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Getting From Here to There
I would not rule out reversal, but believe it more likely that the Perry Capital case will be remanded to Lamberth’s court, with instructions to develop a complete administrative record. Remand would allow the net worth sweep to remain in place for a while longer, but it still would not be a good development for the government. It would mean that in both the District Court and Judge Sweeney’s Federal Court of Claims, judges will have opined that facts matter. And if facts matter, what Treasury and FHFA did with Fannie and Freddie in 2012 with the sweep, and currently are doing with the companies in their management of them in conservatorship, at some point will be judged to be illegal. The only question is when.
Read more at HOWARD ON MORTGAGE FINANCE
TH717 
How Freddie and Fannie Are Held Captive
Fannie Mae and Freddie Mac Unsealed
In 2012, the government changed its bailout of Fannie Mae and Freddie Mac, sending profits to the Treasury. These documents were unsealed in a lawsuit from Fannie and Freddie shareholders.
http://goo.gl/1uZUFQ
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Judge orders ethics classes for ‘deceptive’ DOJ attorneys!
http://www.washingtonexaminer.com/judge-orders-ethics-classes-for-deceptive-justice-dept.-attorneys/article/2591815
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Blind Sheep Investor does #2 Fanniegate Blues:
As he asks the Musical Question “Is that a BANANA in Our REPUBLIC or are our Leaders just glad to steal from the GSEs?”
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The GSE Shareholder Amateur Hour
can be found below:
Some serious Hanky Panky was revealed here, will it be nominated by Bob Corker for the Best Folk Song Grammy?
Will the US Housing Market be Killed?!
Free your Mind and your uh Donkey will Follow:
A man so angry about the GSEs his poor voice rising three octaves:
–Jimmy Fallon is looking to do a show soon and needs YOU to do your Kanye West on the GSEs Rap!
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Fannie Mae CEO says it’s not sustainable to operate without capital
MarketWatch
12:10 PM ET
By Andrea Riquier
Mortgage buyer Fannie Mae reports $1.1 billion profit
“Operating with essentially zero capital is not sustainable,” the CEO said Thursday morning, just after his company reported a $1.14 billion profit in the first three months of the year, the 17th consecutive quarter of profitability.
Welcome to the upside-down world of Fannie Mae(FNMA), the company in question, and its little brother, Freddie Mac(FMCC). The two mortgage companies have always straddled the worlds of government and business, but ever since the financial crisis of 2008, that in-between area has been increasingly uneasy.
“Conservatorship,” into which Fannie and Freddie were placed at the height of the crisis, was supposed to be a temporary fix of an emergency situation. But with Congress unable to agree (http://www.marketwatch.com/story/this-plan-to-overhaul-fannie-mae-and-freddie-mac-just-might-pass-congress-2016-03-24)on a permanent way forward, it’s become the way the enterprises must operate.
Further exacerbating the problem is a 2012 amendment to the 2008 bailout terms that says the two enterprises must remit all their quarterly profits to the Treasury Department. Those revamped rules have been challenged in court by equity shareholders.
“We try to run our business as prudently as possible,” Fannie CEO Tim Mayopoulos said on the earnings call Thursday, when asked how any executive can manage in such an environment. Fannie and Freddie have both been experimenting with selling portions of their credit risk to capital markets investors to hedge those risks, he noted.
They’ve also tightened underwriting standards to avoid credit risk in the first place. The average Fannie borrower’s FICO score was 746 in the first quarter. By way of comparison, the median credit score across the entire mortgage market in 2001, before the bubble era, was 701.
Fannie’s serious delinquency rate also shows cleaner credit quality. It fell for the 24th quarter in a row in the beginning of the year, to 1.44%. According to the company’s financial statement, that number would be even lower if foreclosures didn’t take so long in many states.
But many analysts believe mortgage lending is now tighter (http://www.urban.org/sites/default/files/alfresco/publication-pdfs/2000607-Servicing-Costs-and-the-Rise-of-the-Squeaky-Clean-Loan.pdf) than it should be to nurture a healthy market. Fannie and Freddie were created to provide liquidity to the mortgage market, to absorb credit risk that individual banks could not.
And there are other potential strains on the enterprises’ finances. Both must deal with shifts in interest rates, for example. Fannie’s profits (http://www.fanniemae.com/resources/file/ir/pdf/quarterly-annual-results/2016/q12016_release.pdf) were down from $1.89 billion a year ago and $2.47 billion in the fourth quarter, largely because of derivative bets which cost them $2.81 billion during the quarter. In addition, while reducing the size of their portfolios lays off some risk to capital markets, it also offers Fannie and Freddie less upside.
All this means that any given quarter, if there is a loss, could force Fannie or Freddie to tap taxpayer funds from the Treasury Department. That likelihood grows every quarter as the two shrink their capital reserves down to zero by 2018.
Mayopoulos isn’t the only housing official to call the current system unsustainable. In February, Mel Watt, director of the Federal Housing Finance Agency, which regulates the two enterprises, urged Congress (http://www.marketwatch.com/story/regulator-warns-of-risk-of-keeping-fannie-freddie-under-government-control-2016-02-18) to take action.
