They are on the move guys. I have always kept my political affiliations and actions a private matter, but what is going on with the Fannie/Freddie, housing, mortgage, Treasury, Fed, Wall St, Washington, rich investor and foreign Gov’t bailout plan could turn out to be nothing short of the largest fraud ever perpetrated on the American people. At least in my lifetime. I feel compelled to use whatever soapbox I have here to get this message out to as many as I can.
Paulson, Frank and even Dodd are about to get their money, and it will come at a great expense to you, me, our children and perhaps our grandchildren decades down the road. A retroactive bailout of Fannie Mae, Freddie Mac, Wall St, Banks, Investment Banks, Foreign Govt’s and many more by the tax payer is being voted on as early as today. We simply cannot calculate the negative repercussions of this.
Many think we are in the early innings of the housing, mortgage and credit crisis, and if they are right, which all the evidence points to, this massive backing will cost an unfathomable amount.
From Bloomberg: “provisions to legislation that would create a stronger regulator for Fannie Mae and Freddie Mac and expand federal efforts to stem mortgage defaults. Frank introduced the bill to reduce foreclosures in April.
Bush administration officials are reviewing the 694-page bill. Frank told reporters in Washington the House will vote today, with the Senate expected to take it up tomorrow. “
- raises the Federal debt ceiling to $10.6 TRILLION from the current $9.815 TRILLION!;
- makes unlimited equity purchases in the firms;
- makes “unspecified” increases in their lines of credit, from $2.25B each. (He spoke of $300B.);
- gives $3.9B to communities for the purchase of foreclosed properties. Rather than assisting struggling home owners, officials have said the package will aid lenders who now own vacated properties. (In the state of CA alone last month, banks took back $10.2B, so this is just a waste of money.);
- has provisions for the Federal Reserve to consult on Fannie Mae and Freddie Mac finances;
- strives to help an estimated 400,000 Americans with subprime home loans refinance into 30-year, fixed-rate mortgages backed by the government (a larger subprime dumping ground);
- gives a new, higher cap on the size of mortgages they may purchase. The new limit would be $625,000, or the median home price plus 15 percent, whichever is lower (artificially supports pricing, making it take longer for the market to clear);
- gives states the ability to offer an additional $11B of mortgage-revenue bonds to refinance subprime loans;
- creates a version of Europe’s market for covered bonds in the U.S. (sales of this same debt have fallen to a six-month low, and prices have dropped 2.5% this year);
And then there’s my favorite! Why would a ‘toxic’ mortgage holder perhaps paying 1% on a Pay Option ARM or 5.95% interest only on a 3/27, want to refi into a 6.5% 30-year fixed where their payments may rise even with a principal reduction?
Even so, this is just another example of FHA acting as a subprime dumping grounds. As a matter of fact, there is a great market out there for private money buying distressed subprime mortgage paper for pennies, reducing the principal balance and refinancing them into an FHA loan.
The wild part is FHA just came out and said how they were losing billions too!
- Under language agreed to by lawmakers, the bill would also give the Federal Housing Administration (FHA) a role in helping thousands of troubled homeowners refinance from costly, exotic mortgages into more affordable, government-backed loans. ( you must be kidding me)
The CBO says this will ‘probably’ cost tax payers only around $25B, but they obviously have no clue. This ‘guess’ was only for the duration of the program and we all know that once Fannie and Freddie are ‘nationalized,’ they are never coming back. Naked Capitalism has a good piece on it this morning:
“Readers may have seen that we cast aspersions on the CBO’s estimate that the Fannie and Freddie rescue program would “probably” cost taxpayers $25 billion. We had noted that the estimate was only through 2009 because that’s how far the authorization extends, but there is no way that Fannie and Freddie will ever be cut loose. Thus an estimate the looked at the liability that was really being taken on, which is open-ended, would come up with considerably higher numbers. A couple of readers stressed that that is how the game is played and the CBO can only opine on bills as written. Hence, legislation is drafted with sunset provisions that everyone knows are a fiction.”
Nevertheless. Our original view that the CBO lacks the expertise and resources to estimate the downside for Fannie and Freddie was confirmed by the New York Times:
The proposed Government rescue of the nation’s two mortgage finance giants should appear on the federal budget as a $25 billion expense, the independent Congressional Budget Office said on Tuesday, but officials conceded that there was no way to really know what, if anything, a bailout might cost taxpayers.
The budget office said the chances were better than even that a rescue would not be needed before the end of 2009 and would not cost any money. But the office also said there was a 5% chance that the mortgage giants, Fannie Mae and Freddie Mac, could lose $100B…
The budget office, while acknowledging that the $25B was at best a rough estimate, did not explain fully how it came up with the figure. The office said it analyzed the companies’ financial statements and consulted with regulators, analysts, market participants and the companies themselves to estimate possible future losses and the amount of any cash injection that might be needed from the Treasury….
Senator Jim DeMint, Republican of South Carolina, said lawmakers were generally supportive of the overall rescue plan, but he added that he had doubts about the $25B estimate. “Everyone knows it’s just a wild guess,” Mr. DeMint said. “We are either going to spend zero or we’re going to spend a whole lot more than they are talking about.”
Judging by what officials have told us for the past year and a half and the stock market action recently, it does not seem that the broader market situation is this dire. Is this finally the truth or just more arm twisting like the investment banks did to Bernanke last year when he decided to cut rates to bail out the companies who created this mess? Or is it like when he was told that if the Fed didn’t bail out Bear Stearns, the world would come to an end.
