ANALYSIS-Social agenda true hurdle to US housing finance reform
By Al Yoon
NEW YORK, Aug 18 (Reuters) – In March of 2000, American homeowners got a scare.
Gary Gensler, a U.S. Treasury undersecretary, threw his support behind legislation whose impact could have jacked mortgage rates up to levels that would fly in the face of what lawmakers say is good for the nation: expanding homeownership.
He wanted Treasury to cut ties with Fannie Mae and Freddie Mac — companies whose federal charters make them the key vehicles for Washington’s housing policy and mortgage market intervention.
It was a test of the companies’ political backing, and the companies won. Lobbyists killed the effort amid a housing boom cheered by homebuyers and their political representatives, underscoring the power of the American dream of home ownership and its ability to drive the political and financial agenda.
One decade and a wrenching financial crisis later, social agendas remain the stumbling block for the “fundamental change” demanded on Tuesday by the Obama administration as it tries to fix a housing finance system central to a crisis rivaled only by the Great Depression.
Treasury Secretary Timothy Geithner, addressing major lenders and investors, advocated a government role in reforms needed to cushion the economy and raised the question of whether the private sector could provide a home financing regime with enough safeguards to avoid another crisis.
ANALYSIS – US mortgage investors see headway on second-lien write downs
By Al Yoon
NEW YORK, April 12 (Reuters) – On March 17, 2009, a group of mortgage bond investors worried about the losses they could suffer as a result of U.S. foreclosure prevention plans asked top bankers to share the pain by taking some write-downs on $450 billion in home equity loans.
But the bankers said they would talk only after the investors first allowed modifications on their primary loans as prescribed under the Obama administration’s Home Affordable Modification Program, according to a trader who attended the meeting at the American Securitization Forum in New York.
Thus began a year of frustration for the investors, such as asset manager BlackRock Inc, who claim their rights as primary mortgage holders have been trampled by the foreclosure program that let second-lien holders off the hook. Most agreed that the program, known as HAMP, was good policy, but balked at who sustained losses and when.
“It doesn’t make sense,” said Scott Simon, a managing director at Pacific Investment Management Co., in Newport Beach, California. “You’d think if you are first lien holder you’d be in first lien position.”
More than a year later, investors whose losses would be lessened if banks took write-downs on second-lien mortgages are getting some attention, after being stonewalled by banks and regulators, according to the trader who attended the meeting with bankers. The change comes as they are being asked to help restore private credit to the U.S. housing finance system, which is costing taxpayers a bundle.
Some $126 billion of government bailouts for top U.S. mortgage finance companies Fannie Mae and Freddie Mac has raised an awareness of the cost of defaults and loan modifications. And Fannie and Freddie have warned that they will continue to need further government support through 2010.
SCENARIOS – Reshaping Fannie Mae and Freddie Mac
WASHINGTON, March 22 (Reuters) – Treasury Secretary Timothy Geithner is expected to lay out the Obama administration’s broad vision for restructuring mortgage finance giants Fannie Mae and Freddie Mac on Tuesday in congressional testimony.
Geithner has said that any specific legislative proposals will not come until 2011 at the earliest. His testimony before the House Financial Services Committee on Tuesday is expected to be the first step in a long journey to make changes to the existing housing finance system.
The government seized Fannie and Freddie at the height of the financial crisis, in what at the time was said to be a temporary measure to ensure credit remained available for homebuyers.
Last fall, the U.S. Government Accountability Office said that move will likely muddy efforts to restructure the two companies, which own or guarantee about half of U.S. residential mortgages.
The GAO said the two government-sponsored enterprises have a mixed record in meeting their mission to foster affordable housing, and that both capital and risk management deficiencies had compromised their safety and soundness.
The GAO analysis examined a series of options that could be considered for Fannie Mae and Freddie Mac.
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Fannie, Freddie to clear interest rate swaps
By Ann Saphir BOCA RATON, Fla., March 11 (Reuters) - Fannie Mae and Freddie Mac, the mortgage-funding giants that were seized by the government in September 2008, will start using central counterparty clearing this year in a move that could mark a seismic shift in the $400 trillion global swaps market. (more…)
Fannie, Freddie regulator pitches new housing goals
By Al Yoon
NEW YORK, Feb 17 (Reuters) – The federal regulator of Fannie Mae and Freddie Mac on Wednesday proposed an overhaul of government rules on how the mortgage funding giants serve low-income homeowners while limiting their risks.
