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McPalin on Fannie/Freddie
Writing in today's Wall Street Journal:
Along with the commitment of taxpayers' dollars, we should make market reforms to help ensure that we do not face this problem again. We will make sure the marketplace understands its obligations. Homeowners must be able to understand the terms and obligations of their mortgages. In return, they have an obligation to provide truthful financial information, and should be subject to penalty if they do not. Policies must be in place to ensure that homeowners provide a responsible down payment of equity in the initial purchase of a loan. In the future, Fannie, Freddie or any government organization should never insure a loan when the homeowner doesn't have enough of his or her own capital in the investment.
Lenders who initiate loans will be held accountable for the quality and performance of those loans, and strict standards must be required in the lending process. Every lender must be required to meet the highest standards of ethical behavior, with recourse if they do not perform.
Reforms are necessary now to make mortgage lending and banking organizations more transparent. We will require greater disclosure, so that complex derivative instruments and excessive leverage can't put the marketplace, and the financial security of your home, at risk.
We will push the nation's top mortgage lenders to provide maximum support to help cash-strapped, but credit-worthy customers. Lenders should do everything possible to keep families in their homes and business growing.
Whole thing here. Thoughts?
|9.9.08 @ 9:22AM|#
I may be misreading this, but it seems like she's calling for
increased regulation of the lending process and a state-mandated
higher standard for borrowers.
But of course these measures are for our own good. And compliance
costs won't have any effect on capital availability.
Mr. Blather|9.9.08 @ 9:26AM|#
"Homeowners must be able to understand the terms and obligations
of their mortgages."
Ummm, how about teaching people not to sign things they don't
understand? Also, I'm sure they meant "home buyers" as people who
own homes are either already in trouble or don't need help.
"In return, they have an obligation to provide truthful financial
information, and should be subject to penalty if they do
not."
What if no one asks them for financial information?
"Policies must be in place to ensure that homeowners provide a
responsible down payment of equity in the initial purchase of a
loan."
Suitable to whom? Is a dollar down payment suitable enough?
$3.50?
I could go on but I've already got a headache.
robc|9.9.08 @ 9:27AM|#
I want to break it down:
Homeowners must be able to understand the terms and obligations
of their mortgages.
Im okay with this. However, I think part of the problem NOW is that
there is too much explanation of terms and obligations. Does it
really take an entire book to explain a mortgage? My first
mortgage, I tried to at least skim everything. 2nd and 3rd time
around, I just signed without even looking.
they have an obligation to provide truthful financial
information, and should be subject to penalty if they do
not.
This is already fraud, right? Do we really need to change anything
or is it just an enforcement issue?
Policies must be in place to ensure that homeowners provide a
responsible down payment of equity in the initial purchase of a
loan.
While a good idea, it seems like this policy should be set by the
person taking on the risk - the bank.
In the future, Fannie, Freddie or any government organization
should never insure a loan when the homeowner doesn't have
enough of his or her own capital in the
investment.
Fixed.
Anyway, blah blah blah, from that point on.
|9.9.08 @ 9:28AM|#
OK, so fedgov will run all lending business, in the process
keeping whole the Chinese bond holders, next in line fedgov will
take ownership interest in auto industry, then the airlines come
back for more, including hand off of all pension plans to the
suckers (taxpayers), next the energy companies, the extractive
industries....hail the O-bama-Mc-unified socialist states of
america.
Piece by piece, but I'd rather someone have the balls to pull a
Hugo, just announce we've nationalized everything, the pigs at the
top are in charge and you proles can drink warm beer if you can
afford any, cause we've nationalized the breweries too and raised
the price.
|9.9.08 @ 9:30AM|#
Almost forgot, some treasury guy this morning stated that for
our 'investment' the taxpayer will benefit on the 'upside'.
What upside?
|9.9.08 @ 9:31AM|#
The Martket understands its obligation by people going broke.
What bothers me most about this whole thing is the contrast to the
savings and loan meltdown in the early 90s. A fair number of people
went to jail over the S&L debacle. In contrast, no one is so
much as being investigated over this. Why? Because the top people
were political grandees from both sides. We couldn't investigate
them now could we?
The whole lesson of this thing is that if you are going to fuck up,
fuck up really big and include people from both parties. If you do
that, Congress will come and bail your ass out with a few trillion
of everyone else's money and hope the thing goes away.
|9.9.08 @ 9:36AM|#
In the first 100 days of our administration, we will look at
every agency and department and expenditure of the federal
government and ask this simple question: Is it serving the needs of
the taxpayer? If it is not, we will reform it or shut it down, and
we will spend money only on what is truly in the interest of the
American people.
Yeah, right.
|9.9.08 @ 9:37AM|#
Not one peep about reforming the fiat money system, which led to
the housing bubble...
