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The Largest Single Piece Of Unfinished Business

A report from the Wall Street Journal. “The Trump administration said it would support returning mortgage-finance giants Fannie Mae and Freddie Mac to private hands. ‘Our view is that the government footprint has become too big,’ Treasury Secretary Steven Mnuchin said in an interview ahead of Thursday’s report. ‘There are people in Washington who are happy to leave this the way it is for another 10 or 20 years, and that’s not us. We feel an obligation to try to fix this.'”

“Fannie and Freddie don’t make loans but instead buy them from lenders and package them into securities that are sold to other investors. Figuring out how to refashion the companies remains the largest single piece of unfinished business from the financial crisis.”

“It also could be hard to meaningfully shrink the firms’ housing footprint without affecting borrowing costs. The reason: If some mortgages are no longer bought by Fannie and Freddie, they would be bought by private investors who would demand higher interest rates because the loans wouldn’t have government backing. Such backing is enjoyed by Fannie and Freddie.”

“‘Investors will be much pickier and charge more for the loans they are willing to invest in,’ said Jim Parrott a former Obama administration housing adviser who is now an industry consultant. ‘That’s not to say we shouldn’t consider reducing the government’s role in places, but we should be honest about its impact.'”

“Treasury included few specifics for shrinking Fannie and Freddie’s footprint in housing, though they suggested that their regulator, the Federal Housing Finance Agency, could limit the amount of multifamily mortgages that they are allowed to purchase. Treasury also said FHFA should reassess whether the companies’ purchases of cash-out refinancings and loans for investment and vacation properties align with the firms’ core mission.”

“Trump administration officials say they are compelled to act because the conservatorship was meant to be temporary. They also say the government should cease playing a central role in housing, a massive sector that touches on some 15% of the economy.”

From Politico. “Although Treasury outlined recommendations for legislation to overhaul the way the companies operate, it plans to release the companies with or without Congress, which is unlikely to take up comprehensive housing finance reform anytime soon because the issue is so divisive. ‘While Treasury prefers legislation, further reform should not and need not wait on Congress,’ a senior Treasury official told reporters Thursday.”

“That stance is likely to draw protests from lawmakers, including Sens. Elizabeth Warren (D-Mass.), Sherrod Brown (D-Ohio) and other Democrats, who want to ensure that housing affordability is the top priority in any overhaul. Brown, the top-ranking Democrat on the Senate Banking Committee, warned the administration last month not to ignore ‘historically underserved’ communities. ‘Failing to listen to these important voices does a disservice to communities and puts our housing market and taxpayers at risk,’ he said.”

“Treasury also suggested that Congress replace the companies’ statutory affordable-housing goals — saying ‘the goals were a contributing factor to the GSEs’ risk taking and losses in the lead up to the financial crisis’ — with a levy to fund affordable housing programs administered by HUD.”

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This Post Has 75 Comments

  1. ‘That stance is likely to draw protests from lawmakers, including Sens. Elizabeth Warren (D-Mass.), Sherrod Brown (D-Ohio) and other Democrats, who want to ensure that housing affordability is the top priority in any overhaul’

    The GSE’s make shacks less affordable. What if I waved a magic wand and they went away tomorrow? Crater.

    1. Right on, Democrats, because we all know that purchases of multi-family, cash-out refinancings and loans for investment and vacation properties are critical to affordable housing!

      1. BTW, 100% agree with your comment — reining in these government companies will truly help affordability.

        Trump certainly isn’t perfect, but at least he’s doing many things that should’ve been done a decade ago, but weren’t

      2. Let me explain how the multi-family stuff works from a radio show I listened to. Main person identifies a property. Puts together investors who pony up some money and get a loan for the rest. Slap on some paint, jack up the rents and let it “season” for a year. Then it qualifies for a Fannie backed refinance. Mel Watt did a trillion $ of these things in 3 or 4 years. “Pedal to the metal” he said. That’s affordable housing to the swamp.

