Fannie Mae Seeks $1.5 Billion From U.S. Treasury After 12th Straight Loss

[The Northerner]

Fannie Mae, the mortgage-finance company operating under federal conservatorship, is seeking $1.5 billion in aid from the U.S. Treasury Department after a 12th straight quarterly loss.

Fannie Mae had a loss of $1.2 billion in the second quarter, compared with a loss of $14.8 billion in the same period a year earlier, it said today in a filing to the Securities and Exchange Commission. The Washington-based company posted more than $147 billion in losses in the preceding 11 quarters, according to data compiled by Bloomberg.

The Treasury Department seized Fannie Mae and McLean, Virginia-based Freddie Mac, the biggest sources of U.S. mortgage funding, in September of 2008 and has spent $145 billion already to keep them solvent. In April, the Treasury and Department of Housing and Urban Development asked for public comment on how to fix the funding system after the companies’ losses on subprime mortgages pushed them to the brink of collapse.

The government-sponsored enterprises own or guarantee more than half the $11 trillion U.S. residential debt market. Freddie hasn’t yet disclosed second-quarter results.

On Aug. 17, President Barack Obama’s administration plans to host a conference of lawmakers, financial executives and housing advocates to hear ideas for improving the property- finance system. Treasury Secretary Timothy F. Geithner has said his agency aims to offer “a comprehensive reform proposal” for the companies by January.

Read more: http://www.bloomberg.com/news/2010-08-05/fannie-mae-seeks-1-5-billion-from-u-s-treasury-after-12th-straight-loss.html

[sakabatou]

1. Time to cut Fannie off

[dixiegrrrrl]

2. They are going broke because they cannot pay off the *shitty* bonds

that they "bought" from the big banks that created the shitty bonds.

I traced my mortgage, from Countrywide, then to BOA which took over Countrywide, then to Fannie Mae
which bought the stinking mortgage bonds from BOA.
Fannie and Freddie are NOT government agencies, btw. They are quasi government agencies which broke the law by buying the damn bonds. They can only lend, they cannot buy or sell, mortgage money/bonds.

but hey, no one sees, no one cares.

I miss Carlin.

[golfguru]

8. dixie...you hit it on the nail . . . n/t

[golfguru]

3. Fannie & Freddie started this whole real-estate collapse

by lending money to people with poor credit, and people
who could not afford the houses they were given loans for.
That foolish policy increased demand and created the housing
bubble.

[jtuck004]

4. No.

More here...

and here...

[golfguru]

5. It was very funny....

that there was an influx of new members at my golf club during
2004 through 2007. I was on membership committee so I got to
know many of them and almost every one was in mortgage brokerage
business. They became rich by writing huge number of mortgages to
sub-prime since they could turn around and sell those mortgages
to Fannie & Freddy. Now they are all mostly resigned from the club
and gone.

[jtuck004]

6. No - More Debunking of the "Fannie and Freddie Caused the Crisis" Meme

Lewis Ranieri took over the mortgage department from Robert Dahl at Solomon Bros in the late 70's, and virtually invented the mortgage-backed security business. Basically, Wall Street didn't want to deal with these because of their size and quirky nature, until Lewie figured out that they could bundle - securitize - these loans into a product that they could stuff into pension funds and other big markets.

Most people see him as the single most knowledgeable person, essentially the father of all this.

According to Ranieri, "...roughly 50% of the mortgages extended to borrowers could have been issued through traditional channels (FHA, Fannie Mae, Freddie Mac) at much lower cost to consumers. He estimates these borrowers would have gotten 6.5% mortgages versus the effective 9.5% (the average across the first and second mortgages on the same asset). Ranieri is saying that many consumers were exploited by lenders, and may also say that some of the ones who are defaulting due to high interest charges might well have been able to support the mortgage balance had the mortgage been at a market rate for their credit risk, as opposed to an extortionate rate. Thus much of the sub prime problem may very well be self inflicted damage by greedy lenders." More here....

Further, the simple facts make it readily apparent:

Sub prime lending offered high-cost loans to the weakest borrowers during the housing boom that lasted from 2001 to 2007. Sub prime lending was at its height from 2004 to 2006.

