Posts Tagged ‘freddie mac’


Friday, May 9th, 2014

Posted by Leonard Steinberg on May 9th, 2014

The New York Times has an opinion editorial by Peter Dreier about the housing recovery. While housing has recovered extremely well in large Urban centers and some other parts, reports about rising home prices suggest that the tens of millions of people whose homes lost value just have to wait until the recovery reaches their neighborhood to lift them out of crisis. But this housing recovery is bypassing many US cities and towns.

  • The total value of America’s owner-occupied housing remains $3.2 trillion below 2006 levels.
  • 9.8 million households still owe more on their mortgages than the market value of their homes. Thats 20% of all mortgaged homes.
  • Almost five million households that have already suffered through foreclosure since the housing bubble burst in 2007.
  • More than 10 million Americans, spread across 23 states, live in ZIP codes where between 43% and 76% of homeowners are under water.
  • Places with so many underwater homes are toxic; they depress the value of surrounding homes and undermine local governments’ fiscal health.
  • The bulk of the blame lies with banks’ risky, reckless and sometimes illegal lending practices, although blame also lies with reckless, politically motivated government legislation that forced banks to make loans to a much wider group of buyers who probably shouldn’t have bought a home at all…..this editorial strangely omits this point.
  • It was explicit Federal policy to force lenders to make loans in formerly red-lined non-credit worthy areas, to make available mortgage loans of up to, or even more than, the purchase price and to offer “liar loans” with no proof of the ability to repay required. How easily we can forget this. Should those who took on loans responsibly be punished by having to pay for those who knowingly took on more than they could handle?
  • Mortgage brokers lied or misled borrowers about the terms of mortgages, often pushing borrowers into high-interest subprime loans, even when they were eligible for conventional mortgages…..
  • Minority areas were targeted (sometimes encouraged by the Federal government). In 2006, when subprime lending was at its peak, 54% of blacks, 47% of Latinos and 18% of whites received high-priced loans, according to the Federal Reserve Board. Of course no-one was forced to take on these loans.
  • In almost two-thirds of the hardest-hit ZIP codes, African-Americans and Latinos account for at least half of the residents.
  • The banks’ risky loans came crashing down, devastating communities and causing financial havoc. The federal government rescued the banks, but nobody came to the rescue of the communities the banks left behind.

So what is the solution? Banks and other financial institutions should modify underwater mortgages to their current market value, an approach called “principal reduction.” If lenders rewrote the loans to reflect fair-market values, owners would have lower monthly payments, which would free them to put millions of dollars into local economies. Cities would have more stable property tax revenues, and lenders would ultimately benefit by having fewer delinquent loans.

Many banks no longer own the loans they made: They pooled large numbers of subprime loans into private securities and sold them. The companies that service these securities generally refuse to countenance the idea of “principal reduction.” Yes, some homeowners have been able to persuade lenders to reset their loans, but most get the cold shoulder or a bureaucratic runaround.

In 2012, some of the biggest banks signed a settlement agreement with 49 state attorneys general to modify mortgages, but many of them continue to heap abuse on their customers, and sufficient relief has not reached trapped homeowners.

The Obama administration created several initiatives to help troubled borrowers, but these programs do not require banks to reset loans as a condition of getting federal funds…. these initiatives sound nice politically and buy votes, but in reality they are not being enforced.

The government’s Home Affordable Modification Program has helped only one-quarter of the four million homeowners it was supposed to reach.

The federal government has actually been an obstacle to reform: The F. H. A, which oversees Fannie Mae and Freddie Mac, has refused to allow these two mortgage giants to reduce the principal on underwater mortgages that they own or guarantee. All it would take is for President Obama’s new appointee as F.H.F.A. director, former Representative Melvin Watt, to change the policy, an action that does not require congressional approval. He should do so immediately.

Some municipalities have been trying to take matters into their own hands. Late last year, Richmond, Calif., was the first city to develop a plan to use its power of eminent domain to buy underwater mortgages at their current market value and to refinance them, but many other localities are likely to follow. A number of responsible for-profit and nonprofit lenders stand ready to do business with them so that local governments don’t have to use tax dollars to purchase these loans.

