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Posts Tagged ‘Fannie Mae’

Bloomberg View Column: Do First-Time Homebuyers Need Help?

December 31, 2014 | 5:59 pm | BloombergViewlogoGray | Charts |

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Read my latest Bloomberg View column Do First-Time Homebuyers Need Help?.

Please join the conversation over at Bloomberg View. Here’s an excerpt…

To bring more first-time buyers into the housing market, Fannie Mae and Freddie Mac recently said they would offer certain mortgage programs that require down payments of as little as 3 percent, down from 5 percent. Because first-time buyers already make up a large share of the housing market, the wisdom of this policy change should be open to question…

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The Bi-Partisan Fannie and Freddie Solution That Isn’t A Fix

March 16, 2014 | 11:35 am | wsjlogo |

fanniefreddieredone
[Source: WSJ, click to expand]

Roughly 90% of the residential market has passed through Fannie and Freddie since the onset of the financial crisis. Reliance on these institutions was only around 50% before the crisis – and are they making a lot of money for the federal government right now. I’ll leave out the part where FHA stepped in to pick up the high risk slack. The private secondary mortgage market was obliterated by the credit crunch/housing crash and in the half decade that has passed, investors are just now dipping their toes in the water.

There is a great summary piece by Nick Timiraos at WSJ: “What Can Take the Place of Fannie and Freddie” on the proposed Fannie and Freddie “overhaul.”

Big Dumb Banks
As my friend Barry Ritholtz over at Big Picture once told me that the former GSEs are merely “Big Dumb Banks.” In other words, they do as they were told.

Swapping them with another alphabet soup named agency doesn’t solve the problem. In fact, I contend that replacing Fannie and Freddie completely would likely create more problems since little if anything has been done to reduce the systemic risks that nearly brought down the financial system – and whose impact are still being felt by most Americans today.

If we can agree that Fannie and Freddie created a stable mortgage market environment for decades (Fannie since the Depression and Freddie since the 1960s) and then blew up in the recent decade or more (problems began back in late 1990s), there are clearly other issues in play. I’ve always seen Fannie and Freddie as the symptom not the cause of our current economic problems.

Fixing the symptom may make some feel better, but it does nothing to reduce the probability of a systemic credit collapse. The bailout of the GSEs was a result of policy from Washington – the congress, the executive branch and both political parties who in various ways encouraged proactive neutering of regulatory powers, allowed the revolving doors of regulators with Wall Street, allowing Wall Street to compete directly with commercial banks with mind boggling leverage, limited separation of competing interests (ie rating agencies and investment banks) and incentivizing a shifting culture to serve the shareholders over the taxpayers.

I suspect that last point is the impetus for this bi-partisan proposal – reduce the risk exposure to the taxpayer by getting the private market to take over. Congress clearly has an image problem that it is trying to fix as of late (until mid-terms).

Setting Standards to Follow
One of the under appreciated functions of Fannie Mae and to a lesser degree Freddie Mac, was to serve as the leader to the private mortgage market. When Fannie Mae adopted a standard or policy, the private market (ie jumbo mortgage investors), followed their lead. With Fannie and Freddie floating in limbo with a potential looming overhaul, it’s hard to imagine a robust private market developing anytime soon. This would be a completely new institution that would replace and reinvent the former GSEs, you simply invite anywhere from chaos to uncertainty into the financial system and instability to the housing market, a key economic engine for the economy.

The whole plumbing of the mortgage market runs through these companies. You can’t just take these things away without having a very clear and specific view about what’s going to replace them,” said Daniel Mudd, Fannie’s former chief executive, in an interview last year.

No real alternative to the system has been proposed that I’m aware of and this is really window dressing to show bi-partisanship in Washington. There is no time frame proposed and very little details to reinvent the secondary mortgage market have been brought forward.

Here’s a great podcast from WNYC called “Money Talking” featuring Heidi Moore and Joe Nocera covering the proposal.

Key Issues to Fix
The WSJ piece summarizes the key issues that need to be address quite succinctly:

  • Make the “implied” guarantee explicit and require any successors to Fannie and Freddie to pay a fee for that guarantee.
  • Get rid of those investment portfolios, or shrink them to the point where they don’t create systemic risks.
  • Require more capital and tighter regulation, since too little of both is what got Fannie and Freddie into trouble.

