Another $15B to Fannie

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http://www.bloomberg.com/apps/news?pid=206...id=alet_UTqF04M

[Magox]

I read this earlier. It doesn't get nearly the headlines that the TARP does, but at the end of the day, the governments Financial losses from the GSE's will easily trump the total losses from the TARP. It's a bottomless pit, and the losses are going to accelerate over the next few years. I know that they are looking to unwind Fannie and Freddie, but I don't see how they will be able to do that without signficantly changing the dynamics of the entire system. As of right now the government owns over $3.5 Trillion worth of mortgages and growing, I just don't see how this won't continue to be a huge burden on our deficit any time soon.

[jjamie12]

I read this earlier. It doesn't get nearly the headlines that the TARP does, but at the end of the day, the governments Financial losses from the GSE's will easily trump the total losses from the TARP. It's a bottomless pit, and the losses are going to accelerate over the next few years. I know that they are looking to unwind Fannie and Freddie, but I don't see how they will be able to do that without signficantly changing the dynamics of the entire system. As of right now the government owns over $3.5 Trillion worth of mortgages and growing, I just don't see how this won't continue to be a huge burden on our deficit any time soon.

I think I read 78% of all mortgages originated in the US last year were guaranteed by the government in some way (Fan, Fred, FHA, whatever the hell else).

[DC Tom]

I think I read 78% of all mortgages originated in the US last year were guaranteed by the government in some way (Fan, Fred, FHA, whatever the hell else).

 

The reason for that is because the market for unsecured mortgages (e.g. sub-primes) basically evaporated late in 2008, which is roughly what triggered this mess. No one wants to take the risk of trading unsecured mortgage products. Go back three years, and I'll bet that percentage is much lower.

 

That number probably seems scarier than it really is, as it's probably a reflection of fewer lousy mortgages being written. Which does not make the fact that the government is basically subsidizing a large part of the housing industry any less scary in itself, of course...

[meazza]

I read this earlier. It doesn't get nearly the headlines that the TARP does, but at the end of the day, the governments Financial losses from the GSE's will easily trump the total losses from the TARP. It's a bottomless pit, and the losses are going to accelerate over the next few years. I know that they are looking to unwind Fannie and Freddie, but I don't see how they will be able to do that without signficantly changing the dynamics of the entire system. As of right now the government owns over $3.5 Trillion worth of mortgages and growing, I just don't see how this won't continue to be a huge burden on our deficit any time soon.

 

 

It's the Wall Street Bankers that are bad though...

[Nanker]

That's funny. Hasn't affected their bonuses at all.

Edward DeMarco, acting director for the Federal Housing Finance Agency, also submitted testimony in which he defended multimillion-dollar pay packages for top executives at Fannie Mae and Freddie Mac, which are in government conservatorship.

 

DeMarco said the pay packages, which could allow the top executive at each firm to earn up to $6 million a year, were necessary to attract and keep talented managers.

 

But he also acknowledged the role that compensation played in building up risk at the two mortgage finance companies.

 

"Our special examinations of accounting failures at each Enterprise in 2003-2006 revealed that badly-constructed compensation incentives contributed significantly to excessive focus on near-term earnings reports to the serious detriment of the enterprises," DeMarco said.

[Keukasmallies]

Hoooorrrrrraaaaahhhhhhhhh!

 

Let's keep re-electing the same old people, so we can get the same old results. And Gee, aren't we just happier n' happy with the same old results?

[Alaska Darin]

That's funny. Hasn't affected their bonuses at all.

Edward DeMarco, acting director for the Federal Housing Finance Agency, also submitted testimony in which he defended multimillion-dollar pay packages for top executives at Fannie Mae and Freddie Mac, which are in government conservatorship.

 

DeMarco said the pay packages, which could allow the top executive at each firm to earn up to $6 million a year, were necessary to attract and keep talented managers.

 

But he also acknowledged the role that compensation played in building up risk at the two mortgage finance companies.

 

"Our special examinations of accounting failures at each Enterprise in 2003-2006 revealed that badly-constructed compensation incentives contributed significantly to excessive focus on near-term earnings reports to the serious detriment of the enterprises," DeMarco said.

Banker/Insurance/Wall Street bonuses bad. Federal government sponsored bonuses to bailout directorates GOOD.

 

More change we can believe in.

[Alaska Darin]

Hoooorrrrrraaaaahhhhhhhhh!

 

Let's keep re-electing the same old people, so we can get the same old results. And Gee, aren't we just happier n' happy with the same old results?

Given the fact that the Republicans and Democrats have stacked election laws in their favor, it's not likely to change.

[Chilly]

Given the fact that the Republicans and Democrats have stacked election laws in their favor, it's not likely to change.

 

Those election laws were more or less stacked when the constitution was written (SMSP ftl).

[Alaska Darin]

Those election laws were more or less stacked when the constitution was written (SMSP ftl).

True, to an extent but the last 20 years are the icing on the cake.

[Keukasmallies]

My problem isn't election law, it's getting other voters to vote against incumbents.

[jjamie12]

The reason for that is because the market for unsecured mortgages (e.g. sub-primes) basically evaporated late in 2008, which is roughly what triggered this mess. No one wants to take the risk of trading unsecured mortgage products. Go back three years, and I'll bet that percentage is much lower.

