What Recently Happened In Washington DC

Friday, January 13th, 2012 | Uncategorized | No Comments

Tuesday, January 10, 2012, I had the opportunity to join the DPC lobbyist and other members of the Distressed Properties Coalition and brief the staff members of four separate Republican members of the Congressional House Financial Services Subcommittee. Each briefing focused on two points.
The first point that we raised in each briefing had to do with the recent development of arbitrary short-sale restrictions presented either in the form of Short Sale Affidavits or stipulations in Short Sale Approval letters that were emanating from the GSE’s, particularly from Freddie Mac. We touched upon the fundamental questions regarding the overall legality of these requirements, as well as the propriety of them, to wit, housing policy being created by a failed institution that is dependent upon government assistance that believes it still has the right to dictate housing policy and usurp that authority from the Congress.
The second point that we briefed each office on had to do with provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act that make seller financing even more challenging than had been established through the Safe Act.
In each instance, the representative for each member of Congress was very receptive to our ideas and understood our position. In fact, one of them said, “You mean to tell me that if my grandmother wants to try to sell, via owner financing, the farm she just inherited from my granddad, she won’t be able to do it without complying with all of these extra rules and regulations?” Another staff member inquired as to how the GSE actions were going to impact the rental market and affect the strong rental market that was going on in his Representative’s Congressional district. A third staff member quickly acknowledged that the fact that because short sales were no longer going through, it was creating an even bigger log jam of foreclosures, placing an even greater burden on HOA’s and COA’s in her Representative’s district.
The message that we presented is one asking for less regulation coming from failed institutions that have demonstrated a track record of squandering billions of taxpayer dollars and have been charged with the deliberate misleading of the public and Congress regarding the extent of their financial holdings. We are advocating that these defacto regulations are not only illegal, crippling the economy, and killing jobs, but they are also delaying and stifling any type of housing recovery that could begin if the free market system was allowed to adequately and completely address, without restraint and restrictions, the distressed property environment.
We also pointed out the inherent contradictions in the defacto GSE short-sale regulations, as their efforts to limit flipping were directly contrary to the recently re-extended FHA waiver of the anti-flipping rule.
All of the above points were well-articulated by members of the DPC which included representatives from Clear Title America and Noteworthy Publications.

Outside Editorial: Fannie and Freddie were at heart of crisis

Sunday, January 1st, 2012 | Uncategorized | No Comments

The following editorial appeared in the Kansas City Star:

Much of the analysis of the housing crash and ensuing credit panic has focused on the manic activities of Wall Street, where most of the headlines of the debacle were made.
That’s a critical part of the story, but the recent lawsuit against six former top executives of Fannie Mae and Freddie Mac rightly moves the spotlight toward the government’s role in generating the crisis.
In the suit, the Securities and Exchange Commission accuses the executives — including former Fannie CEO Daniel Mudd and former Freddie CEO Richard Syron — of misleading the markets about their companies’ exposure to high-risk loans. As SEC Enforcement Director Robert Khuzami put it, “Fannie Mae and Freddie Mac executives told the world that their subprime exposure was substantially smaller than it really was,” giving analysts and rating agencies a skewed picture of the level of risk in the market.
Fannie and Freddie, odd hybrids, were at the heart of the crisis. Supposedly, they were private, stock-issuing corporations. But their government charter let them borrow at rates lower than competitors because markets assumed, rightly as it turned out, that if they failed the taxpayers would back them up. The “subprime exposure” mentioned by Khuzami was also taxpayer risk.
A bailout is exactly what happened in 2008. The government seized control of Fannie and Freddie and bailed them out at a cost, so far, of $150 billion.
Fannie and Freddie don’t make loans. They buy loans from those who do, and then keep them on their books or package them into bonds for sale to investors.
This was a great way to raise money to finance housing, but politicians pushed it too far. As Gretchen Morgenson of The New York Times and Joshua Rosner wrote in “Reckless Endangerment,” the Fannie-and-Freddie debacle shows what happens “when Washington decides, in its infinite wisdom, that every living breathing citizen should own a home.”
Beginning in 1992, the government began pushing for more allocation of credit to lower-income borrowers. To meet affordable-housing goals set by Congress, the two mortgage giants steadily lowered their credit standards and began buying subprime loans or no-document mortgages — those for which verification of key data like income was absent. Subprime originators seized the opportunity to reap profits with dubious mortgages while shifting the risk to Fannie and Freddie — and the Treasury.
Whenever concern was raised about the increased risk, reforms would be blocked by powerful Fannie-and-Freddie backers in Congress, like Massachusetts Rep. Barney Frank. “I want to roll the dice a little bit more in this situation toward subsidized housing,” Frank said in 2003. He argued that the same “safety and soundness” standards for banks shouldn’t apply to Fannie and Freddie. In Washington, he was hardly alone. Fannie and Freddie rewarded their friends well.
The SEC allegations against the former executives of Fannie and Freddie may well be tough to prove because of the lack of an agreed-upon legal definition of “subprime.” But it’s appropriate that more light shines on the role of the two mortgage giants, which did so much to encourage the subprime mania. As Charles W. Calomiris of the Columbia Business School wrote, “The decisions by Fannie and Freddie to embrace no-doc lending in 2004 opened the floodgates of bad credit.”
After that, loans to people with lousy credit or those offering little documentation exploded, rising to more than $1 trillion in 2006.
In some ways, Washington still hasn’t absorbed the lessons. The massive Dodd-Frank financial-reform bill did little to resolve the status of Fannie and Freddie — an issue that remains for the future.