“Investor confidence is critical if we are to have, as we do today, a well-functioning and highly liquid housing finance market that makes it possible for families to lock in int erest rates, obtain 30-year, fixed-rate mortgages, and prepay a mortgage if they want to refinance or need to move,” Watt said.
“We need policymakers to act,” Mayopoulos said Thursday, but he acknowledged that there’s scant chance that will happen and even less housing officials can do to nudge Congress in that direction. “We’ll just stay tuned and see what happens,” he added.
-Andrea Riquier; 415-439-6400; AskNewswires@dowjones.com
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Investors Unite Executive Director Tim Pagliara Issues Statement on Freddie Mac Q1 Earnings
Washington, D.C. – In response to Freddie Mac’s Q1 earnings announcement, Tim Pagliara, Investors Unite Executive Director, issued the following the statement:
“By stripping Fannie Mae and Freddie Mac of 100% of their profits every quarter since 2012, the Treasury Department put taxpayers on the hook for any future losses by either of the companies, and we’re now seeing this play out in real-time. It’s time to reverse the sweep and to protect the taxpayers by allowing these companies to begin rebuilding capital.”
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We’ve Fixed Fannie and Freddie; It’s Time to Release Them
05/02/2016 05:37 pm ET
Eva M. Clayton
Former Congresswoman and former Assistant Director General of the UN Food and Agriculture Organization
ASSOCIATED PRESS
Since the 2008 financial crisis, the twin housing giants Fannie Mae and Freddie Mac have been in a conservatorship. Yet, the status quo in Washington seems to be dug into keeping them hamstrung in permanent confusion. In late February, Federal Housing Finance Agency (FHFA) Director Mel Watt in a pivotal speech acknowledged, rightly that a permanent conservatorship is not sustainable for taxpayers and certainly not sustainable for a robust secondary housing market.
In my view, it is long past time to recapitalize these enterprises, implement reforms that serve consumers and taxpayers, and release them from their current state of uncertainty – where much of their mission is bound by the limits of being risk adverse and the lack of capital.
One thing, for sure, must be made clear, no one is suggesting going back to the “bad old days.” Consumer and civil rights groups, former government officials and others who advocate recapitalizing Fannie and Freddie and ending the conservatorship recognize that we should not recreate the taxpayer risk, regulatory uncertainty and a distorted mission for Fannie and Freddie that preceded the financial crisis. In fact, we should build on reforms enacted in 2008 that will help make sure that a systemic crisis will not be repeated.
As Government Sponsored Enterprises (GSEs), Fannie and Freddie have played an indispensable role in the mortgage finance sector for decades. However, beginning in the 1990s and continuing through the 2000s, Congress along with Administrations from both parties backed policies that distorted the traditional mission of Fannie and Freddie, and undermined their regulation. The 2008 financial crisis revealed the dire need to fix Fannie and Freddie, and that is why Congress passed the Housing and Economic Recovery Act (HERA).
HERA abolished the investment portfolios at both companies that had ballooned in the run-up to the crisis, and that had allowed the companies to do significant harm to themselves. These portfolios are now in the process of being extinguished. Second, it created the current regulator, FHFA, as conservator. In FHFA, and under the leadership of Director Watt, we also have a more effective regulator of Fannie and Freddie. As an independent agency, FHFA has more authority to control the companies and to prevent them from straying from their core mission.
Besides HERA, the Dodd-Frank Financial Reform legislation that passed Congress in 2010 also strengthened housing finance by imposing qualified mortgage (QM) rules and by imposing substantial changes to the servicing industry. The net result of these changes is that higher quality loans are being produced and serviced in a way that reduce the credit risk to Fannie and Freddie. Complimenting these reforms, states have also beefed up their licensing, oversight and regulation of the mortgage industry. Ultimately, all of these changes are making individual homeowners and the GSEs less vulnerable to risk and exploitation.
But there are additional steps that policymakers could and should consider in a recapitalization and release plan, including requiring Fannie and Freddie to retain a minimum of three to four percent that would protect the taxpayers from any future draw by the two GSEs. There are other simple reforms that could be made as well that can further protect taxpayers, while keeping the housing market stable.
For decades, Fannie and Freddie served a vital role in helping working and middle class Americans create wealth by becoming homeowners. These companies performed their mission exceptionally well for most of their existence, and only got into trouble in the last decade before the financial crisis.
In America, when something breaks, we usually fix it and make it better. We don’t get rid of institutions that work well, as some current and former Administration officials, such as former FHFA Acting Director Ed DeMarco, continue to recommend. It is not clear that merging the two GSEs into a new entity is the right fix; as a group of economists and former administration officials recently proposed, this truly represents reform. However, clarifying the government’s guarantee, as they suggest, would enhance certainty in the marketplace.
There’s no doubt that reforms were needed to make them safer, and for the most part, those reforms have been enacted. It’s time to finish the job and to return Fannie and Freddie to their mission of preserving a pool of capital available so people from all walks of life can access homeownership and contribute to the economic benefits that accompany it.
http://www.huffingtonpost.com/eva-m-clayton/weve-fixed-fannie-and-fre_b_9821132.html
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