Nor the government insistence that we have an "ownership society",
which means everyone gets rich watching his home value rise in the
bubble
Nor that the sub prime loans were politically pushed for reasons of
"equality"
Or the foreign debt due to the buddy buddy central bank system too
big to fail now!
No, the government itself had nothing to do with it...its those
unethical mortgage lenders who did it...fingerprint them!
|9.9.08 @ 9:39AM|#
We will push the nation's top mortgage lenders to provide
maximum support to help cash-strapped, but credit-worthy customers.
Lenders should do everything possible to keep families in their
homes and business growing.
Is this statement not almost entirely conflicting with the previous
statement that
Policies must be in place to ensure that homeowners provide a
responsible down payment of equity in the initial purchase of a
loan. In the future, Fannie, Freddie or any government organization
should never insure a loan when the homeowner doesn't have enough
of his or her own capital in the investment.
|9.9.08 @ 9:40AM|#
Oh and buying off Congress doesn't hurt either. Take a look at
the amount of money Fannie and Freddie threw around to well placed
Senators.
Dodd, Christopher J
S
D-CT
$133,900
2. Kerry, John
S
D-MA
$111,000
3. Obama, Barack
S
D-IL
$105,849
4. Clinton, Hillary
S
D-NY
$75,550
5. Kanjorski, Paul E
H
D-PA
$65,500
http://www.opensecrets.org/news/2008/07/top-senate-recipients-of-fanni.html
That is just the top five. You get down the list a bit and you find
some Republicans. I would love to say that is a result of the
Democrats being more corrupt. But the reality is, they are just the
ones in charge and thus got to biggest bribes.
robc|9.9.08 @ 9:43AM|#
Reinmoose,
Not wanting to defend the idiocy, but one is a forward looking
statement and one is backwards looking, trying to make the best of
a situation already occurring.
|9.9.08 @ 9:43AM|#
Lenders Legislators who initiate loans
laws will be held accountable for the quality and performance of
those loans laws, and strict standards must be
required in the lending legislative process.
Try that one on for size, Queeg.
Tom Walls|9.9.08 @ 9:56AM|#
This sounds like your standard McCain stump speech - a few bones
thrown to the marketeers, but a basic endorsement of the current
system.
O'Bama's proposal doesn't seem too radical. Predictably there is
more tinkering, meddling, penalties for dishonest lenders, etc.
This was on his site (it's funny how each plank says "Obama
will..."):
Protect Homeownership and Crack Down on Mortgage Fraud
Obama will crack down on fraudulent brokers and lenders. He will
also make sure homebuyers have honest and complete information
about their mortgage options, and he will give a tax credit to all
middle-class homeowners.
* Create a Universal Mortgage Credit: Obama will create a 10
percent universal mortgage credit to provide homeowners who do not
itemize tax relief. This credit will provide an average of $500 to
10 million homeowners, the majority of whom earn less than $50,000
per year.
* Ensure More Accountability in the Subprime Mortgage Industry:
Obama has been closely monitoring the subprime mortgage situation
for years, and introduced comprehensive legislation over a year ago
to fight mortgage fraud and protect consumers against abusive
lending practices. Obama's STOP FRAUD Act provides the first
federal definition of mortgage fraud, increases funding for federal
and state law enforcement programs, creates new criminal penalties
for mortgage professionals found guilty of fraud, and requires
industry insiders to report suspicious activity.
* Mandate Accurate Loan Disclosure: Obama will create a Homeowner
Obligation Made Explicit (HOME) score, which will provide potential
borrowers with a simplified, standardized borrower metric (similar
to APR) for home mortgages. The HOME score will allow individuals
to easily compare various mortgage products and understand the full
cost of the loan.
* Close Bankruptcy Loophole for Mortgage Companies: Obama will work
to eliminate the provision that prevents bankruptcy courts from
modifying an individual's mortgage payments. Obama believes that
the subprime mortgage industry, which has engaged in dangerous and
sometimes unscrupulous business practices, should not be shielded
by outdated federal law.
|9.9.08 @ 9:58AM|#
It's a given that the government will bail out the holders of
Mortgage Backed Securities (MBSs) by making good on Fannie and
Freddies debts. That reality sucks but it is pretty much what we
have to deal with. The policy question is how do we proceed from
that distasteful fact.
In July, CATO posted
some thoughts on the subject that basically is a recipe to
bailout Fannie and Freddie and subsequent privatization that allows
for genuine competition in the industry.