        1. These decisions were made with the special interests in mind. It had nothing to do with affordable housing for the masses. Follow the money.

        2. Slap on some paint, jack up the rents and let it “season” for a year. Then it qualifies for a Fannie backed refinance.

          So are you saying the investors risk their own money for a year while making the numbers look good, and then do a FM refi and get their money back plus more? And then if it all tanks let it go to the bank and they already made their money?

          1. Lots of non-recourse lending in apartments. Yeah they’ve been refinancing every couple of years. They have all their original money back pretty quick and it’s all profit after that. Plus there’s the deductions! These are all rich people, so they get to accelerate the depreciation, etc. And the credits! Low Income Tax Credits, it’s a smorgasbord of goodies!

            Until the rapid appreciation stops, as we saw in the previous post. One may wonder why we are subsidizing rich people doing value-add apartments, jack up rents year after year, serial refinance, with little to no risk to their money.

          2. “One may wonder why we are subsidizing rich people doing value-add apartments, jack up rents year after year, serial refinance, with little to no risk to their money.”

            I don’t. The entire eCONomy is of the 1%, by the 1%, for the 1%.

          3. …of the 1% .01%, by the 1% .01%, for the 1% .01%.

            Make sure you’re aiming the barrel at the right people.

          4. 1.0% … vs … .1% … vs … .01%

            Hand grenade$ & hor$e.$hoes … close enough count$!

            “Plus there’s the deduction$! These are all rich people, so they get to accelerate the depreciation, etc. And the credit$! Low Income Tax Credit$, it’s a smorga$bord of goodie$!”

            $ome folk$ know$ the “rule$” of $crabble better than others.

            zombies … Triple on the Z, Double on the B, Double word, s ends the word: blinks

            30 + 9 (x2) =78 + 12 (+50; 7 tiles) = 140 pt$

    2. If they can make even marginal progress on that goal, it will be remarkable. Once these programs get created, so many people become dependent on them it is nearly impossible to curtail them. Very smart of them to get ahead of the issue politically because another bail out of the GSEs will likely be required in the next housing bust. Government guaranteed home loans have had the same effect on housing as government guaranteed student loans had on college tuition.

      If I am reading this chart correctly, GSE balance sheet is 7 trillion dollars or about 30% of US GDP.

      https://fred.stlouisfed.org/series/BOGZ1FL404090405Q

      How do you unwind that?

      1. That’s pretty much the whole eCONomy. Instead of doing the right thing and focusing on real eCONomic growth, politicians helped bankers do the exact same thing as before, and blew an even bigger bubble, with the help of regulatory capture.

    4. Tentatively this looks like it could be a step forward. Of course, the devils will be in the details. It’s not like Fannie and Freddie are being wound down. If implemented poorly, it may simply be they are being given back their duopoly status before the great financial crisis, which is implicit government bailouts via a line of credit.

      I will wait to pass judgment on whether this is a step forward, or backwards when I see the actual details how this proposal moves forward.

      1. My hunch is that gov knows these guys are in over there head and would prefer to ditch all the risk with what’s headed. Mabye this time they will fail!

  2. ‘If some mortgages are no longer bought by Fannie and Freddie, they would be bought by private investors who would demand higher interest rates because the loans wouldn’t have government backing…’Investors will be much pickier and charge more for the loans they are willing to invest in’

    Larry must be a bit nervous!

  3. The usual gang will be up in arms to protect the status quo.
    If rates rose significantly with the removal of the implied government guaranty of Fannie/Freddie, then transactions would slow down dramatically. Anyone with a sub 4% rate on their mortgage would most likely be out of the transaction pool for a long, long time.

    2. But why should nonhomeowner Americans be charged to guarantee wealthy homeowners’ mortgages? Seems a bit like robbing the poor to reward the rich.

