Treasury can - and should - take immediate corrective action to cure the undercapitalization of the GSEs. There is neither a need nor a rational reason to wait on Congress to act, particularly since GSE reform legislation is far from certain.
"Mortgage bankers have now joined the Civil Rights groups and community banks in asking for this important, common-sense change," McGrath said.
The alternative, and the less preferable, approach is to lower the GSE guaranty fees. This would at least remove an unnecessary tax locking so many homebuyers out of the market.
Michael H. Krimminger, a former top official with the Federal Deposit Insurance Corporation (FDIC) and who advised Congress on writing the law that established FHFA’s role with Fannie and Freddie, wrote for American Banker last week that “FHFA is ignoring the basic duty of a trustee: to protect the interests of all creditors.” Instead, he explains, FHFA is violating that responsibility by favoring the Treasury. “While Treasury provided critical up-front funding to the GSEs [Government-Sponsored Enterprises], it has now been well-compensated under the original agreements. It cannot simply strip the companies of cash in perpetuity. … The continuation of the sweeps through the conservatorships is a violation of every principle established in bankruptcy and in the more than 80 years of FDIC bank resolutions,” writes Krimminger. And it violates the law under which Fannie and Freddie fell under FHFA control.
Geitner, Demarco, Treasury, and the FHFA all state that they entered into the “net worth sweep” to save the GSE’s from having to become further indebted to Treasury and that all of their models showed the GSE’s not being profitable ever. Wouldn’t you be surprised to know that the GSE’s became wildly profitable just 2 months after the 100% net worth sweep was implemented.
held approximately $100 billion in PLS in 2002, with roughly $35
billion in subprime and $3 billion in Alt-A PLS; at their peak,
in 2005, the GSEs’ PLS holdings had grown to approximately $350
billion, with roughly $145 billion in subprime and $40 billion
in Alt-A PLS. Cong. Budget Office
Manhattan U.S. District Judge Denise Cote hasn't shown much sympathy for the 18 banks that were sued by the Federal Housing Finance Agency. The FHFA, which is the conservator for Freddie Mac and Fannie Mae, has pursued the banks that sold $190 billion of mortgage-backed securities to Fannie and Freddie, claiming they grossly misrepresented the quality of the underlying loans. In a barrage of rulings, Cote has decimated the banks' defenses, leading all but two banks to settle for a whopping total of more than $20 billion.
Last July, for example, Cote rejected the defense argument that even if the banks did sell investments backed by shoddy loans, Fannie and Freddie fully understood the risks. In an 89-page, clearly reasoned ruling that displayed an intimate knowledge of these complex cases, Cote cut through the banks' thicket of arguments. "The defendants have identified no evidence—either direct or circumstantial—of the extremely improbable scenario they posit: [Fannie and Freddie], when investing billions of dollars in securities, knew of the falsity of defendants' specific representations," she wrote.
Cote's handling of this mass of cases has not only been decisive, but also refreshingly swift. Litigation as sprawling and complex as this could have dragged on for a long, long time. Here, all but two of the lawsuits were resolved within a relatively quick three years.
Pretty obvious in 2001, Fannie mae and Freddie mac were not a problem!
In 2003 Private mortgages and alt A subprime came into fashion and F&F lost market share to them.
In 2007 The Private mortgage market imploded and Fannie and Freddie took back share to save the mortgage market!!
In 2008 Fannie and Freddie were taken over to insure that they would be able to take on the entire PLS market since it had imploded and was completely gone, someone would have to take this portion of the market or complete collapse of the system was about to happen.
It is now 2015! We can all see the markets have re-balanced back to 2003 levels. PLS is gone and Alt a and subprime are gone for good. Time for the US treasury and the FHFA to give back Fannie mae and Freddie mac to the owners, shareholders.
22 banks in the United States and Europe have been forced to pay $230 billion since 2009 American banks have incurred more than half of these massive penalties. The European bill amounts to just over $100 billion ― roughly half of which was paid by the top seven British banks.
But the numbers tell only part of the story. In the U.S., the penalties have been dominated by fines for sales of misleadingly marketed mortgage-backed securities, often to the two government supported entities Fannie Mae and Freddie Mac. http://www.koreaherald.com/view.php?ud=20141228000312