 

That number probably seems scarier than it really is, as it's probably a reflection of fewer lousy mortgages being written. Which does not make the fact that the government is basically subsidizing a large part of the housing industry any less scary in itself, of course...

Actually, as it turns out, 86% of new mortgages are government guaranteed. I'm assuming that this includes not only Fan and Fred, but the FHA and VA, as well (probably some of the state and local programs, I'd imagine). That is up from about 30% 4 years ago, according to this article: Wash Post article from Fall '09 Their source is an industry mag called 'Inside Mortgage Finance', which I don't know too much about, and haven't corroborated the numbers with any other source. It doesn't seem 'wrong', to me, though. That's crazy... from 30% 4 years ago to 86% today... market share growth by, essentially, the WORST managed entities in the business. There's some weirdness there, yes?

 

No one wants to take the risk of trading unsecured mortgage products.

While that is true, I think that there are interesting reasons why that is the case. It's not that new mortgages are less collateralized, it's that Fan, Fred, and our government friends are doing the same old BS they've always done, save for the really outrageous NINA and NINJA loans. You can still get loans with nothing down. The agencies actually promote 3% down payments at historically (or close to it) low rates. The question to ask is: How is it that the government can guarantee these loans, when traditional banks won't write these loans anymore (hell, NOBODY thinks its worth it... there aren't any investors on earth willing to do what the agencies are doing!)

You can see what is happening: Fed is buying trillions of dollars worth of Agency bonds, keeping Agency rates artificially low; agency 'conforming' limits keep growing, allowing ever larger slices of the population to become customers. The government is taking over the mortgage market (and, by extension the housing market). I don't know... I guess you can make the argument that this is needed to avoid economic disaster... I guess I just wish we could get some sort of real 'bottom' on the housing market, not this cluster of subsidized nonsense we have right now.

[DC Tom]

Actually, as it turns out, 86% of new mortgages are government guaranteed. I'm assuming that this includes not only Fan and Fred, but the FHA and VA, as well (probably some of the state and local programs, I'd imagine). That is up from about 30% 4 years ago, according to this article: Wash Post article from Fall '09 Their source is an industry mag called 'Inside Mortgage Finance', which I don't know too much about, and haven't corroborated the numbers with any other source. It doesn't seem 'wrong', to me, though. That's crazy... from 30% 4 years ago to 86% today... market share growth by, essentially, the WORST managed entities in the business. There's some weirdness there, yes?

 

My point was that fewer mortgages are being written, as the standards have tightened somewhat. Meaning that, with higher quality mortgages, you would expect more of them to be eligible for government guarantees - it's a larger share of a smaller pool, and it's basically impossible to write a sub-prime mortgage now since there's no investors wanting to buy it.

 

You would expect the increase, even to the point of 7 in 8 mortgages (up from 1 in 3) being secured by the government. It's not all that surprising. But a simple percentage comparison isn't even close to being the whole story.

[IDBillzFan]

If at first you don't succeed, default, default again.

[Magox]

If at first you don't succeed, default, default again.

Modifications are “clearly not working well and it’s not a surprise,” said Sam Khater, a senior economist at First American CoreLogic in Tysons Corner, Virginia. “It’s pointless to rewrite these loans because they’re underwater.”

 

Helloooooo I've been saying this for a year now.

[DC Tom]

If at first you don't succeed, default, default again.

 

U.S. homeowners are struggling to make payments as depressed housing prices leave them owing more than their properties are worth. About 24 percent of properties with a mortgage were underwater in the fourth quarter

 

I must have missed the part where the ability to pay one's mortgage is related to the current market value of one's home.

 

I hope that's just hideous phrasing, and the writer's not that much of an idiot.

[Magox]

I must have missed the part where the ability to pay one's mortgage is related to the current market value of one's home.

 

I hope that's just hideous phrasing, and the writer's not that much of an idiot.

It is related. If you owe $200,000 on a home and it is now worth $150,000, the odds of defaulting on that home go up significantly. Not so much because the owner of the home can't make the payment, but because it doesn't make good business sense to maintain the mortgage when there is little hope of the value of the home recouping to the original purchase price any time soon. Many people are defaulting for this very reason.

[Alaska Darin]

It is related. If you owe $200,000 on a home and it is now worth $150,000, the odds of defaulting on that home go up significantly. Not so much because the owner of the home can't make the payment, but because it doesn't make good business sense to maintain the mortgage when there is little hope of the value of the home recouping to the original purchase price any time soon. Many people are defaulting for this very reason.

We saw it happen in Anchorage in the 80s. I don't remember the default rate but values fell over 50%. People were leaving their keys on the kitchen counter and calling the bank.

 

This is going to get much, much worse and the solutions will continue to be stupid. I don't think there's a way to make this landing soft.

[Magox]

We saw it happen in Anchorage in the 80s. I don't remember the default rate but values fell over 50%. People were leaving their keys on the kitchen counter and calling the bank.

 

This is going to get much, much worse and the solutions will continue to be stupid. I don't think there's a way to make this landing soft.

I agree, and what makes things worse is that the government steps in with these asinine remodification programs that don't tackle the root of the problem and all they are doing is distorting it's natural bottom, which of course delays the housing recovery.

 

Politicians and monetary policy makers far too often don't have the courage to allow these things to play out, and what we end up with is wasteful spending that piles on to the national debt with little to show for.