Dealing with this problem on a city-by-city basis may not be the most efficient way to confront a national crisis, but in the face of Wall Street intransigence and federal indifference, cities have had to find their own way to restore the lost wealth of their constituents.

Until the housing mess is cleaned up, the US economic recovery will remain weak and benefit only a small segment of the country. Cleaned up, the economy would SOAR.



Wednesday, April 25th, 2012

Posted by Leonard Steinberg on April 24th, 2012

The press is reporting that the U.S. homeownership rate may fall two percentage points to 64 percent, below historic norms, amid about six million additional foreclosures and tight lending standards, according to Pacific Investment Management Co.’s Scott Simon. This translates to about 4 million homeowners turning into renters.

Homeownership has declined from 69.2 percent in 2004, the highest on record, after loose credit and soaring property values drew buyers into the market, according to the Census Bureau. While owning is now “incredibly cheap” compared with renting for consumers who can qualify for loans, relatively few Americans can take advantage of the opportunity. The proportion of Americans owning their homes averaged 64.5 percent in the 1970s and 1980s. U.S. home prices are down 35 percent on average from a 2006 peak, after declining in February to the lowest since 2002, according to S&P/Case-Shiller index data on value in 20 markets released today. Prices are poised to drop an additional three or four percent before bottoming during the next 12 months according to Simon.

While many blame the glut of approximately 4 million homes that were over-built on reckless homeowners/buyers, the actions of banks and the inaction of government, especially Freddie Mac and Fannie Mae, I think a large chunk of the blame lies on the charlatans (TV shows, info-mmercials, books, advisers, TV personalities, brokers, friends, etc) who peddled the concept of home-buying as a Las Vegas-style gambling hall: This vast pool of ‘flippers’ helped fuel unrealistic, unjustified price gains that fueled an unrealistic volume of building. Fortunately for Manhattan, the pool of investor buyers was very, very small, and for the most part the investors were very wealthy. With New York comprising approximately 70% of rental properties the chances for over-building condos was always automatically minimized, although not all escaped unscathed. The last 3 years have proven to be the GREAT EQUALIZER, showcasing how those properties that experienced price escalation just because of averages, have dropped in value, while many that were somewhat depressed by these averages have soared. Yes, some properties will see a 6-10% price escalation in 2012: Others will not, and some may even see a small decline.

Personally, I am witnessing broad RENTER FATIGUE in New York: The New York Times recently addressed this issue how for the first time in years, many renters faced with increasing rents are turning to homeownership (with low rate financing) as a very viable alternative. I am seeing this on all ends of the budget spectrum. So while we all said that things would never be the same 3 years ago, I feel homeownership as the ultimate goal will return to the US, and rates of ownership will start to rise in about 3 years as the cycle unfolds…….in short, I think the trend towards renting versus owning is a temporary one.


Friday, February 3rd, 2012

Posted by Leonard Steinberg on February 3rd, 2012

Miracles do happen: the Senate voted Thursday to strengthen insider-trading bans for its members (the kind of law that applies to non-elected citizens of our land), and in the process agreed to ban bonuses for Fannie Mae and Freddie Mac executives.

The Senate overwhelmingly passed on a 96-3 vote the Stop Trading On Congressional Knowledge (STOCK) Act. What astounds me is that three senators had the gall to oppose this ban:  Sens. Tom Coburn of Oklahoma and Richard Burr of North Carolina, both Republicans, and Sen. Jeff Bingaman, New Mexico Democrat opposed it. I have to wonder why, and just how quickly these thugs can be voted out of office.

Sen. John McCain, Arizona Republican, scored a win with his amendment to ban Fannie and Freddie bonuses, after sponsors of the legislation had urged their colleagues to avoid proposing unrelated pet projects — a request that was promptly ignored by members of both parties.

The legislation, which President Obama called for in his State of the Union address, specifies that members of Congress are subject to an existing 1934 law banning trading based on insider information. Of course the proposed legislation banning earmarks was removed: who would want to remove their ability to send frivolous (taxpayer paid) gifts back home?