  4. “Though privatizing Fannie and Freddie remains a top priority for the Trump administration, any steps to quickly curtail the government’s role in housing could prove disruptive to the housing market just as the 2020 campaign gets under way.”

    Those darned campaign seasons!

  6. I have so much money left after “throwing money away on rent” every month that I don’t know where to throw it.

    1. “Homeowner”. I do not think that word means what you think it means.

      From Wiki …

      “The term ‘homeownership rate’ can also be misleading because it includes households that owe on a mortgage and do not fully own the equity in their own that they are said to ‘own’. According to ATTOM Data Research, only ’34 percent of all American homeowners have 100 percent equity in their properties — they’ve either paid off their entire mortgage debt or they never had a mortgage’.

      Home-ownership in the United States – Wikipedia
      https://en.m.wikipedia.org/wiki/Home-ownership_in_the_United_States

      So pukes complain because homeownership is down but their definition of “homeowner” is a big f*cking lie because

        1. “Homeloanmoaner” = ability to paint the kitchen “Kardashian.pink” without getting permi$$ion from the banker.

      2. only ’34 percent of all American homeowners have 100 percent equity in their properties — they’ve either paid off their entire mortgage debt or they never had a mortgage’

        Thanks for that data Mr. Banker. I’ve always wondered what the true “home ownership” rate was. I wish that stat was what was reported on commonly in the media and by politicians rather than the % of Americans who have a mortgage.

  8. After selling off non-performing loans to WallSt for a pittance ever since 2016, Fannie and Freddie are now getting ready to privatize so that they can make even more bad loans and then really stick it to the taxpayer again.

  9. I have said this before, but it bears repeating: Fannie and Freddie are hiding their delinquencies by auctioning them off for cheap to the top 0.1% at taxpayer expense. The unnecessary losses they take on these loans come right out of the profits that otherwise would go back to the taxpayers, who are are the owners and risk-takers.

    Background: FNM and FMCC have since about 2015 been regularly auctioning off huge bundles of delinquent/defaulted loans at big discounts, purportedly to protect taxpayers from losses. But in reality I think it is a giveaway to the Kushner-class. I think there is not nearly enough awareness of this topic. Indeed, one should ask whether F/F will also *finance* such delinquent-loan purchases!!??

    Reference to the non-performing loan sales, which Fannie call by the euphemism “Whole Loan Sales”:

    http://www.fanniemae.com/portal/funding-the-market/npl/index.html

    1. IIRC, during Obama’s administration they called it HUD’s, “private public partnership.” Blocks of homes were bought at a fraction of the mortgage’s face value, but these lower values never appear on the Assessor’s comparable tables.

      1. Yeah, a “Private Public Partnership” always is a scheme that enriches the already wealthy at the expense of the rest of the taxpayers.

      2. Assessor’s comparable tables. What are those, do you have a reference? You the tax assessor did not use these special Wall-St-deal prices to determine your tax?

        1. “Assessor’s comparable tables. What are those…”

          During Bubble 1, I went downtown to complain about my property taxes rising so fast. A friendly young woman had a spreadsheet of prices around my parcel. Anecdote: when the bubble popped it took 5-years for my property taxes to descend to their previous levels.

  10. Idiom: “____ market prices are proportional to the level of gov’t. intervention in the ____ market” .

    Housing, for example: more gov’t. involvement = more expensive housing; less gov’t. involvement = less expensive housing.

    – Free markets are efficient and are best at determining price and quantity. True price discovery exists, because market indicators point to true north.
    – The (truly) free market is a level playing field (crony capitalism and socialism not included). Referees still needed (e.g. anti-trust, anti-monopoly, anti-corruption, arbitration, etc.). Accountability means failures are allowed to fail.
    – Free market rules benefit all participants by not showing favoritism for one over the other.
    – Free market participants are risking their own money. Minimum moral hazard.

