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Posts Tagged ‘Freddie Mac and Fannie Mae’s downfall and decline’

Barack and Barney Look to Further Plunder Freddie and Fannie

Posted by Larry Doyle on June 22nd, 2009 2:31 PM |

When a homeowner goes out without locking his doors and leaving some lights on, he is inviting trouble.

In a similar fashion, the American public should prepare itself for a continued plundering of the portfolios and balance sheets of Freddie Mac and Fannie Mae by our leading housing finance gurus, Barack Obama and Barney Frank.

The scene is already set for our dynamic duo to pile an ever increasing amount of risk onto these “wards of the state.” How so?

1. While Freddie and Fannie are very much the responsibility of Uncle Sam, their balance sheets are not technically on Uncle Sam’s roll. That ‘cover’ provides a convenient disguise, but the fact is these ‘foster children’ are now nothing more than receptacles for more of Uncle Sam’s risky undertakings.

2. Neither the media nor the political opposition truly call them on these financial charades.

We learn today that both Barack and Barney have grand visions to add more high risk loans at mispriced rates onto Freddie and Fannie’s books. The Wall Street Journal offers,  Changes Urged to Rules on Condo Loans:

Two Democratic lawmakers are calling on Fannie Mae and Freddie Mac to relax recently tightened standards for mortgages on new condominiums, saying they could threaten the viability of some developments and slow the housing-market recovery.

In March, Fannie Mae said it would no longer guarantee mortgages on condos in buildings where fewer than 70% of the units have been sold, up from 51%. Fannie Mae also won’t purchase mortgages in buildings where 15% of owners are delinquent on condo association dues or where one owner has more than 10% of units, which the firm sees as signals that a building could run into financial trouble. Freddie Mac will implement similar policies next month.

In a letter to the chief executives of Fannie and Freddie, Reps. Barney Frank, the Massachusetts Democrat who is chairman of the House Financial Services Committee, and Anthony Weiner (D., N.Y.) warned that the 70% sales threshold “may be too onerous” and could lead condo buyers to shun new developments. The legislators asked the companies to “make appropriate adjustments” to their underwriting standards for condos.

What does Barney Frank truly know about housing finance? This assessment is an elongated statement similar in style to Frank’s now famous approach to sub-prime lending back in September, 2003. Barney proposed, “I want to roll the dice.”  America crapped out on that roll. Now in the height of hypocrisy, Barney is still providing insights and recommendations on mortgage topics. What’s wrong with this picture? (more…)

A Wall St. Insider’s View of Freddie/Fannie

Posted by Larry Doyle on October 16th, 2008 6:00 AM |

I am happy to provide you with a full accounting of what occurred from the late ’90s to the present.

–The repeal of Glass-Stegall (GLBA) is a total non-event in the midst of the current economic turmoil. What this repeal did was allow commercial banks to get more deeply involved with investment banking activities. Thus, JP Morgan, Citigroup, Bank of America were able to utilize their significant balance sheets and capital bases to become a force on Wall Street. Fast forward ten years and it is those institutions that are now thankfully supporting and bailing out our system.

–Throughout the 90s and into the early part of this century, Freddie Mac and Fannie Mae were utilizing their significant lobbying power to gain an ever increasing portion of the overall U.S. mortgage market. They had the enormous advantage of being able to borrow at just marginally over U.S, government rates given the “implied” but not explicit backing of Uncle Sam. I mean, come on. That worst case scenario could never come to pass!!

While Freddie and Fannie were designed to provide liquidity to the market in the form of bundling mortgages into securities, charging a guarantee fee for return of principal to the investors in these MBS, and then selling the MBS into the private market, they decided to “grow their business”. Just how did they grow? Given their ability to borrow at very cheap rates they decided to effectively grow their own internal portfolios. This business model was nothing more than a massively levered hedge fund under the guise of “helping the homowner”. (more…)






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