Martha Stewart must feel a lot better this morning: I bet she is savoring a batch of freshly baked muffins with a huge smile!


Saturday, November 19th, 2011

Posted by Leonard Steinberg on November 19, 2011

Republican presidential candidate Newt Gingrich, certainly one of the most eloquent, informed and intelligent of all the Republican candidates, is now embroiled in a rather major embarrassment: After consistently and repeatedly blaming Freddie Mac and Fannie Mae for the Housing Bust that still wreaks havoc on our economy, it has been revealed that he and his firm acted as an advisor to both entities, raking in fees estimated to be somewhere between $ 1,5 and 1,8million. Oops!

Before Gingrich was hired, Freddie Mac paid $2 million to a Republican consulting firm in the hopes of killing legislation that would have regulated and
trimmed both companies. The legislation died without coming to a vote in the Senate. But the danger of regulation wasn’t dead, so Freddie Mac hired more consultants, Gingrich among them. Fannie Mae and Freddie Mac had traditionally purchased a small number of subprime mortgage loans, which involved borrowers with credit problems who could  not qualify for cheaper prime loans. But starting in the late 1990s many firms started purchasing subprime loans, and Fannie and Freddie followed suit.

Some argue that it wasn’t Fannie’s and Freddie’s fault that a bubble formed around mortgage values, then burst; some even argue that it wasn’t the banks’ fault either…..although that is extremely hard to believe. Many lay the biggest blame on the U.S. Congress, both sides of the aisle, that pressured these and other institutions to make credit easily available to anybody for purposes of purchasing a home, regardless of actual credit worthiness. This availability of absurdly easy credit inflated markets and property values to bubble proportions, indebted a large proportion of American households beyond their capacity to ever recover, and set the stage for the inevitable explosion. It also allowed the politicians to claim to their constituencies that they were actually doing something besides collecting a paycheck, and thereby increased their chances of re-election.

It is not and never was the legitimate role of government to manipulate credit markets to increase home ownership levels. I will however say that the blame for the housing crisis is shared by many:  Freddie Mac, Fannie Mae, the US Congress (all of them!), the banks that encouraged loans to highly unqualified buyers, the banks that made loans that were designed to make buyers default by excessive rising interest rates, the bankers that sold loans knowing they were junk and betting against them then, the Federal reserve, presidents Clinton, Bush and Obama, mortgage brokers for forcing up the purchasing power of buyers, appraisers for over-valueing properties artificially, real estate brokers for encouraging buyers to over-extend themselves, buyers who speculated, buyers who used their homes as ATM machines drawing funds from their home equity for vacations and Ferrari’s, buyers who knew they could not afford what they were buying but bet they would earn more in a few years, our education system (and parents)for not educating people to be more responsible with their money…..the list goes on. And now back to Newt….

Mr. Gingrich, for someone as intelligent and informed as you are, it is simply not believeable that you were unaware of what you were doing as part of this meltdown, and worse, it’s really hypocritical of you to lambast all the other guilty parties while not admitting your share of the blame.  Unlike some of your couterparts, we simply don’t believe the facts are twirling around in your head… are smart, and have an outstanding memory. The US voters don’t (which could work to your benefit considering Conservatism does not only apply to fiscal policy).

During the 2008 campaign, Gingrich suggested in a Fox News interview that presidential candidate Obama should return contributions he had received from executives of Fannie and Freddie……that was good advice then, and its good advice now. Just come clean: admit you thrived off this dirty ‘system’ too and repent. The truth may set you free and maybe you can inspire all other guilty parties, and there are many, to do the same. Lord knows the world has forgiven you of a host of worse sins, although self righteousness is way up there.


Tuesday, August 17th, 2010

While politicians bury their heads in the sand and focus on pointing fingers for blame, building mosques and Bristol Palin, the single largest problem our economy is dealing with is still housing. Until we have a solid plan in place to clean up the housing mess and a solidly revised plan for the future of financing housing, the chance of future financial meltdowns remains strong and certain.  We MUST remove politics from this debate: voters should insist on it. The lax laws governing qualifying for housing financing has cost this country way too much. And both parties are to blame for this in their embarrassing quest for power.

