during this same period. Both agencies are looking harder at the financial stability of these sellers than ever before. As a result, they have terminated several relationships with smaller, lower capitalized mortgage bankers. I’m feeling very secure (by) being a Division of PRMI, one of the strongest capitalized mortgage bankers in the business.

Lower Down Payments?

There is continued pressure on FHA, Fannie and Freddie to lower down payment requirements. Federal Housing and Finance Director Mel Watts, who has been a bright spot to lenders since taking over, did not include lower down payments in his strategic plan for 2014.  The reason that many give for the agencies resisting lowering DP’s is the overall quality of appraisals.  The federal agencies are very unsure of the quality of appraisals as delivered through the current AMC systems.  Everyone is aware that the AMC’s take a big cut of the appraisal revenue leaving less than half for the appraiser.  Many feel that appraisers in the AMC system(s) are lessor qualified and are being adversely selected because of their willingness to work for less. It is common knowledge that the AMC’s take up to ½ of the total appraisal fee.

We’re in a tough spot. The agencies found significant evidence of faulty value assessments and appraiser fraud on loans funded prior to 2009.  While fraud has been significantly curtailed, accurate value assessments are still a concern and the agencies are not comfortable with the current level of accuracy.

When the agencies purchase a loan of $193,000 on a home valued at $200,000, they really need to be able to feel confident that the house is worth at least $200,000 on the day they funded the loan, as there is precious little equity with which to hedge a loss.

G Fee Increase

Are you aware that the President saddled new home buyers with a ½ point G fee increase last year, to run for 10 years, in order to cover Treasury revenue shortfalls during the government shutdown? He discovered this brand new “G fee honey bucket” and now wants to dip into it, once again.  He plans for homebuyers to provide extra funds to the Treasury, via increased G fee charges, that will only be paid by those who buy or refinance a home with a FNMAE/FHLMC loan until 2023.  Didn't our forefathers go to war with England because of “taxation w/o representation”.  Were you ever asked if you were willing to pay an extra $1000 a year on your $200,000 FNMAE/FHLMC loan for this purpose?  You realize that this extra government funding will only be collected from, and paid by, those who obtain a FNMAE/FHLMC home loan until 2023.  That’s a very small % of total “citizens”, and a very large % of those that the President and his team keep telling us they are trying to protect, with all their new mortgage regulations, who will affected.  Those citizens, who do not purchase a home with a FNMAE/FHLMC loan between now and 2023, won’t be paying for any of it.  So, the government is doing all it can, via new mortgage regulations, to “protect” the citizen/borrower, but first, let’s charge them more for their mortgage loan.  More than ever before.