Regarding the fate of the Enterprises:
Congress, “It’s up to FHFA and the Treasury.”
FHFA, “It’s up to Treasury.”
Treasury, “It’s up to Congress”
Got that!? No? Many people don’t…
By now what is clear is that the Bush Administration intended to eliminate Fannie Mae and Freddie Mac by manufacturing the need to take over these companies under the guise of conservatorship.
Then, after the false pretense of C-ship, the Obama Administration took the scheme even further by implementing the Sweep Agreement (making Social Security, VA, Secret Service, Obama-Careless, etc. seem like child’s play). I am not anti-Mr. Obama…though I am against corruption, lies and mismanagement.
The Obama Administration has not waivered from their intent to eliminate the GSEs.
In my previous post we saw Senator Warren redirect the much-needed focus on the power that Wall Street has over Washington. Everyone knows about the revolving door, though not many take it head-on like Mrs. Warren.
So, should there be any doubt who is behind the plan to eliminate Fannie and Freddie? Consider who would benefit the most by the demise of Fannie and Freddie. Big Banks, right? Who seems to have a control over Washington? Big Banks, right? It is clear Big Banks are controlling the agenda.
The plan to eliminate the GSEs went sideways as the stalemated Congress could not pass legislation. They tried…Warner-Corker, Johnson-Crapo… Now, with one political party on the verge of taking control of both the House and Senate we await to learn what direction they will collectively take on the issue…
I write this post as a response to many that believe that recent events – particularly from these last few weeks – point to the release of Fannie and Freddie from conservatorship. Many in the blogosphere are of the opinion that this fight is a foregone conclusion and it is all but over…and that we, as owners of Fannie and Freddie, have won…!!
I am skeptical… I do not share in the recently developed belief that the inevitable is before us…that the only conclusion is a release of Fannie and Freddie. I believe we need to fight ever so harder at this point…!!
Big Banks should not have been allowed to create the circumstances that lead to the financial crisis, but they did.
And Big Banks should not be allowed to control Washington to the point that they may be able to eliminate major competitions – Fannie and Freddie. But that’s what is in play here.
Many people have worked hard to expose the truth.
However, Big Banks know full well that they caused the crisis… and they know they got away with it. No prosecutions… Sure, settlements… but those payments didn’t have an affect on any Big Bank executive. And the most influential banks benefited from the crisis as they saw some of their competitors forced out of business or were taken over by the victors. Big Banks got away with lying about the need for conservatorship and if we don’t stop them, they will get away with decimating Fannie and Freddie!
This fight is far, far from over. Don’t believe that our effort is a forgone conclusion…
What caused this newfound feeling of near-victory among shareholders?
FHFA Director Mel Watt recently directed FNMA and FMCC to fund two programs. In letters to the CEOs of Fannie and Freddie, Director Watt wrote:
“The…decision is based on the following: The Director of FHFA had the authority to temporarily suspend the…allocations… However, circumstances have changed and the temporary suspension is no longer justified… financial operations of Fannie Mae (and Freddie Mac) have stabilized to a sufficient level. This determination relates solely to whether contributions to these Funds would cause financial instability and is not a finding for any other purpose…
Further, Fannie Mae (and Freddie Mac) is not attempting to complete a capital restoration plan…”
The two programs mentioned are the Housing Trust Fund and the Capital Magnet Fund. Both programs are noble initiatives. However, consider that the Housing Trust Fund sends money from Fannie and Freddie to the Department of Housing and Urban Development (HUD) and the Capital Magnet Fund sends money from Fannie and Freddie to the US Department of the Treasury (yes, that Treasury!). So, the US Government decided to reallocate some of the profits of these two private companies from all profits going to the Treasury, to some profits now going to HUD and some profits going to a specific program within the Treasury.
Also consider that HUD operates the Federal Housing Administration (FHA), which some view as a competitor of Fannie and Freddie.
There are three ways to view this recent development as it relates to freeing the Enterprises from conservatorship – positive, negative or a non-event. I may be missing something, but it’s hard to see the positive ramification here.
Many viewed the directive by Director Watt as finally acting independent from the Treasury!
Or perhaps it showed that Director Watt and the Treasury are now working in concert and moving toward a release!
I am not convinced on either of those possibilities.
However, it does appear likely that Treasury approved the funding of the HUD and Treasury-run programs (why wouldn’t they…they’re keeping all the GSE profits in-house…), but it is difficult to connect the dots to ending conservatorship as many bloggers did recently.
The Creation of Common Securitization Solutions, LLC
CSS is a company jointly owned by FnF which features the Common Securities Platform, that serves two purposes: a) an improved information technology systems infrastructure and b) to create a common security for use by both Fan and Fred.