This (IMHO) sound advice is not likely to be followed by our reps
in DC, but is much more realistic than squashing the coming
bailout.
|9.9.08 @ 9:59AM|#
Don't hold your breath for Obama to go after "dishonest Lenders". The biggest crook in this whole mess was Franklin Raines, the former Clinton Budget Director, who lied about the fiscal state of the mess in order to get a big bonus. He over estimated earnings by 10 billion in order to maximize his bonus. If that were in private sector, Raines would be going to jail right now.
Tom Walls|9.9.08 @ 10:10AM|#
Was it future or previous earnings Raines overestimated
or overreported? I mean, this was probably buoyed by general
housing market optimism at the time and few questioned it. Sucks
that his bonus was tied to making a $10bn claim like that.
You could have made a lot of bread short selling them in the past
two days.
|9.9.08 @ 10:12AM|#
Current Tom. According to a house report they manipulated the accounting to make the earnings look better.
|9.9.08 @ 10:22AM|#
Sure, you can be paranoid and actually read the documents. My
boss is, so I just spent nine hours reading over the re-mortgage
papers for our building. Then he will spend nine hours reading
them, to make sure I caught and discussed all changes and
incomprehensible legalese with the bankers. Then, at closing, we
will read all the docs again to make sure nothing changed from the
drafts to final (and past experience shows it has when a word
processor pulls up the wrong draft.) Or, as the banker told us, we
can do what 99.9% of other borrowers do and simply sign where
indicated.
What is needed is plain english that says "make your payments on
time or borrower takes back the security."
|9.9.08 @ 10:28AM|#
What is needed is plain english that says "make your
payments on time or borrower takes back the security."
And a line which says, "defaulted loans will adversely impact the
earnings and future viability of your bank."
|9.9.08 @ 10:29AM|#
The govt. had to step in as the bonds were tacitly backed by the
govt. (this has always been the case - no wiggle room on this
issue) This is why they got so big relative to their wholly private
competitors, they could raise money more cheaply; when you have the
US Govt promising to pay any bond you sell you can get a pretty low
rate of interest.
The issue is what we do looking forward.The govt's choice is to
nationalize the mortgage business or get out of the business of
backing the debt of these entities. I'd divide them up into smaller
entities then auction them off to the market and make clear that
there will no longer be any govt backing. congress will fight this
as Freddie and Fannie provided lots of money to members of congress
and provided pork through projects in districts of members they
favored.
|9.9.08 @ 10:41AM|#
The big guys were giving loans to little guys that couldn't
really afford the home. The big guy was making the American dream
come true. Therefore when the crap goes south, why should the big
guys pay? He was helping the little guy!
Very simple.
I'm half kidding.
|9.9.08 @ 10:41AM|#
we should make market reforms...We will make sure the marketplace understands its obligations...[Homeowners] have an obligation...Policies must be in place...In the future, Fannie, Freddie or any government organization should never...Lenders...will be held accountable...strict standards must be required...Every lender must be required to meet the highest standards...Reforms are necessary...require greater disclosure...We will push the nation's top mortgage lenders to provide maximum support...Lenders should do everything possible...
Until something REALLY goes bad, at which point we will start
bailing people out left and right.
But be forewarned! After the next bail-out, we have EVERY intention
of delivering a stern lecture on the short-comings of the
marketplace, the Administration, and carbon-based life-forms.
I'm afraid it may be sterner than the current one. I'm sorry, but
you force us to take these actions!
|9.9.08 @ 10:45AM|#
regarding clear debt instrument language. Yes, we need to make
the language more clear but this will only help a little bit. When
you get into a situation where an asset (be it houses or tulips) is
going up and up many people will use debt to buy more so that when
the price goes up on the asset they bought they end up making more
money. Of course there is a big problem when the price goes down,
and financial crisis will sometimes occur.
This sometimes WILL happen in a market economy, no way around it.
The problem is that if you institute rules and regulation then you
can throw out the baby with the bath water. The Baby being
innovation, efficiency, and productivity growth. It can be a tough
balancing act. Most economists would advocate a private process
(i.e. no govt control or ownership) that has in place rules of
transparency.
Fundamentally, capitalism gave us the extreme wealth we live in
today and taking away the up and downs would take away much of what
has driven the process that has given us so much wealth.
People say that the 19XX's were so much better (50s 70s you can
insert decade) than now and that the capitalism/globalization/etc.
is why we are no worse off. I don't know any person, not one, who
would willingly go back in time and live their life in some
previous decade. The reason is that we have better medical care
(even if you have no insurance, the ER now is a lot better than
anything they had in the 70's) ipods, internet, etc etc, and we
have all that due to capitalism with all is warts.
I've rambled enough
|9.9.08 @ 11:04AM|#
Not one word about the free market in this article. Noam Chomsky could have written it.
|9.9.08 @ 11:11AM|#
Why do we even need these companies? Was no one able to get a home loan before 1968? WTF?