The Federal Housing Finance Agency wants new goals that would target borrowers with lower incomes than in the past — including families with incomes at or below 80 percent of their area’s median, down from 100 percent — while giving Fannie Mae and Freddie Mac more flexibility in measuring success.
In a twist from past practices, the proposals would prohibit Fannie Mae and Freddie Mac, the two biggest sources of U.S. housing finance, from buying home equity loans and Wall Street’s mortgage securities to satisfy the goals.
Analysts said the proposals are likely aimed to balance the companies’ support of the housing market while preventing them from making hazardous expansions to fulfill requirements.
Both companies are still reeling from purchases of some of the riskiest loans during the housing boom, which have caused billions of dollars in losses that are now being subsidized by the U.S. Treasury.
Fannie Mae and Freddie Mac, which were seized by the government in September 2008 after losses threatened their ability to stabilize a faltering housing market, agree to purchase mortgages outright from lenders or to bundle them into mortgage securities. Those practices relieve banks of the risks of the mortgages and free up banks’ balance sheets to allow them to make more loans.
US to focus on housing stability in reform of Fannie Mae, Freddie Mac – Barr
(Adds background, comment)
By Al Yoon
WASHINGTON, Feb 1 (Reuters) – The Obama administration must ensure U.S. housing market stability is retained as it reforms the nation’s two largest providers of home mortgage credit, a top Treasury Department official said on Monday.
The administration will further outline principles that will guide the reforms of Fannie Mae and Freddie Mac, two government-sponsored enterprises, said Michael Barr, the Treasury’s assistant secretary for financial institutions.
“We want to be sure, that as we move to reform the GSEs, we are focused on retaining strong market stability in our housing sector,” Barr told a conference of the American Securitization Forum, a group that promotes interest in the public and private bond markets.
Barr’s comments came after Obama’s fiscal 2011 budget proposal was short on details of how it would rework the GSEs, which have incurred billions of dollars in taxpayer losses under a model that accepts government support but rewards private shareholders.
Speaking to the ASF, Barr also said that private sources of credit must also do more to win investor confidence and reform their markets that created some of the riskiest mortgages and fueled the worst financial crisis since the Great Depression.
US Rep Frank sees ending Fannie Mae, Freddie Mac in current form
WASHINGTON, Jan 22 (Reuters) – Mortgage giants Fannie Mae and Freddie Mac are likely to be abolished in their current form, a key lawmaker in the U.S. House of Representatives said on Friday.
“I believe this committee will be recommending abolishing Fannie Mae and Freddie Mac in its current form and coming up with a whole new system of housing finance. That is the approach rather than the piecemeal one,” said Representative Barney Frank, chairman of the powerful House Financial Services Committee and a Massachusetts Democrat.
Frank made the comments at hearing on executive compensation. He later told reporters he will hold hearings on the housing finance market and then move to a restructuring of Fannie Mae and Freddie Mac. He said he would look at Federal home loan banks and the structure of the Federal Housing Administration and Ginnie Mae.
Treasury Secretary Timothy Geithner on Thursday said the Obama administration is committed to “reforms” of the GSEs, but said it would likely not be until 2011 until substantive changes are made.
“I don’t think we’re going to be able to legislate that until that process can start, until next year, because it’s just a complicated thing to get right,” Geithner said in an interview with PBS Television.
“But we are completely supportive and agree completely with the need to make sure that we take a cold, hard look at what the future of those institutions should be in our country,” Geithner said.
(Reporting by Rachelle Younglai and Corbett B. Daly; Editing by Andrew Hay) ((corbett.daly@thomsonreuters.com; +1-202-310-5487)) ((Multimedia versions of Reuters Top News are now available for: * 3000 Xtra: visit http://topnews.session.rservices.com
Unlimited credit for Fannie, Freddie seen as backdoor U.S. bailout
By Corbett B. Daly
WASHINGTON, Jan 5 (Reuters) – At a hearing last fall, U.S. Treasury Secretary Timothy Geithner told lawmakers that he and his team were working to put the $700 billion financial bailout fund “out of its misery.” But some in Washington now see a second, backdoor bailout in its place.