    – Gov’ts. are good at building large bureaucracies, but are inefficient and worst at determining price and quantity. True price discovery doesn’t exist because market indicators are distorted. How can the gov’t. possible know this? Only the market can. Gov’t. intervention in markets taken to the extreme: A centrally-planned, command economy = Socialism (i.e. the State owns the means of production), which has been shown by history to always fail (no exceptions).
    – Gov’t controlled markets are not a level playing field. The gov’t. is its own referee. Who’s watching the watcher? Where’s the transparency? Where are the checks and balances? Accountability means failures are bailed out and/or turned into zombies.
    – Gov’t rules usually benefit the bureaucracy and their cronies.
    – Gov’t. controlled market participants are usually risking other people’s money (read taxpayer). Maximum moral hazard.

    “And remember, where you have a concentration of power in a few hands, all too frequently men with the mentality of gangsters get control. History has proven that. All power corrupts; absolute power corrupts absolutely.” – Lord Acton

    “I abandoned free market principles to save the free market system.”–George W. Bush, on CNN, December 16, 2008

    ‘It became necessary to destroy the town to save it” as reported by Peter Arnett during the Tet Offensive, 1968

    http://eyeonhousing.org/2019/08/only-12-of-adults-are-planning-a-home-purchase-in-the-next-12-months/
    Only 12% of Adults Are Planning a Home Purchase in the Next 12 Months
    By Rose Quint on August 13, 2019
    “An NAHB poll conducted in the second quarter of 2019 revealed that only 12% of adults are considering the purchase of a home within the next 12 months. This share of ‘prospective home buyers’ is down slightly from 14% a year earlier. The drop marks the third consecutive year-over-year decline in the share of adults thinking about buying a home, providing further evidence of a slowdown in the housing market, as potential buyers are held back by the lowest levels of affordability in a decade.“

    http://eyeonhousing.org/wp-content/uploads/2019/07/HOUSING-TRENDS-REPORT-Q219.pdf

    And this with 30 yr. fixed-rate mortgages at historical lows (currently 3.49%)!

    Bullish.

    1. “And this with 30 yr. fixed-rate mortgages at historical lows (currently 3.49%)!”

      Readily a available:

      2.750% | 15 yr$ … & NO as in ($0) clo$ing cost$!

  13. I’m starting to wonder if all the Bitcoin people were right and I’m the fool. Here’s why: It seems the Fed is hell bent on destroying the dollar. We are already so close to zero that they have no room to ease this time like they did last meltdown, yet they are already cutting rates rapidly, and unleashing a tsunami of liquidity. Once they get to zero they’re going to go Zimbabwe, just like China is, because money-printing is all they have.

    At that point it’s over, and we will need a new currency. It is possible that, by that time, Bitcoin is in the hundreds of thousands like some people are saying, because it was the preferred flight to safety along with some precious metals. People want to store things electronically, not lug around a bunch of silver and gold, so Bitcoin is gaining in popularity due to that. A lot of the gold bugs are heavily into it. I’d like to know other people’s honest thoughts about this.

    1. I believe in 2008 they decided to sacrifice the dollar to keep things going as long as possible. But I’m skeptical the plan is bitcoin. Could be. But I’d put my money on something more connected to TPTB. Maybe the new FB coin? Or something we haven’t heard of yet?

      1. I do not think Bitcoin is “the plan,” I just think it may be the beneficiary of this extreme recklessness due to capital flight and the flight to safety. Wall St. is already neck deep in it, and those are some of the wealthiest people in the world.

        1. the flight to safety

          Bitcoin is a video game currency. Whether there is safety in a video game is debatable.

          1. A reckoning still awaits. I suspect gold will do fine; not so much crypto (aka imaginary) currency.

    2. I’d like to know other people’s honest thoughts about this.

      I liked this Planet Money episode on gold:

      “BROWN: Gold is below the level it traded at in the early 1980s – almost 44 years ago – on an inflation-adjusted basis. Everything outperformed it, including Treasury bonds (laughter), including real estate, including – I mean, stocks versus gold over the last four decades – it’s embarrassing. It’s not even worth discussing.”

