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FD
02-12-2011, 10:10 AM
Obama Administration Proposes Fannie Mae, Freddie Mac Phaseout
White House Sketches Three Options For Shrinking U.S. Support of Housing
By NICK TIMIRAOS

The Obama administration outlined on Friday its plans to begin shrinking the government's broad support of the nation's crippled mortgage market, a process that officials said could take several years and would include phasing out Fannie Mae and Freddie Mac.

Officials portrayed a housing-finance system that would include a role for both the public and private sectors, but would be different from the current system in that the government's role would be smaller, underwriting standards would be tighter, and borrowers would be required to hold larger amounts of equity in their homes.


Rep. Randy Neugebauer, R-Texas, chairman of a key House oversight subcommittee, is encouraged by the Obama administration's proposal to restructure Fannie Mae and Freddie Mac. But he's disappointed there's no clear long-term reform plan.

The proposal offered a series of short-term steps that would help attract private capital into the mortgage market, including a reduction in the maximum loan sizes that Fannie and Freddie can purchase and gradual increases in the fees the mortgage companies charge lenders. Both of those steps could make it more attractive for lenders and investors to buy loans without government backing, but they could also raise borrowing costs for millions of Americans and weigh on the nation's home-building industry.

"The cost of mortgages is probably going to go up, and homeownership is probably going to go down," said Daniel Mudd, the former chief executive of Fannie Mae who is now CEO of Fortress Investment Group. "Both of those things arguably could be a good thing."

The administration said it would support allowing maximum loan limits to fall to $625,500 from $729,750 as scheduled on Oct 1. It also said it would push to increase minimum down payments to 10% on loans eligible for purchase by Fannie and Freddie. Insurance premiums charged on new loans backed by the Federal Housing Administration could also go up.

Administration officials said the process of transitioning to a post-Fannie and Freddie world would take at least five to seven years, in part because the housing market remains too fragile. Many analysts say the process, which includes dismantling, moving, or reassembling the firms' infrastructure, could take even longer.

The long-awaited proposal was thin on specifics about what would replace Fannie and Freddie, which the government took over in 2008, and which have racked up $134 billion in taxpayer losses. Instead, it outlined three options that were designed to frame what promises to be a prolonged and heated political debate over how to structure the nation's $10.6 trillion mortgage market.

The first of those would put the vast majority of the mortgage market in the hands of the private sector, where lenders would originate mortgages and securitize them without any government backing. The middleman role currently played by Fannie and Freddie would no longer exist.

The government's role would be limited to the FHA and a few other smaller housing agencies, and their reach would be sharply reduced from current levels. The FHA backed 20% of all new mortgages last year. Some conservatives have called for such a private market.

The second option, championed by a handful of economists, would also create a mostly private market with a limited government backstop that would primarily become active buying or guaranteeing loans in periods when private lenders retreated during financial shocks.

The third option would create new privately owned companies to buy mortgages from banks and sell them as securities. Those securities would be explicitly guaranteed by the government as long as they meet certain criteria. The government would collect fees for that backing, just as the Federal Deposit Insurance Corp. insures bank deposits and regulates banks.

These new companies would essentially replace some of the functions filled by Fannie and Freddie. An array of academics and industry groups have backed such a proposal, and senior Obama administration officials, such as Treasury Secretary Timothy Geithner, have publicly discussed its merits.

The housing industry greeted the proposal coolly, and some mortgage industry officials criticized the administration for not providing more detail. "It was a political football that they punted back onto Congress's side of the field," said Joseph J. Murin, the former president of Ginnie Mae, a government-owned corporation that guarantees payments on mortgages backed by federal agencies.

Producing three different options, instead of one clear recommendation, reflects the fact that there isn't a strong consensus within the administration or Congress, said Laurence Platt, a banking industry lawyer at K&L Gates in Washington. He described the proposals as "Goldilocks and the three options—one's too hot, one's too cold, one's just right, but everyone disagrees which one is which."