“This harmonization can be achieved by FHFA directing Freddie Mac to modify its Participation Certificate (PC) to match exactly the structure of a Fannie Mae mortgage‐backed security (MBS), and advocating that these securities be considered fungible in the TBA market…
Any secondary mortgage market reform will require a common security.” http://www.mbaa.org/files/SingleSecurityforGSEs.pdf
So, perhaps I am being cynical, but we see that the US Government, who operates FHA, just moved to make Freddie more competitive with Fannie. Our FHA competitor reached into our private companies and moved to level the playing field…!
Many Fan and Fred shareholders believed the creation of this new company to be good news. “We own a new company!” many bloggers wrote… True, CSS is owned by FnF. However, the US Government created CSS, they currently completely control FnF and the US Government could easily sell off CSS to a consortium of bankers which would likely be lead by Citi and Goldman…
Further, the common platform would be necessary for… “serving as a market utility that could be used even if the Enterprises were terminated.” http://www.treasury.gov/initiatives/documents/reforming%20america%27s%20housing%20finance%20market.pdf
“As of December 31, 2013, the Enterprises spent a combined total of approximately $65 million to build the CSP. This year the Enterprises are spending between $5 million and $7 million per month to continue that effort. In addition, Fannie Mae budgeted $42 million for integration-related projects47 for the first three months of 2014; and Freddie Mac budgeted $14 million for integration for the period January 1, 2014 to May 31, 2014. According to Fannie Mae documents, in 2013 FHFA told Fannie Mae that it should not feel constrained by a budget. In fact, FHFA and the Enterprises have yet to develop a total estimated cost for the CSP.” http://fhfaoig.gov/Content/Files/EVL-2014-008.pdf
So, at the expense of FnF shareholders, the US Government directed the GSEs to create and fund a platform where ‘money is no issue’ (because it’s not their money) that could eventually be used to help facilitate the demise of FnF.
Maybe this new company isn’t such great news after all…
Why am I so doubtful and pessimistic? …perhaps because this entire fiasco is built on one lie after another. Are we supposed to believe anything coming from Washington/Wall Street regarding Fannie and Freddie?
We cannot let anyone convince us that the fight is nearly complete. Far from it… we need to keep pursuing our rights. We need to fight even harder!
GSEs Increase Guarantee Fees and Purchase Securities Insurance
Consider increased fees boosts the profit of FnF, which go directly to the Treasury. And, because the US Government controls the GSEs, the Government is on the hook for all of the MBS. Having the GSEs purchase insurance serves to protect the US Government.
“Fannie Mae bought insurance to cover a portion of losses on $6.4 billion of home loans in the mortgage giant’s latest effort to share risks with private investors.” http://www.businessweek.com/news/2014-12-10/fannie-mae-taps-reinsurers-in-mortgage-risk-sharing-deal?sf6264954=1
Some believed this development is an indication of an imminent end to conservatorship.
“The (Obama) Administration will work with the Federal Housing Finance Agency (“FHFA”) to develop a plan to responsibly reduce the role of the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) in the mortgage market and, ultimately, wind down both institutions. We recommend FHFA employ a number of policy levers – including increased guarantee fee pricing, increased down payment requirements, …”
However… “In addition to increasing guarantee pricing, we will encourage Fannie Mae and Freddie Mac to pursue additional credit-loss protection from private insurers and other capital providers.
So, it was the US Treasury that recommended the increased guarantee fees and the purchase of insurance for their increased profit and protection! Perhaps not such good news either…
The one development I do agree is good news is the new 97% LTV loan program.
The magic moment of the last week or so is when Mr. Watt announced the 3% down payment loan. That’s the nugget…the gem!
Prior the Treasury stated…”Going forward, we support gradually increasing the level of required down payment so that any mortgages insured by Fannie Mae or Freddie Mac eventually have at least a ten percent down payment.”
The previous lowest down payment loan was 5%. So, here you had the Treasury stating they wanted to move to the lowest down payment loan at 10%, and Director Watt does the exact opposite by initiating a 3% loan.
That is news! That is something to be excited about!!
This development does either signal that Director Watt is now working independent of Treasury or that they are now working in harmony and moving in a new direction. Either option is positive news.
So, though I may be a cynic, I do look for good news. Though I may be encouraged, I am not going to let any one convince me that this fight is all but won.
We must keep fighting the corrupt establishment and we must keep fighting for our shareholder rights. We must keep pursuing the truth! We must keep fighting for the foundations of the American Dream!
Don’t be lulled into a false sense of security! Fight even harder than ever before!!
And May God Bless America!