On Dec. 24, the Obama administration announced it was extending an unlimited credit line to mortgage finance agencies Fannie Mae and Freddie Mac, which would keep them afloat no matter how high their losses.
Representative Dennis Kucinich, an Ohio Democrat who was an early opponent of Obama in the 2008 presidential race, thinks the move is backdoor way to help banks, and a congressional subcommittee he leads is investigating the Treasury’s decision to cover unlimited losses at the housing finance companies.
“This new authority must be used responsibly and for the benefit of American families,” Kucinich said. It “cannot be used simply to purchase toxic assets at inflated prices, thus transferring the losses to the U. S. taxpayers and acting as a backdoor TARP.”
That’s exactly what Treasury is doing, says Dean Baker, co-director of the Center for Economic Policy Research in Washington.
“This looks like the original TARP,” Baker said, referring to $700 billion financial rescue fund, known officially as the Troubled Asset Relief Program.
US pay czar: Fannie Mae, Freddie Mac unique when it comes to pay
WASHINGTON, Dec 30 (Reuters) – Mortgage finance firms Fannie Mae and Freddie Mac face a unique set of problems that distinguish them from other companies receiving government aid when it comes to setting executive pay, the Obama administration’s pay czar said on Wednesday.
The two government-controlled companies, which have tapped Treasury credit lines to the tune of a combined $111 billion, said last week they would pay their CEOs up to $6 million in cash for this year.
Kenneth Feinberg, the Treasury Department official charged with overseeing executive pay at firms receiving aid from the government’s $700 billion bailout fund, told CNBC the uncertainty over the future of the mortgage finance companies was one factor that made their situation unique.
While Feinberg has been forcing companies under his jurisdiction to center compensation more heavily on long-term stock, he said it was fair that the regulator for Fannie Mae and Freddie Mac had approved cash compensation.
“One, there is no stock, so all of the compensation needs to be in cash … And secondly, the future of Fannie and Freddie politically remains very uncertain and as a result of that, it’s very difficult to convince people to come to work for Fannie and Freddie when they don’t know how long there will even be a Fannie and Freddie,” he said.
Fannie Mae’s stock closed at $1.16 a share on Wednesday, while Freddie Mac’s stock ended at $1.42, making it unattractive as part of a compensation package, particularly given the uncertain future both firms face.
The Obama administration has said it would lay out its vision for the companies, which were seized by the government in September 2008, in February.
BREAKINGVIEWS-US forges risky new weapon for mortgage battle
– The author is a Reuters Breakingviews columnist. The opinions expressed are his own –
By Rolfe Winkler
NEW YORK, Dec 29 (Reuters Breakingviews) – Uncle Sam is adding a risky new weapon in its battle to shore up the housing market. Granted, the latest Standard & Poor’s/Case-Shiller figures showed a fifth month of improvement. But analysts had already discounted that, expecting prices to fall 10 percent or more next year as various government supports are wound down.
The Treasury’s Christmas gift of almost unlimited support for Fannie Mae and Freddie Mac might be able to fend some of that off. But it will be a tough fight. A housing tax credit — of up to $8,000 for first-time buyers — ends in April. Meanwhile, the Federal Housing Administration plans to tighten its loose lending standards as its reserve fund has dwindled.
Moreover, mortgage rates can reasonably be expected to increase as the government ends purchases of mortgage-backed securities. Treasury’s $220 billion buyback program ends this week. The Federal Reserve’s $1.25 trillion program ceases in March.
And then there’s the continuing flood of Treasuries to finance the federal deficit. Morgan Stanley estimates that could drive 30-year mortgage rates back above 7.5 percent, an effective 40 percent increase in the cost of financing home purchases. Even a smaller jump risks driving buyers from the market, which could force house prices down.
Then there are foreclosures. Credit Suisse expects 4.2 million next year and estimates that 3.2 million must be prevented to keep prices stable. That’s a tall order, considering mixed results from modification efforts that mostly focused on extending terms or lowering interest payments.
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