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Posts Tagged ‘Federal Housing Finance Agency’

Is The Clock Getting ‘Close to Midnight’ for FHLB-Seattle?

Posted by Larry Doyle on October 26th, 2010 5:46 AM |

All financial accounting charades to the contrary, the reality of a decaying asset quality and insufficient capital position will cause any institution to quiver. With more banking institutions declaring bankruptcy each and every week, the clock has yet to strike twelve on any of our larger banking institutions. That said, the pressure is certainly mounting on a large west coast institution, that being the Federal Home Loan Bank of Seattle.

I first addressed issues within this specific institution 18 months ago when writing, Putting Perfume on a Pig. I highlighted at that time:

Who gets this? Charles Bowsher, who resigned just last week as chairman of the Federal Home Loan Banks Office of Finance. Bloomberg’s Jonathan Weil does yeoman work in profiling Mr. Bowsher and the joke that is FHLB accounting: (more…)

12th Street Capital Provides Perspective on the Foreclosure Fiasco

Posted by Larry Doyle on October 22nd, 2010 11:23 AM |

What the hell is truly going on within the entire mortgage foreclosure fiasco? There are seemingly more angles to this mess than there ever were choices of mortgage products themselves. Where can we turn to make some ‘sense’ of this madness? Let’s check in with the crowd on the cutting edge of this sinkhole, that is our friends at 12th Street Capital. Today they write,

Not surprisingly the ones that look to be best positioned during this mortgage foreclosure/put back fiasco are the lawyers. As reported by HousingWire.com late yesterday, “A spokesperson for the New York law firm Quinn, Emanuel Urquhart & Sullivan confirmed to HousingWire it has been hired by the Federal Housing Finance Agency, a move some say means the government-sponsored enterprises are going after bad mortgages it bought from originators.” Guess what, the GSEs have ALWAYS pursued repurchases. (more…)

Mortgage Servicers Are Hugely Conflicted

Posted by Larry Doyle on July 23rd, 2010 12:57 PM |

Information is everything. Those who control the information have immense power. The allegiances of those in control of the info obviously have an enormous impact on how the information is processed and dispensed. The potential for conflicts of interest are significant. Standard business fare, correct? Have these conflicts played out on Wall Street? All too often. How so?

I have repeatedly highlighted the conflicts within our financial regulatory structure. We also know that the credit rating agencies have been enormously conflicted. Anywhere else? Let’s enter the world of mortgage servicing, ….. (more…)

Are Fannie and Freddie Going to Sue Wall Street?

Posted by Larry Doyle on July 12th, 2010 3:21 PM |

Are there some dark legal clouds beginning to hover over the Wall Street landscape? How so? The threats of impending lawsuits are never a forecast any individual, entity, or industry care to entertain. Like it or not, Wall Street is beginning to get some ground cover in the forms of pending legal actions.

While a large mortgage investor, Cambridge Place Investment Management, recently filed a complaint against virtually every firm on Wall Street in the Massachusetts courts, today we see none other than our ‘wards of the state’ Fannie Mae and Freddie Mac preparing the initial steps to bring suit against Wall Street. Could it be possible that Fannie and Freddie would sue Wall Street? Is a potential lawsuit political cover for Uncle Sam? Who knows? (more…)

Fannie and Freddie Ordered to Delist from NYSE

Posted by Larry Doyle on June 16th, 2010 11:28 AM |

Fannie and Freddie don’t live here anymore.

News just broke that the stocks of our two government stepchildren, Fannie Mae and Freddie Mac, have been ordered to delist from the NYSE. The Washington Post reports, Fannie Mae, Freddie Mac to Delist Shares from NYSE:

The companies’ regulator, the Federal Housing Finance Agency, said Wednesday that it expects Fannie Mae and Freddie Mac shares to trade on the Over-the-Counter Bulletin Board, an electronic quotation service. (more…)

Sleepless in Seattle . . . FHLB-Seattle, That Is

Posted by Larry Doyle on November 10th, 2009 4:28 PM |

Having broached expectant difficulties in the Federal Home Loan Bank system last spring, I try to keep a close eye out for news of note on this largely unknown – but critically important – system of banks. To a large extent, the FHLBs have been flying under the radar despite some serious problems within their investment portfolios and loan books.

