Fannie Mae & Freddie Mac

[rigney]

Fannie Mae and Freddie Mac: Can we ever trust these two big real estate lenders again? I notice where more and more ads coming from these two giants, allude to the fact that everyone made sacrifices in these past several months of hard times. My question is, how can such a pair of fungi who almost, between the two of them; literally destroy this country. And now to crawl indiscrimitatly from under the rock where they have been so sucessfully hiding, to demand that trust again?

Edited July 3, 2010 by rigney

[insane_alien]

well, its certainly possible to trust them again, but they would need to earn the trust back.

 

i fail to see the problem with advertisement. they are after all businesses and businesses need to advertise to continue to do business.

 

and its not as if they wanted to plunge the world (not just the united states) into a recession because, well, its bad for business both in terms of profits and brand reputation. ie. not a sound business position.

 

and it never got anywhere near to destroying any country. at all. if you look back at it, and compare to other financial crises of the past, it just wasn't that bad at all. i point you to the weimar republic(germany essentially) in 1921-1923 where money was burned in fires because the paper notes contained more fuel value than the amount of wood or coal it would buy you. they were even used instead of wallpaper.

 

they survived that

 

or even the worst one of all in 1946 in hungary, prices would DOUBLE every 15 hours. hungary survived that.

 

or in your country, the great depression, far worse than what you got this time round. you guys survived that.

 

to say it nearly destroyed any country is utterly ridiculous all it meant was a slight reduction in the standard of living and people having to be a bit more responsible with their money.

[jackson33]

rigney; Prior to 1968, Fanny Mea was part of Government. To get there debt off the Congressional books (allowing more funding for Medicare/Medicaid and other new entitlement programs) was privatized and in 1970 Frddie Mac was introduced by Congress as a Private Company.

 

The Federal Home Loan Mortgage Corporation (FHLMC), known as Freddie Mac (NYSE: FRE), is a government sponsored enterprise (GSE) of the United States federal government. Freddie Mac has its headquarters in the Tyson's Corner CDP in unincorporated Fairfax County, Virginia.[3][4][/Quote]

 

http://en.wikipedia.org/wiki/Freddie_Mac

 

It's simply another Federal Government blunder; Investors in (FNM/FRE, NYSE) lost in the neighborhood of 150B$, now penny stocks, worth less than .50c each, have or soon will be de listed and all debt and losses will be absorbed by the 'Taxpayers', the Congress. I'm not going over the history or the probable causes for both the Housing Bubble Burst, or the failure of these two Government Entities, but many do feel both were in great part caused by regulation of the Banking Industry, through loose lending practices of both, mandated by Congress.

 

 

insane; While the US will likely survive, it's the process of re-organization that will destroy, not only the way of life that has evolved, but the entire infrastructure of the social society itself, if indeed hyper inflations or Federal failure occurs. In turn many Nations around the World, that have tied their economies to the US, likewise would suffer.

 

While I'm still somewhat optimistic and feel our Constitution and the system of Governance will outlast this current 45 year attack on that Constitution, I do believe a certain amount of sacrifice will be REQUIRED and where the problems may come in. As what's going on in Greece, humans can become too dependent on something other than themselves. Though my reading of American History and my life, I've seen this progression to some disturbing results.

 

One analogy; In 1900, a Gulf Hurricane literally wiped Galveston, Texas OFF the map, near total destruction and tremendous loss of life occurred, yet within hours clean up began, the dead handle and restoration had begun. No Federal assistance, nobody waiting around for anything and Americans flooded into the area to help. TODAY, look what happens and I'll stop there...

 

On that fateful day, the Great Galveston Hurricane roared ashore, devastating the island city with winds of 130 to 140 miles per hour and a storm surge in excess of 15 feet. When its fury finally abated, at least 8,000 people were dead, 3,600 buildings were destroyed, and damage estimates exceeded $20 million ($700 million in today’s dollars). To this day, the 1900 Galveston hurricane remains the deadliest natural disaster in the nation’s history.[/Quote]

 

http://celebrating200years.noaa.gov/magazine/galv_hurricane/welcome.html

[insane_alien]

insane; While the US will likely survive, it's the process of re-organization that will destroy, not only the way of life that has evolved, but the entire infrastructure of the social society itself, if indeed hyper inflations or Federal failure occurs. In turn many Nations around the World, that have tied their economies to the US, likewise would suffer.

