Posts Tagged ‘Freddie Mac’

Financial 411: More on Fannie & Freddie

WNYC radio’s Financial 411 had me on yesterday to talk about the future of Fannie Mae and Freddie Mac, and the great mystery I wrote about in Politico last week: Why has the Obama administration been silent about its intentions for restructuring the mortgage finance system? The tape, please.

Wednesday, March 10th, 2010 | Tags: , , ,
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Why Fannie & Freddie matter most

New from me in Politico: an op-ed stressing that as important as a Consumer Financial Protection Agency is, the most important looming financial reform battle on the Hill is over the future role of the federal government in backing homeownership. The administration knows that any debate touching on Fannie Mae, Freddie Mac and $300 billion or so in public investment is radioactive. It has been silent on the GSEs’ fate for more than a year, even after it promised that it would illuminate its plans this February.

The House Financial Services Committee was supposed to hear something, anything, about the future of housing finance from Treasury Secretary Timothy Geithner at a March 2 hearing that was then postponed to March 23. I’m marking my calendar again but not holding my breath.

Thursday, March 4th, 2010 | Tags: , , ,
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Vanilla fudge

There’s much lamentation in the econoblogosphere about the demise of the “plain vanilla” mandate, which was part of the Consumer Financial Protection Agency legislation and deeply despised by banks. Last week Barney Frank let it drop, and Felix Salmon, Mike Konczal, and many others have responded with eulogies for consumer reform itself.

Losing the plain vanilla mandate sucks deeply, but the really important battle regardless is what will happen to the secondary market. Fannie and Freddie and their regulators made plain vanilla the standard for decades – CRA activists in the 1980s actually used “plain vanilla” as an epithet, describing how the GSEs’ strict underwriting standards for this mortgages excluded minority/urban borrowers. It was only with the entry of essentially unregulated secondary market actors following 1980s deregulation that subprime and other gotcha mortgages came on the scene.

Good secondary market regulation can reward lenders for doing plain vanilla and make it discouragingly expensive for them to venture into exotica. That was essentially the case during the 1990s, as investment banks entering the mortgage-backed securities market struggled to make a dent in Fannie Mae and Freddie Mac’s market share because of the GSEs’ advantages of implied government backing and monopoly on plain vanilla. Predatory lending was a problem then, of course, but it was not yet a mainstream market and thus could have been contained had regulators (Greenspan!) chosen to act.

There’s still ample opportunity for the feds to push plain vanilla, if they choose to seize it. Bankers don’t necessarily mind, either – after all, they did very well for themselves selling plain vanilla backed by the GSEs. The Mortgage Bankers’ Association’s proposal for GSE reform contemplates explicit government guarantees on mortgage pools that meet regulators’ specified standards. With the right standards and incentives, a mechanism like that can promote plain vanilla as once again a dominant market presence. Think of it as the “public option” for mortgage credit, and perhaps other forms of credit too.

Sunday, September 27th, 2009 | Tags: , , , , ,
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The future revealed

If you want to see what the future of home mortgages looks like, it’s lurking somewhere in the testimony the Mortgage Bankers Association presented to Congress this week. In a reasoned policy document that the mortgage bankers should have thought of writing about 15 years ago, the MBA’s Council on Ensuring Mortgage Liquidity lays out principles for how a home finance system should work as well as nine different models that could get it there – everything from covered bonds (aka the Danish system) to a public utility to keeping Fannie Mae and Freddie Mac as the main forces generating funds.

Creating a fully privatized finance system is on the list of options, but not something the mortgage bankers, homebuilders or Realtors (I don’t dare lowercase the “r”) support – why should they if they can benefit from government subsidies and guarantees through a strong government role? Indeed, some of the backing the mortgage bankers are asking the feds to provide would hand additional risks on the public sector, in the name of stabilizing the mortgage markets and maintaining credit for the biggest number of borrowers possible – a bargain Congress ought to be wary of.

As recently as last summer, in the breath between Freddie Mac’s collapse and the Lehman implosion, the calls for privatizing Fannie Mae and Freddie Mac came loud and often. What a difference less than a year makes. This week’s hearings featured just one token opponent of keeping Fannie and Freddie as public entities at the heart of the mortgage market, Dr. Lawrence J. White of NYU’s Stern School of Business. He called for the privatization of the agencies, along with a “program of targeted assistance to low- and moderate-income households to encourage them to become homeowners.” I can’t think of a more reckless combination – it’s like turning the clock back to 2003.

Friday, June 5th, 2009 | Tags: , ,
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Fannie and Freddie 4evah

Wednesday sees the House Financial Services Committee’s Subcommittee on Capital Markets hold a hearing on “The Present Condition and Future Status of Fannie Mae and Freddie Mac.” The lineup includes the usual industry suspects (mortgage bankers, Realtors, homebuilders), a requisite but reasonably sane kill-the-agencies voice, NYU Stern School’s Lawrence White, and Susan Wachter from Wharton, whose  wonderfully titled paper “Explaining the United States’ Uniquely Bad Housing Market” provides an authoritative insta-account of how Fannie and Freddie made mortgage securitization work and Wall Street played the game so wretchedly wrong. Congress will do well to listen to Wachter.

Monday, June 1st, 2009 | Tags: , , ,
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Oh, boy

What’s more troubling than a world in which all home loans come from Bank of America and Wells Fargo? One where Fannie Mae and Freddie Mac guarantee lines of credit for smaller mortgage bankers, which is what the Mortgage Bankers Association is now asking the Federal Housing Finance Agency to do.

Today’s Journal also has a story about how default rates for FHA-insured mortgages are rising fast, and that should give you an idea of what’s at stake here. Most FHA lenders are the very kinds of institutions that are now seeking the Fannie/Freddie guarantee on their credit lines — mortgage banks, which don’t do any other kind of business and therefore don’t have deposits or any other sources of funds to turn to. While many mortgage banks are solid and valuable institutions, over the last few years mortgage brokers seeking to increase their profit margins have also opened up their own banks, and quite a few mortgage banks are basically new incarnations of sleazy subprime loan mills.

So let me get this straight: the credit markets won’t take the risk of guaranteeing warehouse lines of credit for mortgage bankers, but the federal government should?

Tuesday, March 31st, 2009 | Tags: , , ,
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