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97% of All U.S. Mortgages are Backed by the Government
- BAC
- Bank of America
- Bank of America
- Barack Obama
- Barry Ritholtz
- Chris Whalen
- Countrywide
- Creditors
- Dean Baker
- default
- Edward Pinto
- Fannie Mae
- Federal Reserve
- Freddie Mac
- Ginnie Mae
- Great Depression
- Gretchen Morgenson
- Housing Market
- Institutional Risk Analytics
- John Hussman
- Main Street
- Meltdown
- Nouriel
- Nouriel Roubini
- Real estate
- recovery
- White House
I heard a recent talk by Richard Wolff - Professor of Economics
Emeritus at the University of Massachusetts in Amherst (PhD in
Economics from Yale), where Wolff said that 97% of all U.S. mortgages are either written or guaranteed by the government.
As Bloomberg explained last August:
Fannie
Mae and Freddie Mac, the government-controlled companies that issued
and guaranteed more than 71 percent of mortgage-backed bonds last year.
Between those companies and Ginnie Mae, which guarantees loans insured
by the Federal Housing Administration, the government backed nearly 97 percent of U.S. mortgages in 2009.
There are supposedly plans in Washington to wind down Fannie and Freddie. Critics say that would destroy the "recovery" in housing.
If continuing to throw money at Fannie and Freddie would stabilize the economy, I might be for it - even though it is not free market capitalism. I am not wed to either liberal or conservative ideologies, and am instead simply motivated to do whatever will work to stabilize the economy and help the most people.
But as I noted in January:
Most
independent experts say that the government's housing programs have
been a failure. That's too bad, given that the housing slump is now -
according to Zillow's - worse than during the Great Depression.
Indeed, PhD economists John Hussman and Dean Baker, fund manager and financial writer Barry Ritholtz and New York Times' writer Gretchen Morgenson
say that the only reason the government keeps giving billions to
Fannie and Freddie is that it is really a huge, ongoing, back-door
bailout of the big banks.
Many also accuse Obama's foreclosure relief programs as being backdoor bailouts for the banks. (See this, this, this and this).
***
And
Freddie and Fannie's recent settlement with Bank of America - a
couple of billion - has been criticized by many as being a bailout.
In "BofA Freddie Mac Putbacks Resolved for 1¢ on $", Barry Ritholtz notes:
Bank of America settled numerous claims with Fannie Mae for an astonishingly cheap rate, according to a Bloomberg report.
A
premium of $1.28 billion was paid to Freddie Mac to resolve $1
billion in claims currently outstanding. But the kicker is that the
deal also covers potential future claims on $127 billion in loans sold by Countrywide through 2008. That amounts to 1 cent on the dollar to Freddie Mac.In "Is Fannie bailing out the banks?", Forbes' Colin Barr writes:
Someone must be getting bailed out, right?
Why
yes, say critics of the giant banks. They charge that Monday's
rally-stoking mortgage-putback deal between Bank of America (BAC) and
Fannie Mae and Freddie Mac is nothing more than a backdoor bailout of
the nation's largest lender. It comes courtesy, they say, of an
administration struggling to find a fix for the housing market while
quaking at the prospect of another housing-fueled banking meltdown.Monday's
arrangement, according to this view, will keep the banks standing --
but leave taxpayers on the hook for an even bigger tab should a weak
economic recovery falter. Sound familiar?***
[Edward]
Pinto says truly holding BofA responsible for all the mortgage mayhem
tied to its 2008 purchase of subprime lender Countrywide would likely
drive it into the arms of the Federal Deposit Insurance Corp., which
has enough problems to deal with. Though BofA would surely dispute
that analysis, it's easy enough to see where the feds don't want that
outcome.***
But how sharp is Freddie if all it can do
is squeeze a $1.28 billion payment out of a giant customer in exchange
for relinquishing fraud claims on $117 billion worth of outstanding
loans? The very best its million-dollar executives can do is claw back
a penny on each bubbly subprime dollar?That seems pretty weak even given that this is Congress' favorite subsidy dispenser we're talking about.
"How
Freddie can justify this decision to settle 'all outstanding and
potential' claims before any of the private-label putback lawsuits have
been resolved is beyond comprehension," says Rebel Cole, a real estate
and finance professor at DePaul University in Chicago. "This smells
to high heaven and they should be called out."In "Bank Of America Just Admitted That Its Fannie And Freddie Settlement Was A Bailout", Business Insider's Joe Weisenthal writes:
Bank of America has basically confirmed that the critics are correct: It was the beneficiary of a bailout.
