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The Fannie/Freddie Uncapping: More Important Than the Coalition Questioning It

Freddie Mac logoSo, here’s a (not very) long-awaited word on the Jane Hamsher/Grover Norquist alliance that has caused such an imbroglio among the online progressive community:

Unfortunately and as expected, the focus on Norquist’s presence itself has sucked up much of the oxygen around this, instead of looking at the deeper issue – the use of Fannie Mae and Freddie Mac to prop up the housing market.

Just a day after the letter was sent, the Treasury Department announced that they would uncap their support of Fannie and Freddie for the next three years, which could expose the government to hundreds of billions of dollars in losses. I find plausible the speculation that Treasury could announce a reduction of principal as part of their mortgage modification program, which would result in major losses of mortgage-backed securities, which Fannie and Freddie could absorb. This is part of a pattern of artificially propping up home prices that should otherwise go down to historically appropriate levels.

To help keep this straight, here is a list of the status of a number of programs:

• Housing Tax Credit: Buyer must sign a contract by April 30th and close by June 30, 2010 to qualify […]

• Federal Reserve MBS Purchase Program: This is scheduled to end March 31, 2010, from the Fed:

[T]he Federal Reserve is in the process of purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. In order to promote a smooth transition in markets, the Committee is gradually slowing the pace of these purchases, and it anticipates that these transactions will be executed by the end of the first quarter of 2010.

• Treasury MBS Purchase Program: This program will end Dec 31, 2009, from the Treasury:

The program that Treasury established under HERA to support the mortgage market by purchasing Government-Sponsored Enterprise (GSE) -guaranteed mortgage-backed securities (MBS) will end on December 31, 2009. By the conclusion of its MBS purchase program, Treasury anticipates that it will have purchased approximately $220 billion of securities across a range of maturities.

• HAMP Trial Programs Extended: The Treasury has extended any expiring trial modification program until at least Jan 31, 2010, from the Treasury:

In order to provide servicers an opportunity to remain focused on converting eligible borrowers to permanent HAMP modifications, effective today and lasting through January 31, 2010, Treasury is implementing a review period for all active HAMP trial modifications scheduled to expire on or before January 31, 2010. Active HAMP trial modifications include trial modifications that have been submitted to the Treasury system of record that have not been cancelled by the servicer.

• Support for Fannie and Freddie: Treasury has uncapped the support for Fannie and Freddie for the next three years.

• Fannie / Freddie Low-Cost Refinancing program. This is the program that allows homeowners with Fannie and Freddie mortgages to refinance loans up to 125 percent LTV. I believe this program expires June 10, 2010.

• FHA Loose Lending Standards: In his Dec 2nd testimony to Congress, HUD Secretary Donovan said the FHA would propose tighter lending standards by the end of January 2010.

• Various Holiday Foreclosure Moratoria: Fannie, Freddie and most of the large banks routinely suspend foreclosure activity over the holidays. This has been true this year too. Fannie and Freddie’s holiday moratoria ends Jan 3, 2010, and Citi’s holiday moratoria ends Jan 17th. The other banks programs end in early January too.

It’s clear to anybody paying attention that the government is employing a variety of strategies to keep housing prices stable, which by turn improves the position of the banks. This latest move to use Fannie and Freddie to buy up large numbers of bad mortgages is just another example. I don’t have a problem with reducing principal payments if that is indeed the strategy, but we really have no idea, and there is literally no oversight of these agencies held in 80% by the taxpayers – they fired their own Inspector General, after all.

Let’s just say I’m troubled by an unlimited bailout – seen by the markets as such – of these agencies without the ability to understand why. That’s especially true given the crowing about how the government is getting most of its TARP money back, while failing to discuss this and other larger vehicles to aid banks with taxpayer dollars.

There is a danger associated with lumping in this particular action with the long-held myth on the right that the economy crashed because Fannie and Freddie used the Community Reinvestment Act to lend to poor (black?) people. But that’s not a good enough reason not to demand to know just what the government is up to in giving two GSEs what amounts to an unlimited slush fund, undergirding close to the entire mortgage market in the US. And what Tim Geithner is saying in public about this (“we are going to focus the bulk of the financial force on bringing interest rates and mortgage rates down to cushion the fall in housing prices and help stabilize home values”) shouldn’t reassure anyone.

There’s absolutely nothing wrong in trying to figure out the truth here. You may disagree with the methods but that’s a different argument, and not a particularly illuminating one to have (I would note that Norquist has, in just the past month, joined civil liberties advocates like Human Rights Watch in calling for an end to indefinite detention and joined progressive economists in calling for a rejection of Ben Bernanke’s second term, so you’d have to discount their methods, too). I don’t really know where Rahm Emanuel fits into this, but considering that Treasury officials themselves have been quoted using “Rahm wants it” as a justification for carrying out specific policies, I don’t find it as a completely out-of-left-field suggestion.

There is something the looks wrong here, or at the very least not transparent, and you can either carp about the way in which people question it, or help to question it yourself.