But the administration's approach did attract support from Republican lawmakers, who have said the White House has been slow to address Fannie and Freddie's future.

"On a number of these areas, we're going to be on the same page, and that was encouraging, and to see it in writing is equally encouraging," said Rep. Scott Garrett (R., N.J.).

Republicans face their own divisions over what kind of role the government should play in the market, while Democrats have generally said a federal backstop function is needed to ensure broad access to homeownership and the 30-year fixed-rate mortgage, in particular.

Many industrialized nations don't have institutions like Fannie and Freddie, and instead rely more heavily on their banking systems to fund mortgages.

But some economists have noted that the mistakes in the U.S. private sector were far greater than the mistakes made by Fannie and Freddie. For example, private-label mortgage securities, which are not government-backed, have performed more poorly than those backed by the mortgage giants. Nearly 45% of private-label loans originated in 2006 had been 90 days past due at least once, compared with 13% for Fannie and Freddie, according to a report from the firms' federal regulator published in September 2010.

"The part of the market that was the most private was also the worst," said Michael Barr, a former assistant Treasury secretary who left the Obama administration in December. He said the report should help remind lawmakers that the government has long had a role backstopping mortgages. "People seem to think there's a nostalgic world that we never had," he said.

Housing advocates voiced alarm over proposals designed to cede more of Fannie and Freddie's role to the private sector. "They're bringing the fox to the henhouse," said John Taylor, the CEO of the National Community Reinvestment Coalition.

The proposals are likely to set off a furious effort by the financial-services industry to protect generous subsidies and seek out new revenue sources. Investors haven't been willing to buy mortgages that don't have government backing primarily because there haven't been enough steps taken to overhaul the market for private-label securities, said Joshua Rosner, of investment-research firm Graham Fisher & Co. "Investors are on strike," he said.

His clients would buy securities without government backing "hand over fist" if the industry had adopted clear and transparent standards, said Mr. Rosner. "The industry isn't doing that, because it's playing for a guarantee."

http://online.wsj.com/article/SB10001424052748703786804576137942242796306.html?mod=WSJ_WSJ_US_News_5

FD
02-12-2011, 10:20 AM
Posted this because its a big issue not getting much attention. The administration will face a fight in Congress on this but its worth fighting. There is absolutely no need for this massive government intervention in the housing market to continue.

LaDairis
02-12-2011, 10:24 AM
Getting rid of socialist interference in housing insurance...

Good thing a "conservative" thought of it...

because "conservative" W and his Bible Thumping Socialist Congress didn't...

FD
02-12-2011, 10:36 AM
Getting rid of socialist interference in housing insurance...

Good thing a "conservative" thought of it...

because "conservative" W and his Bible Thumping Socialist Congress didn't...

Bush never proposed ending it but he did want to impose stricter regulations on it and curb some of its worst practices. Congress denied him in a true bipartisan effort.

LaDairis
02-12-2011, 10:42 AM
LOL!!!


Spin from the same source.


W porked out massively to "low income housing," as did the GOP Bible Thumping Socialist Congress 01-07. "Grants" were included in defense and Homeland Security bills. The Community Reinvestment Act was a giant act of the Feds blowing hot air into an already overheated housing market. Greenspan and Choose 'em Ben kept rates low enough to keep the bubble bubbling.


Strange thing. The US is well over 200 years old, and so is its housing market. This is the first time this magnitude of housing crash ever occurred, and it occurred with the maximum amount of government interference...

1. government subsidized housing insurance
2. government funding for "low income housing"
3. tax breaks for developers of "low income housing"
4. re-writes of banking and mortgage credit standards, making it A-OK to get a mortgage without any apparent means of paying it back


Without government interference, housing is a market that goes up and down. With government interference, it produces a huge bubble, which then bankrupts the entire country...

Solution from both parties = MORE GOVERNMENT

FD
02-12-2011, 10:46 AM
LOL!!!


Spin from the same source.