According to Bloomberg,
BofA's Jerry Dubrowski said: “Our agreements with Fannie Mae and
Freddie Mac are a necessary step toward the ultimate recovery of the
housing market.”Get it? This was not about settling mortgage
putback exposure at the legal level. It was about helping the greater
good. It's the same too-big-to-fail logic all over again: What's good
for Bank of America is good for America.As the Washington post notes:
“This
is a gift” from the government to the bank, said Christopher Whalen
of Institutional Risk Analytics. “We’re all paying for this because
it will show up in the losses from Fannie and Freddie,” he said.Congresswoman Waters said:
I’m
concerned that the settlement between Fannie Mae, Freddie Mac and
Bank of America over misrepresentations in the mortgages BofA
originated may amount to a backdoor bailout that props up the bank at
the expense of taxpayers. Given the strong repurchase rights built
into Fannie Mae and Freddie Mac’s contracts with banks, and the
recent court setback for Bank of America in similar litigation with a
private insurer, I’m fearful that this settlement may have been
both premature and a giveaway. The fact that Bank of America’s
stock surged after this deal was announced only serves to fuel my
suspicion that this settlement was merely a slap on the wrist that
sets a bad example for other negotiations in the future.
And
Chris Whalen - who has been hailed by Nouriel Roubini as one of the
leading independent analysts of the U.S. banking system - points out
that Fannie and Freddie helped to create the epidemic of mortgage fraud
in the first place, and Whalen argues that Fannie and Freddie must be
restructured:
The
invidious cowards who inhabit Washington are unwilling to
restructure the largest banks and GSEs. The reluctance comes partly
from what truths restructuring will reveal. As a result, these same
large zombie banks and the U.S. economy will continue to shrink under
the weight of bad debt, public and private. Remember that the
Dodd-Frank legislation was not so much about financial reform as
protecting the housing GSEs.Because President Barack Obama
and the leaders of both political parties are unwilling to address the
housing crisis and the wasting effects on the largest banks, there
will be no growth and no net job creation in the U.S. for the next
several years. And because the Obama White House is content to ignore
the crisis facing millions of American homeowners, who are deep
underwater and will eventually default on their loans, the efforts by
the Fed to reflate the U.S. economy and particularly consumer spending
will be futile. As Alan Meltzer noted to Tom Keene on Bloomberg Radio
earlier this year: "This is not a monetary problem."***
The
policy of the Fed and Treasury with respect to the large banks is
state socialism writ large, without even the pretense of a greater
public good.
***
The fraud and obfuscation now
underway in Washington to protect the TBTF banks and GSEs totals into
the trillions of dollars and rises to the level of treason.***
And
in the case of the zombie banks, the GSEs and the MIs, the fraud is
being actively concealed by Congress, the White House and agencies of
the U.S. government led by the Federal Reserve Board. Is this not
tyranny?
But the bottom line is that money given to the big banks and government-sponsored entities like Fannie and Freddie does not trickle down to Main Street or the bulk of the American people. See this and this.
As Steve Keen points out,
money given to debtors (i.e. the American citizen) provides much more
bang for the buck than money given to the creditors (i.e. the big banks)
or GSEs.
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maybe 97% if you count MBS on the Fed balance sheet, Citi, BofA and WF backstopping.
Last I heard it was like 65%, probably more by now.
Look sheeple, the true meaning of all this is quite simple. Since the government owns your mortgage, they can sell it. Now that is all fine and good until the entity that owns your mortgage no longer accepts dollars as payment....
...of course if they lost the note, then the property is technically yours.
pity the poor bastards in E. Europe with CHF denominated mortgages. - Ned
heloooo iceland
Not so since the loan documents specify payment in $$$--which will soon make all US mortgages unmarketable!
bingo. fixed mortgages are not inflation adjusted... (i'm about to sell my house w/ 4 7/8% fixed for 30... gonna be more expensive to rent, but I'll let someone else take the bath on the debt). If I thought wages/organic demand had any chance of increasing, I might hold on to it and repay them in monopoly money... but, unfortunately, we'll be desperate for even monopoly money when the time comes...
How will you pay your rent?
Inflation adjusting assets... but, the other issue is that eventually price discovery will occur... once the typhoon hits, I'll be back to home ownership... until that day, I'll be saving to relieve weaker hands.
Housing, college, TBTF banks, stock markets (PPT)...
