Wednesday, January 5, 2011

Will the GOP Cover Freddie's Fannie?

Today the GOP Takes control of the House of Representatives, and Harry returns a shriveled man with a shrunken majority.  

Some conservatives have already begun attacking the GOP before they even get started.  Blogger buddy Andrew 33 over at Allied Liberty News, is preparing a boiling cauldron of tar and collecting burlap bags of feathers. 

I'm keeping my powder dry and I encourage others to give them some room.  Still, there are some disturbing rumblings...

Republicans are already backing off of earlier threats to dismantle Fannie and Freddie. These pie-in-the-sky programs that encourage irresponsible financial dealings have cost us $134 billion in the last two years alone.

Republicans cheered on Jeb Hensarling, Representative from Texas, as he crafted legislation last year to kill the ghastly twins:
"Of all the dumb regulation that caused our economic crisis, none was dumber than that which created the (Fannie and Freddie) monopolies," Mr. Hensarling said in March. (WSJ - GOP Shifts on Fannie, Freddie)
Alas, government largesse dies hard, and for some GOP statists, parting is such sweet sorrow…
A hasty end to the government's support of Fannie and Freddie would mean fewer Americans could get home loans, causing home sales and prices to drop even further and pushing taxpayers' cost for rescuing the mortgage giants even higher, said Rep. Randy Neugebauer (R., Texas), a former banker and housing developer who serves on the House Financial Services Committee.
"You'd cause Freddie and Fannie to have even larger losses than they'd already have," Mr. Neugebauer said.  (WSJ - GOP Shifts on Fannie, Freddie)
A Banker and a housing developer, eh? 
Don’t suppose that would have anything to do with how Rep. Neugebauer comes down on this, do you? He concedes that home prices are still too high, but he supports keeping them artificially propped up.  Spoken like a true crony crapitalist that is afraid of the free market.

He also reveals the truth that “fewer Americans would get home loans” as a result of ending this homebuyer-corporate welfare program. How is that bad? Too many people getting home loans is what got us into this mess. Stop Digging! Representative Neugebauer, Republican from Texas, is now officially part of the problem.

Next come the homebuilders, realtors, and mortgage lenders, hat in hand, begging a bankrupt government for special treatment...
"We don't believe that the private market — right now — is willing or able to provide the liquidity that's necessary to get us out of this," said Joe Stanton, chief lobbyist for the National Association of Home Builders. "To erode that support right now would be a disaster," said Vince Malta, a real estate agent in San Francisco and a vice president of the National Association of Realtors. (WSJ - GOP Shifts on Fannie, Freddie)
... So let’s keep the bubble inflated.

They are all wrong. 
If houses were being traded at market prices right now, and if only those who could establish financial credibility could buy them, the market would be on solid footing. It would be smaller and less active, but it would be financially sound. And that’s the problem for these crony crapitalists. The bankers, builders and realtors want turnover. Who cares if people can afford it or not? These industries that suckle at mama government’s ample teats won’t get stuck when irresponsible people get forclosed. Uncle Sam will pick up the tab! And they continue making their millions in transaction fees. This crap needs to stop now.

Like anything, Fannie and Freddie can be sold in the marketplace, maybe for a loss. At this point I don’t care. We stepped in dog doo and it’s time to scrape it off our shoe. Nothing will inject sanity back into the housing market like removing taxpayer-funded subsidies.


Trestin said...

We need to get on them about everything. If the Republican party fails again, our nation may not survive.

Jersey McJones said...

F&F were obnly involved in a small percentage of the subprime lending that led to the mortgage meltdown. In the worst year of that, 2006, F&F only backed 6% of the subprime loans.

Anyone who thinks F&F are to blame for the meltdown is simply ignorant of the mortgage industry, and other sectors that were part of that calamity.

Remember too, it was Republicans who pushed for F&F to become more private entities, it was Republicans who pushed for the repeal of Glass-Steagall, it was Republicans who were running the reguklatory bodies when all these bad loans were written.

Look at yourselves.


Leticia said...

We must give the Republicans some time and see what they do. At this point, I have no hope whatsoever. Not after the repeal of DADT.

Lisa said...

Like Franklion Raines was willing to give up his 90 million dollar bonus.

Finntann said...

I'm curious where he gets his figure of 6%.

Fannie Mae and Freddie Mac were never large volume originators of sub-prime loans, they were enablers.

Daniel Mudd, CEO of Fannie Mae 2005-2008:

"By entering new markets -- especially Alt-A and subprime -- and guaranteeing more of our customers' products at market prices, we met our goal of increasing market share from 22 to 25 percent,"

By March 2007, when Mudd sent the board an update, major subprime lenders were failing, delinquency rates were climbing, and the emerging crisis was impossible to ignore.