 

While I'm still somewhat optimistic and feel our Constitution and the system of Governance will outlast this current 45 year attack on that Constitution, I do believe a certain amount of sacrifice will be REQUIRED and where the problems may come in. As what's going on in Greece, humans can become too dependent on something other than themselves. Though my reading of American History and my life, I've seen this progression to some disturbing results.

 

people changing there habits is hardly the destruction or even close to the destruction of anything. it is simply a change.

 

things change regardless of whether there is any particular crisis or cause.

 

One analogy; In 1900, a Gulf Hurricane literally wiped Galveston, Texas OFF the map, near total destruction and tremendous loss of life occurred, yet within hours clean up began, the dead handle and restoration had begun. No Federal assistance, nobody waiting around for anything and Americans flooded into the area to help. TODAY, look what happens and I'll stop there...

 

now see, there was actual destruction, but notice it was not a financial disaster that destroyed the town.

[rigney]

You're right Insane Guy. The "Grapes of Rath" (Dust Bowl) and Galveston were acts of GOD. Fannie and Freddie were acts of duplicity and greed. 'course we could probably toss Inron and Madoff into the pool too? The problem with our social structure today is, no one need be accountable. Even if you're an illegal alien and in jail, it's a luxury. We may somehow, eventually get out of this cesspool.

Edited July 3, 2010 by rigney

[insane_alien]

yes, it was greed, so what? my points still stand.

 

they are a business, they will continue to be in business if people still want to trade with them. this is so so therefore they still trade. sure, their reputation is badly damaged but they can rebuild that by simply not being idiots.

 

there isn't anything complex about this.

 

and lets keep god/s/ess/es out of it eh. render unto caeser and all that.

[jackson33]

now see, there was actual destruction, but notice it was not a financial disaster that destroyed the town.[/Quote]

 

insane; The object of the analogy was, what were then and is now the dependency on Government, mental attitude if you wish, are different. If I'd wanted a financial analogy, I would have gone through the 1930's depression and the history of the entire mid-west US, where people literally formed their own bartering economy. At this point there were about 128M people in the US and States were in control of most all domestic issues, but the end results were the same.

 

Today, in the US and to a larger degree in most the industrialized world, we have formed a LARGE dependent society, they know literally nothing else. As was the case in New Orleans after Katrina or the same gulf coast after the BP Rig Collapse. The instincts of that dependant class of people (individual worth, meaningless) was/is to hang loose and get what they can from government or some other source.

 

The point is if the Federal Government fails, for any reason, the States most already dependant on the Federal and their individual populations, all current benefits will not simply be shut off, but most States are no longer capable of filling the gap. No welfare checks, unemployment or disability check, food stamps, social security checks, credit of any kind and very few have any idea what they would do, much less have any idea how their society WILL change.

 

people changing there habits is hardly the destruction or even close to the destruction of anything. it is simply a change.

 

things change regardless of whether there is any particular crisis or cause.[/Quote]

 

I'll repeat, what's going on in Greece is from a modest change and from their dependant society. In the US, at least to date, we simple try changing Governments and it may once again save the system. At some point however and that's just as likely the NEXT government, those simple tiny changes are not going to be accepted.

 

 

they are a business, they will continue to be in business if people still want to trade with them. this is so therefore they still trade. sure, their reputation is badly damaged but they can rebuild that by simply not being idiots.[/Quote]

 

What they (Fannie/Freddy) are not and have never been, are free market oriented operations, any more so than the USPS, Amtrak or anything that has the entire US Tax base for support. Not everybody, rides Amtrak, uses the Post office or in fact do all Banks, sell their stable loans, to F/F. We might be adding GM to this list, now requesting Bank 'Lines of Credit', "In case their rebuilding plans hit a snag" and not mentioning another large chunk of cash will soon be due the labor unions. I might also suggest, in the financial world they never had a sound reputation and would never have had any free market backing, if it had not been for dividends (2007 FNM 2.80, FRE 2.50). You might also consider the brilliant FED, during the 2000's holding Prime Interest Rates at near 1% and now even lower, causing artificial low interest rates (as GDP nearly doubled), is not sound business practice, at least in my opinion.