What else can and will this "government" backstop?
Hookers? I mean come on. If we are living in fantasyland anyway, why not?
One word: Dyncorp.
Yes, there is treason throughout the gubermint. But they have an app for that called 'emergency powers'.
GW, why do you offer PhD credentials as a badge of credibility?
I have really reached the point where I consider those three letters followed by the word economics or finance, to typically denote a pathological liar.
But elite liberal scumbag documentary film makers are credible.
Remember the banks are the bad guys, the idiots lined up double wide around the globe 5 times to buy worthless mortgage paper because it conformed to Freddie and Fannie standards are just innocent dupes.
Just like drugs, no buyers=no sellers, funny how they missed the Miliken junk bond era because the junk didn't conform to imaginary federal standards.
GMAFBA with this simplistic stupid ass neo-marxist bullshit.
Inside Job-the bankers could have worked for free and nothing changes one iota as long as they have idiots the world over to foist their crap onto, they are going to sell it.
It is said that you can't con an honest man, so lucky for conmen everywhere, there are not many honest men.
So given how few honest men there are, we should just let conmen ply their trade like anyone else. It's not like the marks weren't lining up for the special shit.
In fact, why should we have laws or crimes at all? For every criminal there is a victim, we should just let the jungle play itself out?
AMIRITE?
Rite on! not credible though by modern standards.
the guy who came into the game with nada but cashed out for hundreds of thousands is a saint like the guy investing in worthless crappolla for the extra 250basis points has no responsibility for why he is receiving something for nothing,
while the guy who made pennies on the dollar is the devil.
I hope when these EU mortgages I bought at 500bp above par go tits up that the EU consortium bails me out afterall I have no responsibility in the matter. Entitled to something for nothing.
They could have worked for free and nothing changes.
BTW I got taken in the S&L scandal, the Enron fraud, the ZZZ fraud, Global Crossing, the junk bond scandal, the .com blowout and every other fraud ever perpetrated on Wall St-I am a victim though.
But that's not credible.
Afterall it doesn't jive with the perpetual victimization of mankind.
I finally got it.
Credibility is a measure of how much one agrees with the crap they are slinging.
The greater the corellation the greater the credibility.
I feel the same way about the Nobel Peace Prize.
Banzai,
You and the other readers at ZH are sophisticated to know that ... but most Americans aren't.
To most Americans, they consider it a stamp of expertise.
If I just wanted to "preach to the choir", I'd write differently ...
A prof from ZooMass Amherst, of all places...this American recognizes both the institution and individual; expertise indeed. Bah.
I think you are perpetuating the myth.
I know plenty of ordinary working people who couldn't give a shit about the title.
Inside Job certainly settled any doubts.
At least in the scientific arena, don't judge a Ph.D. by their publications, judge them by their patents. There are true "experts" out there (and we should listen to what they say), but the useful folks know how to apply their knowledge.
Many PhD's are academically inclined but as dumb as a fence post when it comes to common sense. I have family that has graduated from Bezerkly and were not able to make it in the private sector which caused their default position public service. The worst of these sophisticated idiots are indeed government officials and the consequence is what we see in America today.
LawsofPhysics: You have made an important distinction. There is a great deal of difference between the scientific and non scientific PhD's.
The scientists are grounded in facts vs. the non scientists who are grounded in theory, especially social theory that sells books and obtains academic chairs at prestigious universities.
Unfortunately the later tend to migrate to government positions, not having worked in, or competed for jobs and advancement in the real economy, where one's productivity is the major arbiter of success and future advancement.
used to be that a PhD was acknowledgement that the recipient had made a fundamental advancement in scientific knowledge.
Then I see Elementary School Principals with Doctorates of Education. eeeewww.
- Ned
schools have printing presses too... and many barking dogs to feed...
Pathological liar or the world's greatest salesman. Sorry bansi, as another "William" myself I could not resist. Also a small business owner.
three letters titles denote four letter words
I feel the same way about two letters: JD
This self-loathing lawyer agrees with you.
I'm a hair club member too. Not sure why William was junked
you mean to say with the full faith and credit of the US Government...
no it trickles (actually gushes) into bankster bonuses, Hamptons beach houses, Feadship yachts and Gulfstream jets
the problen is how we control our govt. uncle sam takes all the loses, treates us worse than manure, is totally as unpatriotic as possible and all is well, cause uncle sam ate our losses from stupid mistakes. so, what's wrong with this picture?
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