W porked out massively to "low income housing," as did the GOP Bible Thumping Socialist Congress 01-07. "Grants" were included in defense and Homeland Security bills. The Community Reinvestment Act was a giant act of the Feds blowing hot air into an already overheated housing market. Greenspan and Choose 'em Ben kept rates low enough to keep the bubble bubbling.


Strange thing. The US is well over 200 years old, and so is its housing market. This is the first time this magnitude of housing crash ever occurred, and it occurred with the maximum amount of government interference...

1. government subsidized housing insurance
2. government funding for "low income housing"
3. tax breaks for developers of "low income housing"
4. re-writes of banking and mortgage credit standards, making it A-OK to get a mortgage without any apparent means of paying it back


Without government interference, housing is a market that goes up and down. With government interference, it produces a huge bubble, which then bankrupts the entire country...

Solution from both parties = MORE GOVERNMENT

Did the US government also create the simultaneous housing bubbles in Ireland, Spain, China and dozens of other countries? Also, all the things you list except the deregulation of mortgage standards occurred well before the bubble. There was a lot more going on that caused the bubble than some tax breaks for developers.

LaDairis
02-12-2011, 10:49 AM
W and the Bible Thumping Socialists heaped plenty of "low income housing" pork into many different bills.

While CRA was before W, W had the chance to be a "coinswervative" and repeal it, but W wasn't conservative, so he didn't.

The GOP fingerprints are all over the housing disaster, the post 1998 Bible Thumping Socialist GOP, that is...


And indeed, what we did here rippled around the globe, and our government subsidized "housing insurance" prevented the markets from properly pricing in risk.

mikey23545
02-12-2011, 10:51 AM
This probably means Barney Frank can't figure out any way to skim any more out of the program.

Saul Good
02-12-2011, 10:59 AM
Posted this because its a big issue not getting much attention. The administration will face a fight in Congress on this but its worth fighting. There is absolutely no need for this massive government intervention in the housing market to continue.

Who do you think will fight him on this?

FD
02-12-2011, 11:05 AM
Who do you think will fight him on this?

I'm no expert on the politics of this. In the past politicians from both parties have treated Fannie and Freddie as a slush fund. The worst offenders were typically whoever was in charge at the time.

Right now, after the agencies failed so spectacularly it could be a whole different game but that may just be optimism. I certainly would hope the incoming class of Republicans would happily agree to this plan but you never know.

BucEyedPea
02-12-2011, 11:23 AM
Did the US government also create the simultaneous housing bubbles in Ireland, Spain, China and dozens of other countries?

Not directly, but US central bankers had a lot to do with that using the same policies that created our bubble just causing one world wide. Central banking = socialism, fascism or mercantilism=bubbles and malinvestments. It was just global Keynesianism.


Also, all the things you list except the deregulation of mortgage standards occurred well before the bubble. There was a lot more going on that caused the bubble than some tax breaks for developers.

Duh!:doh!: Of course they preceded the bubble because it is the cause of the bubble and cause precedes effects.

Yeah! There was a lot going on—massive quantities of moral hazard was created which typically lead to malinvestments by bankers and people ( sellers and buyers) because credit was too cheap. Bankers who know govt will bail them out which encourages fiscal irresponsibility whereas in a true free-market they'd go bankrupt if they followed the same policies.

KILLER_CLOWN
02-12-2011, 11:24 AM
Too little, Too late as usual.

donkhater
02-12-2011, 07:07 PM
I don't buy this for a moment. It's not in Obma's DNA to cut a government program, particularly one that was his sugar daddy. I smell a rope-a-dope.

HonestChieffan
02-12-2011, 07:09 PM
I don't buy this for a moment. It's not in Obma's DNA to cut a government program, particularly one that was his sugar daddy. I smell a rope-a-dope.

amen

The Mad Crapper
02-12-2011, 07:21 PM
I don't buy this for a moment. It's not in Obma's DNA to cut a government program, particularly one that was his sugar daddy. I smell a rope-a-dope.

Now why would you draw that conclusion? Obama has been on the up and up since the word go.