“Failing to provide such authority at this point could trigger turmoil in the nation’s financial and housing markets, with potentially serious adverse consequences,” the CBO said, noting that markets are anticipating the measure’s passage. (what, you don’t call what we have in the housing market now, turmoil? I would hate to see what you consider turmoil)
The best yet…
WaMu Shows Paulson Mortgage Rescue Plan Is Perilous (Update1) By Shelley Smith and John Glover
July 22 (Bloomberg) — Treasury Secretary Henry Paulson‘s plan to revive U.S. mortgage financing depends on investors buying the same kind of bonds they’re shunning in Europe.
Paulson wants to create a version of Europe’s market for covered bonds in the U.S. just as sales of the debt have fallen to a six-month low and prices have dropped 2.5 percent this year. While the securities are backed by loans and bank assets to get AAA ratings, most are valued, on average, as if they were three levels lower.
The extra yield on covered bonds sold in Europe by Seattle- based Washington Mutual Inc., the biggest U.S. savings and loan, has jumped 13-fold since the sale two years ago to 3.16 percentage points over government notes. The premium for debt of Bank of America Corp., the largest home lender, has quadrupled since June 2007.
“This is absolutely not going to be an instant fix for the U.S. mortgage market if you see how tough it is and how expensive covered-bond funding currently is for established markets in Europe,” said Florian Hillenbrand, an analyst who follows the securities in Munich for UniCredit SpA, Italy’s largest bank.
Paulson says the $3.3 trillion covered-bond market, which dates back to 18th-century Prussia, is a remedy for the worst housing crash since the Great Depression. It offers “new sources of mortgage funding” that will cut costs for home buyers, he said at a forum in Washington on July 8.
If you have not already done so, you may want to click the link below and email the Senators on the list and voice your opinion (thanks for maintaining ‘the list’ Patrick). Remember, they work for you. The American tax payer bailing out this entire situation never needed to happen.
If this goes through, it will not be a fix. Rather it will be just the first of the many fleecings. The mortgage and housing crisis cannot be resolved with a massive bailout. It will only prolong the pain. The market has to work through this, which it is doing. It has been and will be painful, but it is much better than the alternative. –Best, Mr Mortgage <>
US Senators email addresses
Great Sample Letter from RGE Monitor by Joshua Rosner
An Open Letter to Our Readers
Dear Sir (or Madam),
I am writing this letter with all due respects. I have a few items that our Treasury and,
subsequently, legislators may have failed to consider:
– If the GSEs borrow from either the Fed or from the Treasury lines without a
requirement they first eliminate their dividends won’t taxpayers be forced to
subsidize shareholder returns?
– Given the real possibility of future shareholder suits against the GSEs, for alleged
misrepresentations and/or alleged fraud, would the Government be on the hook for
any settlement or damages? Does a Government backstop preclude shareholder suits?
Is this either a prudent or free-market approach? Is this a precedent our leaders want
– If the GSEs have access to the Treasury and Fed then it is likely there could not be a
scenario in which they could end up in “receivership” because their access to capital
is theoretically unlimited. Although this scenario may well mean the U.S. and its
taxpayers can become “critically undercapitalized” the GSEs would not be easily
classified as such. Thus, this plan and the legislation will likely have the effect of
tying the new regulator’s hands from using many of the most meaningful regulatory
powers in the bill.
– It appears irrational to require homeowner’s with negative equity, who take advantage
of the FHA refinancing provided for in the pending legislation, to give up to 50% of
the future appreciation of their homes to the Government yet not require a similar
profit sharing demand on the GSEs in return for the Federal assistance?
– Language in the legislation, which tithes the GSEs to provide funding for an
affordable housing fund, seems either to be a direct transfer of taxpayer resources
toward that end or already outdated and meaningless language that seems destined to
pass in this legislation. This is a prime example of the reasons our citizenry has voted
“no confidence” in legislative leadership on both sides of the aisle and in the
– If the GSEs are being bailed out, by definition, will we either end up bailing out
private mortgage insurers or, alternatively, providing a new business opportunity to
reward the GSEs? They will have the US cost of funds advantage in developing new
credit enhancement programs to circumvent their 80+ LTV risk limits.
I am somewhat amazed by the holes in this plan. Furthermore, I am beginning to question whether the GSEs, in their ongoing and masterful game of political check-mate, have orchestrated this ‘panic’ in an effort to garner assistance precisely during the short window before recess. Perhaps in doing so they would have understood that the Hill and the White House wouldn’t even have time to consider or understand what they are about to do or the dreadful and historic implications of their actions.
Given the April 14th S&P report about the risks posed by the GSEs to the US’ sovereign rating1 I am wondering why anyone would seek to rush and move this before August 3rd recess.
This poorly planned, ill considered and one-off approach is especially troubling given how early we almost certainly are in this crisis. Airlines, autos, regional banks, private mortgage insurers and bond insurers may also look to the Treasury for help. Should we accept the United States an economy where shareholders receive all of the gains from management’s good decisions while the public is forced to accept all of the losses of imprudent decisions?
- (1) Standard & Poor’s, “For The U.S. ‘AAA’ Rating, Government-Sponsored Enterprises Pose Greater Fiscal Risks Than Brokers”, April 14 2008 (See: “We believe they (the GSEs) pose large contingent fiscal risks that recent policy decisions aimed at supporting the U.S. mortgage market have made even larger. If these risks were to translate into increased government debt, they could even hurt the U.S.’s credit standing).”