[swansont]

I'm not sure I understand the blame here. Fannie Mae and Freddie Mac do not loan money to people. They buy loans from banks, so that banks can make more loans. The banks were the ones that made the bad loans, and the ratings people said they were OK.

 

Further, it is my understanding that the riskiest loans, i.e. the ones that tended fail first, were ones that did not tend to qualify for repurchasing by the GSEs. It was only after the cascade started, when the riskiest mortgage-backed securities started to fail, that the loans involving the GSEs went bad. The loans that they were mandated to buy, that is.

 

It's like the old western movies, where the guy gets shot and falls off the building. The fall makes things worse, but without being shot, the guy doesn't fall. Condemning Fannie and Freddie is blaming the fall for the injuries.

 

 

http://en.wikipedia.org/wiki/Conforming_loan

 

The Office of Federal Housing Enterprise Oversight (OFHEO) set the criteria on what constitutes a conforming loan limit that Fannie Mae and Freddie Mac can buy. Criteria include debt-to-income ratio limits and documentation requirements.

 

So, those loans where they just made up the borrowers' income or didn't ask for proof, or let them borrow way too much money? Those weren't conforming loans.

[iNow]

Why let data get in the way of a good narrative, eh? Why not keep blaming Fannie and Freddie even though they weren't responsible as demonstrated over and over again? If lies or misrepresentations or ridiculous assertions are repeated enough times, they'll become true, right?

 

 

 

 

 

The two lines to track are the ones at the top. One shows the share of mortgages accounted for by S&Ls, the other the share accounted for by agency-backed pools — i.e., Fannie/Freddie mortgages. Fannie and Freddie did get very big in the 90s, basically filling the hole left by the S&Ls. But they pulled back sharply after 2003, just when housing really got crazy.

 

So who drove the bubble? The blue line, “asset-backed securities issuers.” Notice, by the way, that these were not depository institutions — and therefore not subject to the Community Reinvestment Act.

 

 

 

http://economistsview.typepad.com/economistsview/2008/09/it-wasnt-fannie.html

If, as the data suggest, "Fannie/Freddie were taking the place of the savings and loans, after the crisis of the 1980s," then there was no change in the level of socialized risk. Since S&Ls also have a guarantee from the government, all that happened is that loans moved from one guarantee under S&Ls to another guarantee under Fannie and Freddie. So this could not have substantially changed the degree to which markets were distorted.

 

<...>

 

So, overall, perhaps the implicit asset guarantee did distort markets, but those distortions did not start with Fannie and Freddie, and they did not substantially worsen when Fannie and Freddie took over where the S&Ls left off. And even if there was some distortion, it's hard to find any linkage between the onset of the financial crisis and changes in the net socialization of risk through Fannie and Freddie. There was, apparently, some concentration of risk due to central banks buying the safe assets and leaving the riskier ones behind, but even so, it's not clear to me that this was a primary factor in bringing about the crisis. And even if it is the cause, or part of it, the behavior of central banks was not driven by changes in the behavior of Fannie and Freddie.

 

 

http://economistsview.typepad.com/economistsview/2008/09/once-again-it-w.html

Until Republicans started trying to claim that Fannie and Freddie caused the financial meltdown as a means of tying Obama to the crisis - a strategy that backfired badly when all of the embarrassing connections to Fannie and Freddie within the McCain campaign were revealed - nobody was saying Fannie and Freddie caused the crisis. Republicans simply worked backwards - they found connections between Democrats and Fannie and Freddie (never thinking to ask about their own connections), then tried to blame the crisis on Fannie and Freddie so as to make people think it was the Democrat's fault. And it's still going on despite the fact that the data doesn't support this story.

 

There is no excuse for the actions of the management of Fannie and Freddie, and I'm not trying to defend them or their choices, but the idea that Fannie and Freddie caused the general credit crisis is wrong.

[rigney]

Maybe my initial question should have been less laconic and allowed to dribble along for a mile or two. There is definitely enough material out there to fill a dozen books about this "Flop". The graph is well laid out and your narrative may be a prelude to one of those new books, but you read too much into my statement. I merely said that being the "heads" of this octopus is why I sorted them out. The ponzi scheme allowing such a thing to happen didn't start with Fannie and Feddie, but has been going on for years. It has been crossing political lines like a zebras stripes since before the twenty-nine crash. And as you say, someone will trust them again, just not me! When the United States finally relinquishes its total industrial strength to other nations and becomes a service nanny, we can all either sink or swim at the same time. And the Madoffs? What a tragedy; to jail men of such character and distinction.