CommunityThe Bullpen

The Fannie/Freddie Uncapping: More Important Than The Coalition Questioning It

So, here’s a (not very) long-awaited word on the Jane Hamsher/Grover Norquist alliance that has caused such an imbroglio among the online progressive community:

Unfortunately and as expected, the focus on Norquist’s presence itself has sucked up much of the oxygen around this, instead of looking at the deeper issue – the use of Fannie Mae and Freddie Mac to prop up the housing market.

Just a day after the letter was sent, the Treasury Department announced that they would uncap their support of Fannie and Freddie for the next three years, which could expose the government to hundreds of billions of dollars in losses. I find plausible the speculation that Treasury could announce a reduction of principal as part of their mortgage modification program, which would result in major losses of mortgage-backed securities, which Fannie and Freddie could absorb. This is part of a pattern of artificially propping up home prices that should otherwise go down to historically appropriate levels.

To help keep this straight, here is a list of the status of a number of programs:

• Housing Tax Credit: Buyer must sign a contract by April 30th and close by June 30, 2010 to qualify […]

• Federal Reserve MBS Purchase Program: This is scheduled to end March 31, 2010, from the Fed:

[T]he Federal Reserve is in the process of purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. In order to promote a smooth transition in markets, the Committee is gradually slowing the pace of these purchases, and it anticipates that these transactions will be executed by the end of the first quarter of 2010.

• Treasury MBS Purchase Program: This program will end Dec 31, 2009, from the Treasury:

The program that Treasury established under HERA to support the mortgage market by purchasing Government-Sponsored Enterprise (GSE) -guaranteed mortgage-backed securities (MBS) will end on December 31, 2009. By the conclusion of its MBS purchase program, Treasury anticipates that it will have purchased approximately $220 billion of securities across a range of maturities.

• HAMP Trial Programs Extended: The Treasury has extended any expiring trial modification program until at least Jan 31, 2010, from the Treasury:

In order to provide servicers an opportunity to remain focused on converting eligible borrowers to permanent HAMP modifications, effective today and lasting through January 31, 2010, Treasury is implementing a review period for all active HAMP trial modifications scheduled to expire on or before January 31, 2010. Active HAMP trial modifications include trial modifications that have been submitted to the Treasury system of record that have not been cancelled by the servicer.

• Support for Fannie and Freddie: Treasury has uncapped the support for Fannie and Freddie for the next three years.

• Fannie / Freddie Low-Cost Refinancing program. This is the program that allows homeowners with Fannie and Freddie mortgages to refinance loans up to 125 percent LTV. I believe this program expires June 10, 2010.

• FHA Loose Lending Standards: In his Dec 2nd testimony to Congress, HUD Secretary Donovan said the FHA would propose tighter lending standards by the end of January 2010.

• Various Holiday Foreclosure Moratoria: Fannie, Freddie and most of the large banks routinely suspend foreclosure activity over the holidays. This has been true this year too. Fannie and Freddie’s holiday moratoria ends Jan 3, 2010, and Citi’s holiday moratoria ends Jan 17th. The other banks programs end in early January too.

It’s clear to anybody paying attention that the government is employing a variety of strategies to keep housing prices stable, which by turn improves the position of the banks. This latest move to use Fannie and Freddie to buy up large numbers of bad mortgages is just another example. I don’t have a problem with reducing principal payments if that is indeed the strategy, but we really have no idea, and there is literally no oversight of these agencies held in 80% by the taxpayers – they fired their own Inspector General, after all.

Let’s just say I’m troubled by an unlimited bailout – seen by the markets as such – of these agencies without the ability to understand why. That’s especially true given the crowing about how the government is getting most of its TARP money back, while failing to discuss this and other larger vehicles to aid banks with taxpayer dollars.

There is a danger associated with lumping in this particular action with the long-held myth on the right that the economy crashed because Fannie and Freddie used the Community Reinvestment Act to lend to poor (black?) people. But that’s not a good enough reason not to demand to know just what the government is up to in giving two GSEs what amounts to an unlimited slush fund, undergirding close to the entire mortgage market in the US. And what Tim Geithner is saying in public about this (“we are going to focus the bulk of the financial force on bringing interest rates and mortgage rates down to cushion the fall in housing prices and help stabilize home values”) shouldn’t reassure anyone.

There’s absolutely nothing wrong in trying to figure out the truth here. You may disagree with the methods but that’s a different argument, and not a particularly illuminating one to have (I would note that Norquist has, in just the past month, joined civil liberties advocates like Human Rights Watch in calling for an end to indefinite detention and joined progressive economists in calling for a rejection of Ben Bernanke’s second term, so you’d have to discount their methods, too). I don’t really know where Rahm Emanuel fits into this, but considering that Treasury officials themselves have been quoted using “Rahm wants it” as a justification for carrying out specific policies, I don’t find it as a completely out-of-left-field suggestion.

There is something the looks wrong here, or at the very least not transparent, and you can either carp about the way in which people question it, or help to question it yourself.

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David Dayen

David Dayen