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.

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.

FHFA and Lender Overlays

Mortgage lenders met at the White House with the administration and Mel Watt, Chairman of FHFA. The discussion centered around lender overlays that have been imposed in an effort to safeguard against loan re-purchase requests from the GSE’s for minor procedural mistakes and documentation errors that do not necessarily reflect on the borrowers’ ability to repay.

It appears that Mr. Watt will be allowing the mortgage industry a 3 year sunset period in which a 3rd party will evaluate GSE claims for re-purchase with regard to whether or not the lender made significant errors in documentation collection, credit evaluation or solving to an ability to repay.

I, for one, recently paid over $80,000 in costs to scratch & dent a loan file for re-sale that had been current for 3 years, went delinquent, was allowed to modify by the loan servicer, went into delinquency once again and finally was foreclosed upon.  I was told that an audit showed that we had made a material error in our credit analysis.

So, after 3 years of paying as agreed, the borrower loses his job, goes into foreclosure and it was deemed that a faulty credit evaluation on our part had led to the loss.

It doesn’t appear that this will happen as easily with the new agreement from Mr. Watt and the FHFA.  Couldn’t have come too soon for me.  The pendulum appears to be moving closer to center.

A less draconian and  more common sense approach to identifying the causes of loan non-performance will be welcomed by the entire mortgage industry.

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?  

More Mortgage Company Mergers On The Horizon

Look for more mergers of mortgage companies as the rising costs and increasing liabilities of the compliance monster, along with continued pressure on existing earnings models makes “going it alone” an unattainable option. In addition net worth requirements, to keep a seat at the investor table, continue to rise. Once upon a time, the mortgage banking industry was a private practice between mortgage lenders, bank and insurance company investors and the GSE’s.  Now, the proverbial government gloppity, glop regulation machine, under the premise of protecting its' citizens, has, once again, overreacted to what was a temporary aberration of excess. A blip which occurred, but once, in the 80 year history of the mortgage industry.  I maintain that over compliance has caused more strife and put more costs on the consumer than the value of problems it has resolved.  Wouldn’t it have just been easier to put Angelo and his Wall Street cronies, who devised, marketed and sold those toxic mortgage programs, in jail?  Then, after replacing those avarice driven CEO’s of the GSE’s and withdrawn their golden parachutes for cause, we could have gone back to the mortgage industry as it was and had been. A noble partnership between the private and public sector, which housed this country.