Federal Reserve Board data show that:

* More than 84 percent of the sub prime mortgages in 2006 were issued by private lending institutions. (i.e. - NOT Fannie nor Freddie)

* Private firms made nearly 83 percent of the sub prime loans to low- and moderate-income borrowers that year. (again, not F nor F)

* Only one of the top 25 sub prime lenders in 2006 was directly subject to the housing law that’s being lambasted by conservative critics. (wait for it...................not Fannie nor Freddie, again, in 25 out of 26 cases)

To make a claim that Fannie and Freddie were responsible for the sub prime mess, even though they wrote less than half the business, one would need to explain why borrowers would knock down the doors of other lenders to pay THREE FULL PERCENTAGE POINTS MORE for no good reason. They had the credit ratings, and mortgage writers, by your own admission, were available to underwrite their loans.

Blaming people with little income and the not altogether blameless Fannie and Freddie for a problem that was made a thousand times worse by private investment banks is a simply a Republican idea to deflect responsibility put forward by people who are in the pockets of investment banks like Goldman Sacks, First Boston, Deutsche Bank and others who let reckless and greedy 24 years olds have control of the market and are directly responsible for the loss of about 8 million American jobs, millions of foreclosures, and perhaps the worst continuing recession since 1929.

That is why the site above calls such a characterization "barmy". I would have to agree, since the value of Fannie and Freddie when they went into receivership under the Treasury was estimated at about $6 1/2 trillion, and the derivatives from the hedge funds have been valued at near $160 Trillion, much of which is just so much air today...F&F were a drop in the bucket in comparison. Frankly, if all we had to deal with was the $5.5 Trillion of Fannie or Freddie this would have been over with 2 years ago. The entire mortgage market is only about $13 Trillion, and we have put out over $15 Trillion in the bailout to date. And the debt from Fannie and Freddie is still on the books behind the curtain of the Fed. That is trillions more for which will very likely suck up more taxpayer money.

Yves book "Ecconed" and "It Takes a Pillage" by Nomi Prins lay all this out, as well as a lot of Federal Reserve data. I've yet to see any supportable data that contradicts it - at least nothing that rises above the level of Faux entertainment News pieces.

Your milesage may vary.

[golfguru]

7. Fannie & freddie were merely the spark

and it was made much worse by highly leveraged derivatives and
sub-prime based bonds sold as AAA rated by Wall street.

My contention is that Wall Street could not have exploited the
housing market bubble without a bubble actually in place. Wall
Street bankers did not create the housing bubble, they greedily
exploited it. The bubble grew on backs of condo flippers, sub-prime
lenders, & dreams of home ownership by those who could not afford it.

[jtuck004]

9. People want so badly to blame the people who bought the homes.

But without the marketers going into those neighborhoods and refinancing people's existing homes, marketing 0 down loans to them, creating corporations who would illegally advance them the down payment which was then built into the price of the home, and deliberately selling sub prime mortgages to people of color when white people in the same areas were given better rates, and all this following on the heels of illegal redlining which kept people with perfectly good credit out of homes for decades.

Half of the middle class buyers don't understand home ownership and mortgages well enough to get the best terms. The vultures and squids of the market deliberately targeted, and still target, those who are least able to defend themselves. Those people have the least culpability of all.

There's a book out there, Broke, Inc, that details the extra costs of having an income of less than $22,000 a year. On average, it costs them $900 a year more than people with higher salaries by the time they pay all the fees and extras that come with not being able to have bank accounts, home ownership, cars at lower rates, the time to gather and prepare better food, etc.

In fact Wall Street did create the bubble, when it started buying mortgages from the savings and loans, blowing the market up to the first trillion dollars, back in the 80's. Thrifts were having to pay high interest rates on savings accounts, while borrowing money to lend to homeowners at 12%. As the rates went up it killed the mortgage market. It came back with a vengence when the government, in 80, 81?, put in place a program to let S&L's take credit on 10 years worth of taxes from the losses on their mortgages. Wall Street (Salomon Bros) started buying those loans at 60-80 cents on the dollar, by the billions, only to be paid back by the government at 100 cents on the dollar when they defaulted, or 100 cents on the dollar when the homeowner paid off the loan. The S&L took the credits on the loss, then borrowed new money at lower rates and made new loans.