The trouble is, the solution to over-reliance on Fannie and Freddie is too complex for Congress to solve in this era of gridlock. Record revenue being generated by the former GSEs make long term solutions unobtainable for now. I don’t see how any major changes can be inserted into the financial systems for a long time.

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Interview on CCTV America, State of Fannie Mae

April 4, 2013 | 7:25 am | bloomberg_news_logo | TV, Videos |


[click to play - starts at 13:50]

I spoke with Michelle Makori on the state of Fannie Mae (who just reported a record profit). CCTV America is part of China Central Television (CCTV), the largest television broadcaster in China.

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‘Structured By Cows’ and other Candid Catchphrases

November 26, 2012 | 7:00 am |

American Banker has a great slideshow on catchphrases that evolved during the financial crisis. Check it out. Some of my favorites are:

Structured By Cows“We rate every deal. It could be structured by cows and we would rate it,” said an S&P analyst discussing a questionable securitization that a colleague called “ridiculous.”

High Speed Swim Lane, or HSSL Countrywide’s way of describing the way they stripped QC of loans going to Fannie Mae and Freddie Mac.

Friends of Angelo Named for Countrywide’s CEO Angelo Mozilo in which government officials like Chris Dodd (ie Dodd-Frank) got better mortgage terms than they should have.

Close More University Subprime lender New Century (out of business) brought together mortgage brokers to encourage them to throw away any standards to bring more volume.

Jingle Mail When borrowers mailed their keys to the bank if they were hopelessly underwater.

Liar’s Loans Standard mortgage industry practice that encouraged borrowers to exaggerate their qualifications in order to get the loan.

Incredible and hard to conceive of now but this was common practice only a mere 5 years ago.

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[In The Media] Bloomberg Surveillance 9-18-12 QE3, Low Rates and Housing

September 18, 2012 | 9:14 am | fedny | Public |

Very much enjoyed my conversation with Tom Keene and Scarlet Fu on Bloomberg Television’s Surveillance.

Scratch notes before my appearance:

Some thoughts about the Fed’s QE3 as it relates to housing (Einstein defines insanity as doing something for a 3rd time hoping it works).

-Focus of QE3 seems to be housing, but it shows how little Fed understands housing since this seems to be an effort to press borrowing costs lower.
-Falling rates until now have increased affordability 15% this year but reaction in sales is less. A diminishing return for this action. Yes it temporarily helps but is more akin to the 2010 tax credit – remove it and consumers stop buying.
-Fed must believe recent “happy housing news” isn’t sustainable. Prices and sale generally showing improvement.

-Banks prob won’t drop rates all that much-could even see a slight increase in short term: admin backlog from existing business, guarantee fees by Fannie Mae to kick in a few months and spreads already low. This action provides little traction.

-QE3 doesn’t address THE REAL PROBLEM – mortgage underwriting remains irrationally tight. Smaller universe qualifies for mortgaged and a large number of contracts fall through – approx 15%.
-Telegraphing low rates through 2015 eliminates any urgency for consumers to take action. National volume up YOY but 2011 was the aftermath of 2010 tax credit so comparing against low.



Bernanke’s Speech on QE3 [MarketPlace.org]
Benanke Statement on QE3 [Federal Reserve]
QE3: What is quantitative easing? And will it help the economy? [WaPo Wonk Blog]
Fed’s Evans Says QE3 Will Make Economy More Resilient [Bloomberg]
Low Rates Not Improving Housing Market, Miller Says [Bloomberg Surveillance TV]

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[Interview] Orest Tomaselli, CEO, National Condo Advisors, LLC, National Condo Inspections, LLC

June 30, 2010 | 12:06 am | Podcasts |

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[The Housing Helix Podcast] Mark Willis, Research Fellow, NYU Furman Center

June 15, 2010 | 12:05 am | furmancenter | Podcasts |

I have a conversation with Mark Willis, a Resident Research Fellow at the Furman Center for Real Estate & Urban Policy at New York University.

He is the co-author of Improving U.S. Housing Finance through Reform of Fannie Mae and Freddie Mac: Assessing the Options along with Ingrid Gould Ellen and John Napier Tye.  This white paper was completed as part of the What Works Collaborative, a foundation-supported partnership that conducts timely research and analysis to help federal, state and local housing policy-makers frame and implement evidence-based housing and urban policy agendas.