      “RAFIEYAN: And this moment right now could be gold’s last real hurrah. Josh says gold is getting a little outdated. A lot of younger investors who want an independent, government-free store of wealth now tend to gravitate not to gold but to cryptocurrency, like bitcoin.”

      https://www.npr.org/templates/transcript/transcript.php?storyId=743261869

        1. “Peak financial insanity”

          I’ve been thinking deeply about this for the last couple years. RE to the moon, 1’s and 0’s digital funny money, stawkes highly over valued and subject to gains over mere tweeters that we may or may not be doing something we have or haven’t already done, it all financial insanity and a majority of people now seek safe haven in financial security in the next hype. Guess they have all become casino gamblers… There’s plenty of money to be made right now by DOING real work but most want the get rich quick regardless of how insane the process is. Financial Insanity sums it up perfectly!

          1. There’s plenty of money to be made right now by DOING real work

            Is there though? I mean, we’ve seen that housing price appreciation since 2011 has outpaced wage gains by like something like 4x-5x. So the average Joe/Jane who is working and saving trying to buy a home is getting further and further behind. Unless the bubble fully pops on the low end, the economy makes those who try to work and save for a living out to be suckers. This is the tragedy of our rigged economy.

        2. I own no gold and no crypto. If I was honestly worried about the dollar, I would probably go into real estate with low price-to-rent ratios is non-bubbly areas. It would be a flight-to-real-assets play.

          1. “Is there though? I mean, we’ve seen that housing price appreciation since 2011 has outpaced wage gains by like something like 4x-5x“

            OAM, the housing market was not what I was referring to, that is obviously out of whack and anyone who jumps into RE now deserves to get what’s coming. If they can’t afford it now that will play out to be good for them in the future. Its the mania of “earning” money through pipe dream fantasy schemes like bitcoin. I hear it all the time from people that if they just buy the next crypto, they can retire at 30. The thought of working for for money are long gone for many. The thinking process that “joining” this new revolutionary monetary system have become some people’s reality of what will put them into financial freedom and thus removing them from a current work force that is indeed thriving. It will inevitably slow down at some point but right now we have an economy that can reward the working class if they choose to participate. I just don’t feel many are willing to put in the effort to actually “work” for reward, they choose to cling onto the idea that gambling will suffice.

          2. the idea that gambling will suffice.

            Bitcoin, housing, grilled cheese trucks, Tesla, all mixed up together in one big mania.

          3. The thought of working for for money are long gone for many.

            Agree wholeheartedly. Because of the rigged economy that is skewed toward capital assets rather than labor, we have a very speculative/distorted economy indeed.

          4. Bitcoin, housing, grilled cheese trucks, Tesla, all mixed up together in one big mania.

            You often have such good insights Blue, but this is not one of your better ones.

            Bitcoin = speculative/bubble
            Grilled cheese truck = an actual food product that may/may not work out depending on demographic targeted.
            Tesla = an actual product that some people like, want, and which saves money/time (no oil changes, no gas station, no brake pad replacements) improves the environment.

          5. saves money/time

            From an owner of an S and an X, neither of which are built in a tent:

            “For anyone who wants to say Tesla are cheaper to operate? Spend 7 mins of your life and watch this video. I put it in words and video that exceeds a tweet. It’s important to understand. This is not everything as it would take far longer to explain.”

            https://twitter.com/Stealthwater/status/1169293349863481346

          7. say Tesla are cheaper to operate?

            “serious math issues here”!

            LOL, I paid so much money, it’s supposed to be free. This guy should not be driving when so upset.

            Our own Tesla Guy would prefer to ignore any serious math issues, like how much energy is lost generating electricity, that Elon is losing half a billion a quarter making these rich boy toys, blah, blah, blah. This is how you know it’s a mania.