Statement of FHFA Acting Director Edward J. DeMarco

Sunday, January 1st, 2012 | Uncategorized | No Comments

Regarding Implementation of Guarantee Fee Increase

“On Dec. 23, 2011, President Obama signed into law the Temporary Payroll Tax Cut Continuation Act of 2011. Among its provisions, this new law directs the Federal Housing Finance Agency (FHFA) to increase guarantee fees charged by Fannie Mae and Freddie Mac (the Enterprises) by no less than 10 basis points from the average guarantee fees charged by these companies in 2011 on single-family mortgage-backed securities.
This requirement is effective immediately, meaning that the average guarantee fees charged in 2012 need be at least 10 basis points greater than the average guarantee fees charged in 2011 and that this increase be remitted to the U.S. Treasury, rather than retained as reserves by the Enterprises. The law also requires FHFA to determine a schedule for guarantee fee increases over a two-year period that must satisfy other requirements of the law.
To begin implementation of these requirements, today I am directing Fannie Mae and Freddie Mac to announce before year-end to their seller-servicers that, effective April 1, 2012, the guarantee fee on all single-family residential mortgages shall increase by 10 basis points.
In early 2012, FHFA will further analyze whether additional guarantee fee increases are appropriate to ensure the new requirements are being met. FHFA will announce plans for further guarantee fee increases or other fee adjustments that will then be implemented gradually over the two-year implementation window, taking into consideration risk levels and conditions in financial markets. FHFA will monitor closely the increased guarantee fees imposed as a result of the new law throughout its effective period, which ends Oct. 1, 2021.”

Lawmaker Presses for Criminal Investigation of GSEs

Thursday, December 29th, 2011 | Uncategorized | No Comments

Sen. Scott Brown (R-Massachusetts) says the civil lawsuit filed by the Securities and Exchange Commission (SEC) last week against six former executives of Fannie Mae andFreddie Mac “does not go nearly far enough to achieve justice and accountability for the American people.”
Brown is pressing the Department of Justice and the SECto immediately open criminal investigations into Fannie and Freddie. The senator says authorities need to take a closer look at the GSEs’ business dealings prior to the housing collapse and their disclosure of subprime mortgage holdings.
“If the investigation uncovers illegal actions, criminal prosecution should be pursued and people should go to jail,” Brown wrote in a letter to Attorney General Eric Holder and SEC Chairman Mary Shapiro.
Brown says he’s convinced that Fannie and Freddie’s former executives took steps to pad their own pockets while hiding the extent of their mortgage risks from Congress, creditors, and investors.
Because of their “reckless disregard,” Brown says, taxpayers are now left holding the bag and on the hook for $150 billion in losses – a tab that he expects will continue to grow and will never be repaid.
Brown says the latest civil case against the GSEs’ former executives “follows a troubling pattern” for the Justice Department and the SEC. He says authorities have been “far too timid” in pursuing criminal charges against the GSEs and cites the 2003 accounting scandals at Fannie Mae that resulted in only civil penalties.
The SEC filed a lawsuit on December 16, alleging securities fraud against Fannie Mae’s former CEO Daniel Mudd, former chief risk officer Enrico Dallavecchia, and formerEVP of single family mortgage Thomas Lund, as well as Freddie Mac’s former CEO Richard Syron, former EVP and chief business officer Patricia Cook, and former EVP for single-family guarantee business Donald J. Bisenius.
The SEC’s complaint says these six executives made material misstatements to the public, investors, and the media about the companies’ exposure to subprime mortgage loans in 2007 and 2008.
Both Fannie and Freddie entered into non-prosecution agreements with the SEC and agreed to cooperate in the litigation against their former executives.

(Source: dsnews.com)