High five to KD for pointing out that the folks at FHLB-Seattle probably are not getting much sleep these days. Why is that? Insufficient capital will do it to you every time. As the American Banker offers, FHLB Seattle Still “Undercapitalized,” Regulator Says:

The Federal Housing Finance Agency said late Friday that the Federal Home Loan Bank of Seattle remains “undercapitalized” and will not be allowed to redeem or repurchase stock or pay dividends.

At the end of 2004, as the bank struggled with the size of its mortgage purchase program, it said members who wish to redeem their stock must wait five years before receiving their money.

But with that time period almost up, the Finance Agency said it would not allow the bank to begin redeeming stock, fearing it could lower its capital base. (more…)

All Is Quiet On the Freddie Mac Front

Posted by Larry Doyle on October 23rd, 2009 12:03 PM |

The twists and turns along the landscape of the Uncle Sam economy remain ever challenging. How so?

What is an investor to do if he desires to sue an entity that is now part of Uncle Sam’s portfolio? If that is not challenging enough, how does one proceed with the process of discovery if those who could and want to share information have a gag order imposed upon them? What is going on here? Welcome to the world of Freddie Mac investors circa 2009.

In the process of failing, did Freddie Mac’s management engage in illegal and fraudulent activities by misrepresenting the overall health of the company? Did they misrepresent the risks embedded in the portfolio? Many investors believe that to be the case and are considering bringing suit. Who possesses a lot of very useful information? Former employees. Not unlike former employees of many companies, Freddie Mac employees were required to sign departure agreements which compelled them to not share company information. If the employee does speak, he runs the risk of losing his severance. This experience is very common in corporate America. That said, Freddie Mac’s failure hardly represents corporate America. The New York Times addresses this legal and financial entanglement by writing, Freddie Mac’s Secrecy Pacts Face Court Test:

One year after the government took over and bailed out Freddie Mac, the giant mortgage finance company, federal regulators are blocking former employees from revealing information to investors who are suing the company for fraud, lawyers for shareholders say.

The Treasury has propped up Freddie Mac with more than $50 billion in taxpayer money since the company nearly collapsed more than a year ago, and officials warn that the company will probably need additional billions in the months ahead.

Federal prosecutors in Virginia and the Securities and Exchange Commission are already investigating whether the company misled investors about the risks it was taking with securities backed by subprime mortgages and no-document loans.

But in a battle that will surface on Friday in a federal courtroom in New York, the company and its primary government overseer, the Federal Housing Finance Agency, are trying to enforce secrecy agreements that scores of former employees signed as a condition for receiving severance payments when they left the company.

In their class-action lawsuit against Freddie Mac, three big union-based pension funds charge that Freddie Mac executives defrauded investors by concealing the company’s exposure to high-risk mortgages, its mounting losses and its inadequate capital position.

At the hearing on Friday, lawyers for shareholders will argue that Freddie Mac’s secrecy agreements amount to buying silence from willing witnesses who may have crucial information about what the company’s top executives knew at the time they were assuring investors that all was well. The lawyers will ask a judge to invalidate the restrictions, a move that Freddie Mac and federal regulators will say the court has no right to do.

“Federal dollars are being used to bribe people, to buy their silence,” said David George, a lawyer representing the pension funds in a class-action lawsuit.

Wow. Our country is sinking to new depths when we have an arm of the government openly working to prevent the truth from being revealed. To this point, the blockage of the truth would typically take place behind the scenes.

For those Freddie Mac employees who would like to share the truth as to what transpired, are they wondering ‘where did my country go?’