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Merged post follows:

Consecutive posts merged

yes, it was greed, so what? my points still stand.

 

they are a business, they will continue to be in business if people still want to trade with them. this is so so therefore they still trade. sure, their reputation is badly damaged but they can rebuild that by simply not being idiots.

 

there isn't anything complex about this.

 

and lets keep god/s/ess/es out of it eh. render unto caeser and all that.

 

Gosh, you honestly don't believe I used such reciprocal terminology to upset, disquit, or as a reason for making you feel uncomfort? I certainly hope not. Pardon me.

Edited July 4, 2010 by rigney
Consecutive posts merged.

[insane_alien]

it doesn't make me uncomfortable at all but its usage tends to attract idiots who claim is gods punishment for homosexuality or eating meat on a friday or working on the sabbath or some crap.

[rigney]

Felt your brogue right through the tube Lad. Had a machinist friend some years back who's sister owned a bed and breakfast somewhere on Ness. Never been there 'cept in my dreams, and "Lassie Come Home". Understand your frustration in figuring out for whom to listen, or to cozy up with. If you look close, I singled these two out simply because they were at the end of the rainbow, not somewhere in between. Hope the RBS doesn't run across the same problems, since I'm a wee bit invested.

Edited July 4, 2010 by rigney

[jackson33]

swansont; Normally Banks would only loan money, that were backed with other equity (high down payment/other equities) and/or confidence in the barrower (high credit rating) or that can be passed on, either as collateral to the Federal Reserve (member banks) or through Fannie/Freddy. They are in no way required to pass on the high valued loans and most were held as part of their investment portfolios. As interest rates dropped, loan requirements loosened and regulations tightened on them, most all loans were designed to fit F/F requirement. Rather than going through the entire build up, 1968 to the bubble burst, I'll offer you this wiki link, emphasizing the declines in requirements that they were forced to accept (with cause).

 

The mortgage qualification guidelines began to change. At first, the stated income, verified assets (SIVA) loans came out. Proof of income was no longer needed. Borrowers just needed to "state" it and show that they had money in the bank. Then, the no income, verified assets (NIVA) loans came out. The lender no longer required proof of employment. Borrowers just needed to show proof of money in their bank accounts. The qualification guidelines kept getting looser in order to produce more mortgages and more securities. This led to the creation of NINA. NINA is an abbreviation of No Income No Assets (sometimes referred to as Ninja loans). Basically, NINA loans are official loan products and let you borrow money without having to prove or even state any owned assets. All that was required for a mortgage was a credit score......

 

In 1995, the GSEs like Fannie Mae began receiving government tax incentives for purchasing mortgage backed securities which included loans to low income borrowers. Thus began the involvement of the Fannie Mae and Freddie Mac with the subprime market.[110] In 1996, HUD set a goal for Fannie Mae and Freddie Mac that at least 42% of the mortgages they purchase be issued to borrowers whose household income was below the median in their area. This target was increased to 50% in 2000 and 52% in 2005.[111][/Quote]

 

http://en.wikipedia.org/wiki/Subprime_mortgage_crisis

 

As it was with bascule, during a discussion on derivatives, I'm not attempting to blame the Financial Crisis on any one entity. There are just to many contributors and both major political parties are deeply involved. Then every President, including Reagan, Clinton and Bush II, IMO has over rated home ownership for people who simply have no idea what that actually involves (taxes/insurance/maintenance, etc..etc..). I also understand "home flipping" new buying new homes under contract (in many cases before even being built) or buying fixer uppers and remodeling, along with soon to be retirees buying second homes or vacation homes on the assumption those values would rise until they retired and/or sold their current homes, all of which should have been considered risky behavior.

 

I am curious in why there is no mention of Fannie/Freddie in any of the proposed and current 'Financial Reform' Legislation or in fact the 'School Loan' Legislation, which in my mind is a baby sister to what became Fanny prior after privatization in 1968. It would also be my opinion two major drivers of the loosening of the requirements for loans acceptable to F/F were in fact Chris Dodd and Barney Frank, whom seemingly are trying to blame every thing else, other than Congress, F/F or themselves on results of their own actions, yet authors and sponsors of that "Financial Reform Legislation".