LarryA|9.9.08 @ 11:20AM|#
Homeowners must be able to understand the terms and
obligations of their mortgages.
Simplicity would help a lot here. So would doing away with
government regulations loading the mortgage portfolio with
multi-page small-print "disclosures" that require a law degree to
read.
In return, they have an obligation to provide truthful
financial information, and should be subject to penalty if they do
not.
In my experience most people who buy a house don't know enough to
fake entries. The "we can get away with saying it this way"
suggestions came from the "expert" who wants the commission for
putting the loan through. Of course, I'm reasonably honest and have
an excellent credit rating, so YMMV.
We will require greater disclosure, so that complex
derivative instruments and excessive leverage can't put
the marketplace, and the financial security of your home, at
risk.
Again, if instruments are so complex no one can understand them,
disclosure is futile.
cash-strapped, but credit-worthy customers
Pretty much an oxymoron.
Perhaps what we really need is a national "If you want to stay out
of debt, spend less than you earn" initiative. But neither
Democrats nor Republicans could come up with that without
displaying monumental hypocrisy.
|9.9.08 @ 11:36AM|#
Maybe one of Heather's mommies could spend a few mnutes teaching her how to balance a checkbook. With special attention to the "negative numbers are bad" part.
|9.9.08 @ 11:39AM|#
Once upon a time, a 30-year mortgage with 20 percent down was the norm and the housing market was hunky-dory. Now everyone thinks they deserve to be a homeowner because they made it to age 25 and shouldn't be "throwing away their money on rent", but instead can borrow against the bubbling appreciation of their house. This could be a giantic disaster. Arnold Kling at CATO has a good analysis: http://www.cato.org/pub_display.php?pub_id=9630
|9.9.08 @ 11:44AM|#
Perhaps what we really need is a national "If you want to stay out of debt, spend less than you earn" initiative. But neither Democrats nor Republicans could come up with that without displaying monumental hypocrisy.
Reminds me of my favorite Jeff Flake quote (after being the lone
'Nay' on a bill supporting 'Financial Literacy Month'):
"Congress is in no position to teach Americans how to manage their
finances."
http://www.azcongresswatch.com/?p=1465
|9.9.08 @ 11:54AM|#
I like the admonition expressed on one California (Libertarian as a matter of fact)official's website: " Cut. Up. The. Credit. Cards. You. Fools."
Seward|9.9.08 @ 11:55AM|#
If the government is going to subsidize or aid potential home buyers as a means to make the home buying market more "equitable" it ought to just do that for the relatively small number of borrowers who have a problem getting such loans.
Invisible Finger|9.9.08 @ 12:10PM|#
Lenders who initiate loans will be held accountable for the
quality and performance of those loans
Another case of maing bullshit regulations out of the air so that
the next buyer is absolved of doing ANY due diligence. When the
originator packages the loan into a security, the prospective buyer
of said security should be doing their due diligence as to the
quality of the loan.
Once again, politicans do everything to make intelligent concepts
like "Buyer Beware", "Don't put all your eggs in one basket", and
"Save for a rainy day" pointless advice if not downright
illegal.
Invisible Finger|9.9.08 @ 12:18PM|#
How can anyone take any campaign talk seriously regarding mortgage reform when the campaign managers for both McCain and Obama are former subprime mortgage lenders.
|9.9.08 @ 12:48PM|#
"In return, they have an obligation to provide truthful
financial information, and should be subject to penalty if they do
not."
Like foreclosure?
"Lenders who initiate loans will be held accountable for the
quality and performance of those loans"
You mean like losing money when they make bad loans?
"Lenders should do everything possible to keep families in their
homes and business growing."
Wasn't part of the problem that they were doing too much?
|9.9.08 @ 1:23PM|#
Don Mynack,
FYI: Fannie Mae was created during the 1930s.
And turned into a government sponsored enterprise in 1968 to help
LBJ finance the war in Vietnam. It had a ~3 billion line of credit
guaranteed at the time. Banks were happy to make imprudent loans,
the FMs were happy to buy them, and buyers of the FMs securities
(MBSs) happy to purchase them because everybody assumed that the
government would not allow them to fail. They were correct.
Together the FMs now have trillions in liabilities all assumed
since the 1968 change into a GSE.
But you knew all of that, didn't you?
|9.9.08 @ 1:27PM|#
Correction to my previous - The last sentence in the first
paragraph should read
Together the FMs taxpayers now have trillions
in liabilities all assumed since the 1968 change into a
GSE.
|9.9.08 @ 1:30PM|#
I will add that all divedends that Fannie and Freddie have payed to shareholders in the past are not recoverable. All the profit without any of the risk. What a friggin' deal! I will cut no slack to either party over this monstrous fuckup.
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