Reuters reports that the Obama administration called for “fundamental change” at Fannie Mae and Freddie Mac, but a long, politically explosive debate lies ahead on the future of the bailed-out mortgage finance giants and U.S. housing policy.

U.S. Treasury Secretary Timothy Geithner on Tuesday raised basic questions with housing industry leaders about the U.S. government’s long-standing role in subsidizing and supporting the $10.7 trillion housing market.

“It is not tenable to leave in place the system we have today,” Geithner said at a conference hosted by the Treasury Department almost two years after the government seized Fannie Mae and Freddie Mac to save them from collapse.

Since then, the two firms have received nearly $150 billion in taxpayer bailout money and have been placed in conservatorship, sharply restricting their past activities.

“We will not support returning Fannie and Freddie to the role they played before conservatorship, where they took market share from private competitors while enjoying the perception of government support,” Geithner said.

“We will not support a return to the system where private gains are subsidized by taxpayer losses.”

The conference, with some of the mortgage sector’s top lenders and investors, is billed as a “listening session” for the administration to gather ideas as it develops an overhaul plan by January. No major changes are expected before 2011.

“It’s safe to say there’s no clear consensus yet on how best to design a new system,” Geithner said. “But this administration will side with those who want fundamental change.”

With Congress focused on elections in November, federal spending coffers depleted and nerves on edge about changes that could trigger another housing crash, lawmakers looked likely to move slowly on overhauling housing finance, analysts said.

Enthusiasm in some quarters for removing government from housing finance was certain to collide with the political reality that housing subsides, such as the mortgage interest deduction, are deeply entrenched facets of U.S. economic life.

The problems and costs of Fannie Mae and Freddie Mac were not addressed in the sweeping Wall Street reform legislation approved by the U.S. Congress in July — a yawning gap in the Democratic bill that Republicans have sharply criticized.

Bank and mortgage-backed securities investors are watching warily as the administration weighs options, ranging from full nationalization at one extreme to privatization with no government support at the other, and alternatives in between.

Geithner said there is a strong case for a carefully designed government guarantee for mortgages, and that a key question will be whether the private sector can provide a form of insurance or guarantee on its own.

“The challenge is to make sure than any government guarantee is priced to cover the risk of losses, and structured to minimize taxpayer exposure,” Geithner said.

A government guarantee is considered essential to at least one major investor — Bill Gross, co-founder of bond-trading firm Pacific Investment Management Co. Gross told the housing conference participants that a government guarantee is needed to keep mortgages affordable.

Geithner also said government should reassess how it promotes access to affordable housing.

Shaun Donovan, secretary of Housing and Urban Development, told the conference the government’s “footprint” in housing finance needs to be much smaller than it is today.

Fannie Mae, Freddie Mac and the Federal Housing Administration now back 90 percent of new U.S. home mortgages, he added.

Geithner stressed a smooth transition period so as not to disrupt the fragile housing market. “As we go through this transition, it is important that consumers maintain access to credit at attractive rates,” he said.

Fannie Mae and Freddie Mac both jumped into subprime mortgages during the housing boom in the early 2000s in an attempt to broaden home ownership — with disastrous results.

Participants at the conference included executives from Wells Fargo and Bank of America, as well as Lewis Ranieri, who helped develop the model for the private mortgage-backed securities market that was central to the housing bubble that burst in 2007-2008.

The conference occurred a day after U.S. home-builder sentiment unexpectedly fell for a third straight month in August to its lowest level in nearly 1-1/2 years, according to a survey that added to evidence of slowing economic recovery.

A stubborn housing crisis is likely to weigh on voters already concerned about a sluggish economy headed into November elections.

Across America, the average congressional district has more than 9 percent of its mortgages delinquent by 90 days or more, according to a study by Deutsche Bank. That’s more than 2-1/2 times the delinquency rate on election day in 2008