And that was when Wall Street first got Federal laws changed so they could trade in private mortgages and avoid state laws against it. Fannie and Freddie were created later, and, again, only had a portion of the market, nothing in privately financed loans.

The so-called problem "homeowner" in the subprime market is as elusive and infrequent as Reagans's fantasy "welfare queen". The major problem was Wall Street, and especially Hedge Funds.

And I forgot - we haven't even gotten into the foreign money that came into the funds to get higher returns than they could get elsewhere.

There were speculators. Lots of them. And those that knew what they were doing that got overextended deserved to lose, 'cause they were sophisticated enough to understand that it couldn't go up forever. A large number of owners should never have been dragged into this, and they were. And the squid knew it. But none of that compares to the leveraged mess that was laid on top of the market, and that is all Wall Street, hedge funds, and shadow banking.

And if you really doubt it, ask yourself this question. Who got the money?

[golfguru]

10. So since I get several credit card offers every month

I could charge each one to maximum credit limit and according to you
it is not my fault if I can't make payments?

Sounds good to me...who should we blame? The credit card companies?
Sounds better....I spend they get the blame.

Come on jtuck, what ever happened to buyer beware? Personal responsibility
for your actions? Educating yourself for the real world out there?

[jtuck004]

11. I think you mentioned b4 something about talking with the

mortgage folks at the country club. That would put you in the category of people who, theoretically, should be able to use personal responsiblity to gauge your actions. In today's credit card world you might get one for, say, 9% interest.

Instead, lets pick a whole area that is predominantly black, and send them pre-approved credit card apps for, say, 26% interest, the same app we send to white folks at 12%, even in the same general neighborhood. Or go through lists of consumers and find those who have 4 or 5 credit cards already and send them one of these with the come-on that they can consolidate their plan.

Or pick people who have had a recent hospital visit with surgery, and are homeowners. There's one that is ripe for "bill consolidation", or, better yet, a second mortgage on the home just to make things "a little easier on your loved one". And we will get them into the old Household Finance office where our top producer knows just when to talk a little faster and turn pages a little quicker. They will never notice that the interest rate we quote them is just a little lower than the one on the paper, or that the mortgage payment is actually going to be higher than they can afford to pay.

Take some folks who have lived in a rental for years, and now they get a letter talking about zero percent interest, don't need to show a job, or income, or any assets, and the payment is going to be lower than they are paying now. Gives them a little hope, and they move in. Great deal, except in their income bracket unemployement is starting to creep toward 30% (it's ony about 3% for people who make over $150,000 a year, btw). We won't tell them this is actually two loans, with the second at a full 600 basis points higher than the first.

So let's just heap in the money, (want to make 3% on a savings account, or want to make 12% or more on getting some mortgage money out there?) and drop underwriting standards to nothing. On top of that, let's take a mortgage market that, because of collateralized mortgage obligations, now consists of bonds with a payout that you can count on (after all, the terms are now longer and the crdit rating agency says they are AAA) and start getting pension funds to buy billions of dollars worth of these, creating more of a demand with their own dollars. Oh, and put it all the hands of a bunch of 24 year old math whizzes from MIT and Harvard, who have a ton of statistical models telling you that the sky is the limit ('course, it's all based on the market never going down, but they have never seen a market go down, so that's ok).

You are talking the difference between marketing to people who ought to know better vs millions in an entire class comprised of those who 1)can't know better, 2)are desperately looking for a way out, even if the exit is on fire.

And how dare anyone blame these people when the most sophisticated money managers around the world bought into this? While the SEC sat on it's hands and watched what would have been massive fraud in any other context go on. While the chair of the Federal Reserve sat on low interest rates long enough for this huge Ponzi scheme to develop. While people with some of the best education our country has to offer created leveraged offers out of thin air, borrowing and selling trillions of dollars at 30 to one or more on top of loans which were so bad everyone in the industry called "liar loans"?

And people want to blame the guy who makes $23,000 a year working in a shop moving boxes for a boss who doesn't even offer health care for this? This makes Ebenezer Scrooge look benevolent in his mean years.

