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The Administration on the Agencies – Step One
On a day when Keefe,Bruyette & Woods (KBW) pronounced the inevitable death of Fannie and Freddie the Administration announces a new initiative that insures that Fannie and Freddie will be around for a long time to come. I’m confused to say the least.
The
plan revealed today by Treasury, HUD and FHFA is to provide assistance
for first time home buyers and existing borrowers who are unable to
afford their current mortgage. Some observations:
-I
have not seen a joint announcement like this before. I read this to be
a first step toward consolidating the very separate roles and standings
of FHFA and HUD. This effort to stimulate housing is very much a team
effort.
-The initiative will be directed through HFAs’. These
are State and Local housing and finance agencies. Heretofore these HFA
have not had a significant percentage of the total mortgage pie. It
would appear that this is another example of “outsourcing.”
-Mr. Geithner said of the plan, “..it will help stabilize the housing market overall.”
Mr. Donovan the head of HUD said, “help in getting our housing market back on track.”
The
Administration is directing its effort at the lower end of the housing
market. For political and economic reasons this is the only segment of
the market they can influence. That makes it the only right choice. The
Administration has introduced the “Trickle Up’ theory.
-Senator
Isakson (R. Ga) has been a strong sponsor of legislation that would
expand the existing tax cut for first time buyers. That legislation may
be trumped by the decision announced today. That remains to be seen.
But if it turns out that way, it will be a window into just how
political the Agencies are.
-Both Fannie Mae and Freddie Mac will play a critical role in this effort. They are both going to be bankers for the HFAs’, “F/F will provide credit and liquidity facilities (to the HFAs)”. In addition, “the HFAs will issue mortgage bonds that Fannie and Freddie will bundle and Treasury will purchase them”.
That’s right. Treasury will purchase the paper that comes from this.
There are some restrictions but be assured this is going to happen as
described. This is intergovernmental debt. It will not show up on a
budget.
I thought it was interesting that F/F are going to be
providing these services. It is a perfect role for them. But, it does
make it a bit more difficult to declare them bankrupt and toast the
stock as KBW suggests. This does not mean that the equity has value; it
just means that the road to zero will be bumpy.
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Ahhhh Yes !!
The old "Hiding the Pea" game always requires at least 3 shells.
Intergovernmental debt means it does not exist at all. Poof !! Gone !! Brilliant sleight of hand !!
The first step to bring the borrower closer to the tit. Not a bad thing...
I own my house free and clear. I think they should create a program to bolter the finances of those with equity. Maybe a $10,000 tax credit if I take out a home-equity loan.
"I'm wondering when the .gov just buys them the house and charges them rent...."
They'll get vouchers for rent, courtesy of the few US Taxpayers left. Perhaps we should declare the US Taxpayer an "endangered species"?
"Perhaps we should declare the US Taxpayer an "endangered species"?"
I like it! At least then we'd have PETA and greenpeace looking out for us, because right now there's just no one doing it. As soon as the taxman comes our way they'll jump out and throw buteric acid at them!
What would it cost to pay 1st month's rent & security deposit for these people? I suspect much less than the $8k sops being handed out to 1st time home buyers, in return for wet kisses by the Real Estate lobbyists constituents. This buyer tax credit wqsn't driven by demand from people who want to buy homes for the first time- it was driven by people who want to build homes into a a market that already has WAY too much supply, and for Real Estate brokers. It's disgusting.
Brokers (I am not one) did not cause the current mess. Mortgage lenders, the government who encouraged them and the MBAs who packaged the crap that resulted in toxic MBS are to blame. The idiots in DC need to stop the free lunches and give the people the seeds to grow their own. Its the Pursuit of Happiness morons, not the free dispensing of such.
Don't forget Greenspan, who encourage Americans to take out adjustable rate mortgages.
That idiot can't croak soon enough for me.
Alan is very misunderstood, what he said was "Americans take up arms", just a political position
I think he said "Americans can pick up alms'
Raise the gas tax so the brokers stop driving around
The government was the primary player in distorting the housing market - via absurdly low interest rates and buying/financing low/no down payment loans via FNM/FRE and we should continue this foolishness???? Get the government out of housing.
The big gov is getting more innovative but it does not make sense. Most low income households cannot afford any sort of debt. I'm wondering when the .gov just buys them the house and charges them rent....
"and existing borrowers who are unable to afford their current mortgage"
Well this makes so much sense ... why the pretense, why not just send money to everyone who cannot their afford to live in America ... extend this to everyone who an get across the border and offer free health care to boot.
Wow, only and I do mean only, in America. The Loonies and Goonies are in charge!
To pay for this and increase declining tax revenue Mr. Gov will have to levy a surcharge on everyones saving accounts ... oh wait, this will reduce the potential FDIC liabilities. Robber Hood is alive and well.
This cannot be real!
"Money for nothing, chicks for free!"
"But, it does make it a bit more difficult to declare them bankrupt and toast the stock as KBW suggests."
Not sure about that, Bruce.
Imagine Fannie/Freddie merged into FHA/Ginnie, with FHA/Ginnie taking on roles of Fannie/Freddie they didn't previous have, including initiatives like this. It would be pretty easy to transfer over programs like this.
Then the FHA wraps the bonds, and Treasury buys them. Or better yet, since the FHA has full faith and credit, private investors would actually buy them (just as private investors will buy Ginnie's and FHLB debt today, but not Fannie or Gold MBS, or agency debt).
Very interesting thought on this pre-empting the extension of the tax credit. Could be.
My experience with the state and local HFAs is they actually do a pretty good job putting people in homes and keeping them in homes. Most required pre- and post-purchase eduation, and were staffed by a lot of volunteers or near-volunteers who believed in their mission.
It makes a lot more sense to support these groups than anyone who wants to buy a house, or worse, warehouse lenders (stupidest idea yet, warehouse lenders should be wiped off the map).
Though knowing the morons in our Congress, they will extend and increase the tax credit.