          8. “Take five minutes to read about how a real car company builds a new manufacturing facility, then come back and stare at this tent.”

            I hope Porsche sells a ton of their Taycans. The specs on the Model S are still superior, but that’s okay. Porche’s real competition are other gas cars. The more compelling EV offerings, the the merrier. The best cars being made are EVs.

            @Redpill Teslas are far cheaper to maintain over time. The data is showing this out. There is a reason they keep winning awards and they have a loyal fan base. I have spent nothing since I purchased mine 7 months ago. Still driving like a charm and about 165 miles per gallon equivalent.

            Economics of EVs Mean Oils days as a Transport Fuel are Numbered

          9. serious math issues

            Is it a problem with math, the delusional assumptions going into the math or a combination of both?

          10. about 165 miles per gallon equivalent

            Are you figuring this out yourself or is the car telling you? In any case, you should send Elon a note about how you have far exceeded everyone’s wildest expectations.

          11. Are you figuring this out yourself or is the car telling you?

            You can figure this out for yourself based on where you live using Idaho National Laboratory chart:

            https://avt.inl.gov/sites/default/files/pdf/fsev/costs.pdf

            Here’s my math:

            $.08 kWh for my electricity.
            Model 3 extended range battery = 75 kWH
            Cost to fully charge battery = $6.00 ($.08 x 75)
            Miles driven on full battery 310, therefore 1 full charge = 2 gallons of gas
            310 mile range / 2 = 155 miles per gallon

            The model 3’s official mile-per-gallon equivalent as tested by the EPA is only 135. However, I get better than that because of our below average electricity costs.

  14. Do troubled times have you going for the gold?

    The Wall Street Journal
    Commodities
    Precious Metals Enjoy Resurgence in Negative-Yield World
    Investors seek assets that can hold their value in troubled times
    By Ira Iosebashvili and
    Amrith Ramkumar
    Updated Sept. 5, 2019 4:40 pm ET

    Investors are piling into precious metals at the fastest clip in years, driven by a plunge in global bond yields that has fueled a search for assets that can hold their value during troubled times.

    Gold purchases by everyone from central banks to retail buyers have boosted the metal to its highest level in six years, with a coterie of famous investors now touting its role as a haven from market turmoil.
    …

    2. With the Keynesian fraudsters at the central banks doubling down on their failed monetary policies, and hell-bent on inflating all government and corporate debt, physical precious metals are a no-brainer. Become your own central bank.

  17. This sounds promising, but I frankly have a hard time envisioning the Trump administration or anyone else fully restoring housing finance to the private sector.

    Trump administration plan to overhaul housing finance system calls for more private sector involvement
    By Jacob Passy
    Published: Sept 6, 2019 9:39 a.m. ET
    Priorities include recapitalizing Fannie Mae and Freddie Mac and ending their conservatorship
    Bloomberg
    If the Trump administration is successful, the era of conservatorship for Fannie Mae and Freddie Mac could draw to a close soon.

    The Trump administration’s vision for housing finance reform is now much clearer.

    The Treasury Department and the Department of Housing and Urban Development, in coordination, each released plans Thursday detailing how the two agencies believe the housing finance system should be reformed. The much-anticipated plans fulfilled President Trump’s request, made back in March through a presidential memorandum, directing Treasury Secretary Steven Mnuchin to create a blueprint for housing finance reform.

    The Treasury Department’s plan includes a series of 49 recommendations focused primarily on ending the conservatorship of Fannie Mae and Freddie Mac, while still guaranteeing support for single- and multifamily lending and affordable housing initiatives.
    …

    1. After the last 12 years, it is hard not to be cynical and expect this to turn into another scam for banks and billionaire fund managers to privatize profits and socialize losses.

      1. Needless to say, I’m not holding my breath. The DJT administration is packed with investment bankers who seem keen to fashion the rules for their own enrichment. I will happily applaud any real effort to reign in the stupidity, but I want to see the details before I cheer anything on.

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