The paper is essential reading as we go through a period of financial reform.  The report is described as a timely assessment of alternative proposals for the future of Fannie Mae and Freddie Mac, ranging from nationalization to dissolution.  The paper explains the role Fannie and Freddie have played, explores the goals a healthy secondary market for both single- and multifamily housing should serve, and develops a framework to help understand and evaluate the various proposals for reform.

Check out the podcast.

The Housing Helix Podcast Interview List

You can subscribe on iTunes or simply listen to the podcast on my other blog The Housing Helix.


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[Furman Center] Improving U.S. Housing Finance through Reform of Fannie Mae and Freddie Mac

June 7, 2010 | 11:11 pm | furmancenter |

[click to open paper]

The NYU Furman Center for Real Estate released a white paper: Improving U.S. Housing Finance through Reform of Fannie Mae and Freddie Mac: Assessing the Options by Ingrid Gould Ellen, John Napier Tye and Mark A. Willis that lays out possible paths to take. They also lay out the functions they serve and were intended to serve.

Wow.

A great primer on Fannie and Freddie.

After facing insolvency one year ago, Fannie Mae and Freddie Mac were placed in government conservatorship in September 2008. The Obama Administration’s recently released report on financial regulatory reform calls for a “wide-ranging process” to explore options for the future of the GSEs. The Furman Center, in cooperation with the What Works Collaborative, has conducted research to better understand six primary options for the future of the enterprises, ranging from nationalization to dissolution. This white paper provides an overview of the U.S. housing finance system and the basic operations of Fannie Mae and Freddie Mac before conservatorship. It then discusses the basic goals of a healthy secondary market for both the single- and multifamily market, and offers a framework to help to describe and understand the different proposals for reform. Finally, it looks in detail at some of the specific proposals now emerging for reform of the housing finance system. As the federal government contemplates the future of these two entities, we hope that this paper offers a useful framework to evaluate the alternative proposals.

The GSEs were fundamentally flawed institutions because they were accountable to two parties: shareholders and taxpayers – shareholders as privatized institutions and taxpayers because of the assumed federal backstop. Both parties ended up being crushed by bias favoring shareholders and scramble for market share during the housing boom.

They serve an essential function of creating liquidity for lenders by freeing up their capital to lend more through buying mortgage securities, stabilizing mortgage rates and establishing standardization for the secondary mortgage market. But they are hemorrhaging now with no concrete solution in sight.

There are a lot of good ideas in the paper (I’ve read it twice, and will look at a few more times).

Not to go all regulatory crazy here, but I like the concept of regulating underwriting:

The industry needs to be regulated as to its underwriting standards, the quality of the underwriting process, operational risk, the level of capital/reserves, and even the quality of its servicing of the mortgage loans and the rating of its securities.37 The ability to regulate these entities effectively would be facilitated by requiring, for example, that all securitizers be licensed or chartered. Such a regulatory system/environment would help guard against the proliferation of toxic products, poor quality controls, and unfair and deceptive marketing practices, and thereby prevent the kind of race to the bottom that we have just witnessed, in which safer products are driven out of the market place.

It’s going to be a work in progress, I’m afraid.


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[The Housing Helix Podcast] Chris Williams, President and Chief Technology Officer, AIMSdashboard

May 13, 2010 | 11:47 pm | Podcasts |

Today I speak with Chris Williams, President and Chief Technology Officer of AIMSdashboard,

“Williams is a 15-year veteran of the IT industry, having served stints with Cisco Systems and PolyServe, a software startup acquired by HP. At one time he was co-owner of Carolina Appraisers, a real estate appraisal firm based in Raleigh.”

AIMS stands for “appraisal independence management system,” and “dashboard” is a software term meaning a control panel housing two or more applications.

His venture was enabled by introduction of the May 1, 2009 agreement between Fannie Mae and NY Attorney General Andrew Cuomo known as the Home Valuation Code of Conduct.

AIMSdashboard is intended to help financial institutions take back control of the mortgage process through a software solution. Chris was very quick to point out that his company is a software company, NOT an appraisal management company.

Check out the podcast

The Housing Helix Podcast Interview List

You can subscribe on iTunes or simply listen to the podcast on my other blog The Housing Helix.


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[Interview] Chris Williams, President and Chief Technology Officer, AIMSdashboard

May 13, 2010 | 11:42 pm | Podcasts |

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