[Murray_R]

12. origination isn't the only way to prop up a market

Focusing on who originated the mortgages misses the point that such investments were made because they conformed to the standards that Fannie and Freddie would buy.

http://www.marketwatch.com/story/fannie-freddie-to-apply-new-subprime-standards-to-investments

"Fannie Mae and Freddie Mac will only purchase securities backed by subprime loans if the mortgages comply with new federal standards aimed at preventing high-risk underwriting, the companies' regulator said Monday."

That was September of 2007, when the growth of the bubble was stalling, but well after it's support had helped inflate it in the first place.

"Fannie Mae and Freddie Mac purchase mortgages on the secondary market and either hold them in their portfolios or package them into securities. The companies can either hold these securities or sell them to investors. Fannie Mae and Freddie Mac can also hold securities packaged by other investors, which is how they obtained the securities backed by subprime loans."

Fannie and Freddie didn't need to originate the mortgages, just be willing to buy them from originators. That 'buyer of last resort', who had an implicit (and now explicit) Treasury backing, fostered more investment in 'subprime' mortgages than the market would have otherwise tolerated.

This info is from 2003:

"Initially, Fannie Mae operated like a national savings and loan, allowing local banks to charge low interest rates on mortgages for the benefit of the home buyer. This lead to the development of what is now known as the secondary mortgage market. Within the secondary mortgage market, companies such as Fannie Mae are able to borrow money from foreign investors at low interest rates because of the financial support that they receive from the U.S. Government. It is this ability to borrow at low rates that allows Fannie Mae to provide fixed interest rate mortgages with low down payments to home buyers. Fannie Mae makes a profit from the difference between the interest rates homeowners pay and foreign lenders charge.

For the first thirty years following its inception, Fannie Mae held a veritable monopoly over the secondary mortgage market. In 1968, due to fiscal pressures created by the Vietnam War, Lyndon B. Johnson privatized Fannie Mae in order to remove it from the national budget. At this point, Fannie Mae began operating as a GSE, generating profits for stock holders while enjoying the benefits of exemption from taxation and oversight as well as implied government backing. In order to prevent any further monopolization of the market, a second GSE known as Freddie Mac was created in 1970. Currently, Fannie Mae and Freddie Mac control about 90 percent of the nation's secondary mortgage market."

[jtuck004]

13. The problem mortgages were largely originated and existed

outside of the guidedlines that Fannie and Freddie conformed to by federal law. Private investors were not bound to follow these and didn't, at the taxpayers peril. Even at their worst, after 2007, the majority of Fannie and Freddie loans were mostly 30 yr fixed mortgages with a down payment. Not sure what this three year-old article has to say other than a historical read on conditions back then, which have been pretty well documented. F&F got into thinning out their requirements when they saw themselves losing market share in 2007, but the majority of their loans still required sufficent income and a down payment, and were not the low-interest come-ons that were all over the market. They weren't responsible for the a-historic drop in their assets - the private mortgage market that created the bubble and sucked it dry was, and is.

It is nothing more than a smokescreen, to keep us from the very real work that needs to be done to fix the economy and prevent the ongoing tragedy that millions of Americans are now living through, that Republicans (and a few Democrats) overblow this small percentage of loans that were less rigorous than others. It's a combination of the three decade campaign the financial sector has been on to destroy regulations which have kept Americans safe, and a few who, perhaps, wake up every morning looking to destroy yet another of the programs put in place to help ordinary Americans during the Great Depression, which, as selfish, greedy, manipulative, bottom-feeding bastards, they can't stand. Even with their problems their default rate was still FAR under that of the private mortgage lenders, until THOSE loans began to drag the market into the swamp. Fannie and Freddie joined in the stupidity and greed, but to say theat their 5 1/2 to 6 trillion was any any way nearly as influential as the $160 trillion (face value) in fraudulent garbage so-called derivatives the financial sector was involved in says far more about the originators of the private market than the GSE's.

Information is available...For example:

"Start with the most basic fact of all: virtually none of the $1.5 trillion of cratering subprime mortgages were backed by Fannie or Freddie. That’s right — most subprime mortgages did not meet Fannie or Freddie’s strict lending standards. All those no money down, no interest for a year, low teaser rate loans? All the loans made without checking a borrower’s income or employment history? All made in the private sector, without any support from Fannie and Freddie.