LD

Cox’s Last Stand

Posted by Larry Doyle on June 2nd, 2009 3:02 PM |

Chris Cox’s tenure as chair of the SEC was not highly regarded. From the debacle with the Bernie Madoff situation, to the failure of Lehman Bros., to the fraud encompassing Auction Rate Securities, the SEC under Cox was reduced to a kangaroo court. Knowing full well that he and his regime at the SEC would largely be held in contempt, it appears that Cox attempted to salvage some degree of respect as he prepared to depart. How so? Bloomberg reports Cox Questioned Fannie, Freddie Oversight While At SEC:

Christopher Cox, in one of his last acts as Securities and Exchange Commission chairman, took Fannie Mae and Freddie Mac’s regulator to task in a letter questioning whether the agency was upholding its legal duty to “preserve and conserve” the mortgage companies’ assets.

Cox asked in the Jan. 16 letter to Federal Housing Finance Agency Director James Lockhart whether the government-sponsored enterprises were being pressed too hard to bolster U.S. housing markets at the expense of profits. As a member of an oversight board advising Lockhart, Cox urged Lockhart to develop an “exit strategy” from government conservatorship that would restore the companies’ finances.

Cox’s questioning of the motivation and practices of the FHFA eerily reminds us of the pressures applied to Freddie Mac CFO David Kellerman prior to his taking his life. Clearly, Cox and Kellerman were uncomfortable in the approach and practices promoted by Uncle Sam. As The New York Times reported on April 22, 2009, Reported Suicide is Latest Shock at Freddie Mac:

Mr. Kellermann was also working in a poisonous political atmosphere. In addition to taking criticism over the bonuses, he was recently involved in tense conversations with the company’s federal regulator over its routine financial disclosures, according to people close to those discussions who also spoke on condition of anonymity. Freddie Mac executives wanted to emphasize to investors that they believed the company was being run to benefit the government, rather than shareholders. The company’s regulator, the Federal Housing Finance Authority, had pushed to play down that language. Freddie Mac reported to the Securities and Exchange Commission that changes it had made in practices to help the government “have increased our expenses or caused us to forgo revenue opportunities.”

In a very similar fashion, Bloomberg today reports:

The letter from Cox, which hasn’t been made public, underscores the tension between Fannie Mae and Freddie Mac’s responsibilities to investors and government demands that they help end the worst housing crisis since the Great Depression. The issues facing the companies, saddled with seven consecutive quarters of losses totaling $150 billion, will be examined by a House panel tomorrow.

Certainly both Cox and Kellerman felt seriously troubled and conflicted between their roles and responsibilities and the goals of the government programs. The government programs have amounted to a massive redistribution of wealth to select American homeowners from investors, with the ultimate burden being assumed by American taxpayers.

Cox is trying to defend what is left of his reputation by shedding light on the magnitude of the “red sea” of embedded losses at Freddie and Fannie. Over and above that, the systemic risk posed by Freddie and Fannie has very real risk for other quasi-government agencies. Bloomberg addresses all of the possible consequences:

Failure to make Fannie Mae and Freddie Mac financially sound would impose expanded burdens on the Treasury and private debt markets because their $1.7 trillion in unsecured debt and $4 trillion in mortgage bonds are so widely held, he said. The government would bear responsibility even though the companies’ liabilities aren’t technically backed by its full faith and credit, he wrote.

The U.S. may be forced to assume the companies’ liabilities, increasing the $11.3 trillion in outstanding U.S. debt by about 50 percent and hampering the Treasury’s ability to borrow, Cox said.

If the government chose not to back Fannie Mae and Freddie Mac’s debt and they defaulted, Cox said there may be “significant impact on both the Treasury market as well as the agency market, including the Federal Home Loan Banks, the Farm Credit System and the Tennessee Valley Authority.

While Chris Cox has now been relegated to a punching bag in the pursuit of regulatory reform, he should be commended for drawing attention to the ugly underside of our financial system embodied by Freddie, Fannie, and their cousins FHLB, FCS, and TVA.

LD






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