At the end of June, Fannie Mae owned or guaranteed $388.3 billion of Alt-A and subprime mortgage investments. In comparison, it said its capital -- the financial cushion that enables it to absorb losses -- totaled $47 billion.


Eager to put more low-income and minority families into their own homes, the agency required that two government-chartered mortgage finance firms purchase far more "affordable" loans made to these borrowers.

The agency neglected to examine whether borrowers could make the payments on the loans that Freddie and Fannie classified as affordable. From 2004 to 2006, the two purchased $434 billion in securities backed by subprime loans.

Judith Kennedy, president of the National Association of Affordable Housing Lenders, said that while Fannie and Freddie nurtured unregulated subprime lenders, an estimated 30 percent of subprime borrowers could have qualified for safe, lower-cost prime loans.

Nevertheless, the vast accumulation of toxic mortgage debt that poisoned the global financial system was driven by the aggressive buying of subprime and Alt-A mortgages, and mortgage-backed securities, by Fannie Mae and Freddie Mac

Fannie and Freddie retained the support of many in Congress, particularly Democrats, and they were allowed to continue unrestrained. Rep. Barney Frank (D., Mass), for example, now the chair of the House Financial Services Committee, openly described the "arrangement" with the GSEs at a committee hearing on GSE reform in 2003: "Fannie Mae and Freddie Mac have played a very useful role in helping to make housing more affordable . . . a mission that this Congress has given them in return for some of the arrangements which are of some benefit to them to focus on affordable housing."

In 2005, the Senate Banking Committee, then under Republican control, adopted a strong reform bill, introduced by Republican Sens. Elizabeth Dole, John Sununu and Chuck Hagel, and supported by then chairman Richard Shelby. The bill prohibited the GSEs from holding portfolios, and gave their regulator prudential authority (such as setting capital requirements) roughly equivalent to a bank regulator. In light of the current financial crisis, this bill was probably the most important piece of financial regulation before Congress in 2005 and 2006. All the Republicans on the Committee supported the bill, and all the Democrats voted against it.

Finntann said...

Is it Fannie Mae and Freddie Mac's fault... not exactly.

Want to blame someone? Try their federal oversight:

Congress, HUD, Office of the Comptroller of the Currency, Federal Reserve Board, Federal Deposit Insurance Corporation, and the Office of Thrift Supervision.

Without government intervention and meddling in the mortgage market through regulatory changes to the Community Reinvestment Act (CRA)and pressure put on its GSEs to invest in them, private institutions would have been far less inclined to accept the level of risk taken in the subprime market.

But as almost anyone knows, private institutions tend not to keep their many times has your mortgage changed hands? Mine has been sold 3 times in eight years.

Without the government gobbling up subprime and Alt-A paper, the private banks would have been less inclined to pursue them.

In 1995 the government began to provide tax incentives to Fannie Mae for investment in loans to low income borrowers. In 1996 HUD set a goal for Fannie and Freddie that at least 42% of the mortgages they purchased be issued to borrowers with below median income, that goal had risen to 52% by 2005. Fannie Mae and Freddie Macs purchase of subprime loans rose from 38 Billion a year to 175 Billion a year. By 2008 Fannie and Freddie held 5.1 Trillion in residential mortgages and only had a 114 Billion in net about leveraged.

The point? The government through its regulatory agencies incentivized the sub-prime market in order to claim to be providing "affordable" housing, when in fact it was supplying bad credit customers with high risk-high cost mortgages.

Just because you can get a loan, doesn't make it "affordable".

Karen Howes said...

I'm a Republican, but I'll tell you that I don't have much faith in them anymore. If they aren't going to take care of business, then perhaps another party will.

When the Whigs became useless back in the 1850's, we had to form the Republican Party. Now, 150 or so years later, they've become the new Whigs.

BTW, I love the post title-- very clever!

Silverfiddle said...

I'm willing to give them a chance, Karen. Neugebauer is just one man, but this story still caught my eye. We'll see...

Maggie@MaggiesNotebook said...

Fannie Mae and Freddie Mac are such tremendous problems. I don't envy any lawmaker trying to tackle these monsters, but tackle they must, sooner or later.

I would settle for the time being just verifying that there is a qualification program that actually qualifies buyers for these loans.

I don't believe that is true across the board.

This is an issue we must press hard on after we get our GOP footing, and I agree that our housing market could be on the way to a firm footing if it were not for the mindset that every American deserves to own a house, and every Democrat district gets a legislator that will give it to them.

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