Look at the numbers. While the credit bubble was peaking from 2003 to 2006, the amount of loans originated by Fannie and Freddie dropped from $2.7 trillion to $1 trillion. Meanwhile, in the private sector, the amount of subprime loans originated jumped to $600 billion from $335 billion and Alt-A loans hit $400 billion from $85 billion in 2003. Fannie and Freddie, which wouldn’t accept crazy floating rate loans, which required income verification and minimum down payments, were left out of the insanity."

More here...

Or how about a couple charts from Krugman's article showing when housing prices began to tail off, and another showing how much larger the private market was, and how it created the bubble outside of the GSE - here. The astute observer will note that F&F's originations really didn't start climbing until the private mortgage originators had already destroyed the residential industry. Were Fannie and Freddie blameless? No, but they were late to the game - they were not the insigators. They were more like Dr Mudd was to John Wilkes Booth. When Bill Clinton came to office, along with increasing taxes to stimulate growth in the economy, (which worked pretty well), his administration tried to increase the number of loans the government would provide in predominantly low-income and minority areas, (via the CRA) because practices such as "redlining" were still very much in vogue. Interest rates were going up, and that is when subprime really took off, via companies like Household Finance, who, though they couldn't move those loans to F&F, could sell them and simply hold onto the debt, collecting much higher interest rates.

That paved the way for Wall Street. Home mortgages were too small for them, too hard to trade, no one knew if the owner would pay it off and leave you with a pile of cash during times of low interest. But a Salomon Bros employee, Lewis S. Ranieri, watching the securitization of auto loans, credit cards, and other debt, figured out that if you stuffed a bunch of those mortgages into a bond, you could sell the bond, and securitization for the mortgage markets was born, soon devolving into the financial products which supplied the fuel for the greed and recklessness which has left us with millions of homes foreclosed and 30 million unemployed or underemployed people. The money didn't come from F&F, nor were the mortgages sold to them. The money came from funds in the U.S., France, Harding in Japan, Société Générale in Paris, others (and that's where billions of taxpayer dollars were sent to pay off the bets made on credit default swaps, btw). The causes of the financial meltdown were far greater outside of F&F, as this article by Ritholz alludes.

Is it sad, or just criminal, that these firms knew what was going on?

Tavakoli said in a report to clients that of the 30 collateralized debt obligations (CDOs) Merrill sold in 2007, every one has either had its best-rated portion cut to junk, is in technical default, is being liquidated, or is in danger of being liquidated.

The poor performance suggests that Merrill was underwriting deals it knew or should have known were bad, Tavakoli said. That underwriting, combined with similar moves from other banks -- has shaken investor faith in CDOs, Tavakoli wrote in the report. Her company is Tavakoli Structured Finance Inc.

Merrill Lynch spokesman Mark Herr declined comment.

"Investment banks have a huge credibility problem when trying to explain that they 'didn't know the gun was loaded," Tavakoli wrote.

Read it here...

There were (and still are) trillions of dollars of debt and swaps that are not in F&F. The Fed would not have had to create programs to fix the problems in Maiden Lane III (and I and II, and a whole dictionary of other programs) to pay off CDO's OUTSIDE of Fannie and Freddie if the majority of the problems had been with F&F. Want to see a another view of how small the portion of GSE debt was, even today? Take a look http://nomiprins.squarespace.com/storage/reports/subs072010.pdf">here and
here

FNMA and FHLMC had years of defaults, with a historical average of 1%. Private mortgage funding, outside of and not connected with F&F began to see defaults at 4%, 5%, then 6%, then 30%, 40%, and higher as early as 2005,. They were selling $725,000 homes to people with $15,000 incomes. Never in a million years would such a loan have been able to get past the regulations, even when they were loosened in 2007.

No, Virginia, the cause of our recent misery will be first, last, and always at the hands of the the bond houses and private investors from all around the world seeking to feed their greed, and the politicians from both sides of the aisle who aided and abbetted their reckless bordering on criminal dirty business. F&F were so late to the game that they just picked up the scraps that were left after the train left the station.