Administration Declares GSE Model "Dead", Increases Down Payment Requirements, Sends Gold To Highs Of Week

Tyler Durden's picture

As the Treasury releases its long-awaited GSE report on "Reforming America's Housing Finance Market" the one asset class that moved is gold. The reason: D.C. proposes, very tentatively, to decrease the role of the government in GSEs, as rumored previously, considering that the banks would love to get an ever greater piece of the securitized GSE action. Not helping is the soundbite from the administration: ""The GSE model is dead," an Obama administration official
told reporters as the Treasury Department released a
long-awaited report on options to revamp housing reform.
As Reuters reports: "The housing "white paper" presents three different visions for replacing mortgage finance giants Fannie Mae and Freddie Mac, which are set to be slowly wound down. The paper does not make a single recommendation, but broadly outlines alternative possibilities to reduce the government's role in the mortgage market. That strategy aims to "open a dialogue with Republicans that would lead to a consensus outcome within a couple of years," said Michael Barr, a professor at the University of Michigan and a former Treasury Department official." In other words, just like the findings of the president's commission on the deficit, this paper will be glossed over by a bunch of beltway politicians and then promptly forgotten as whatever the banking lobby wishes to happen behind the scenes, happens. As for actionable proposals, the paper core recommendation is "increased guarantee fee pricing, increased down payment requirements, and other measures – to bring private capital back into the mortgage market and reduce taxpayer risk."

More from Reuters:

Texas Representative Jeb Hensarling wants to eliminate Fannie Mae and Freddie Mac within five years, allowing the private sector to take over the government role.

The fourth highest ranking House Republican has not yet formally introduced his bill to do that, and it is unclear when he might do so.

Democrats are generally more supportive of a government role in the mortgage market and argue that removing the federal backstop for mortgages would make loans more expensive and price many middle class Americans out of home ownership.

"I want to make sure the window of opportunity for home ownership isn't closing for the next generation of homeowners," said John Taylor, chief executive of the National Community Reinvestment Coalition, an association of community-based groups that promote access to basic banking services for working families.

The housing industry, including real estate agents, homebuilders and mortgage bankers is also supportive of some government role for backstopping mortgages and have already started pushing back against some of the most aggressive privatization proposals.

And after skimming the report, the key findings are: "We recommend FHFA employ a number of policy levers – including increased guarantee fee pricing, increased down payment requirements, and other measures – to bring private capital back into the mortgage market and reduce taxpayer risk. As the market improves and Fannie Mae and Freddie Mac are wound down, it should be clear that the government is committed to ensuring that Fannie Mae and Freddie Mac have sufficient capital to perform under any guarantees issued now or in the future and the ability to meet any of their debt obligations."

It is therefore not surprising that gold has just gotten spooked: after all if this is not just more boilerplate material, the great GSE deconservatorship process has begun. But don't worry: GSE reform won't be completed for many years, and certainly not before the next major financial crisis wipes out the entire securitization market out for good. In other words - more taxpayer money spent to pretend we are changing the status quo, when doing anything but.

Gold, which is at the highs of the week:

Full report - link.


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papaswamp's picture

Oh yea so many will qualify with those amazing part time jobs. 

financeguru500's picture

You won't need a loan once the prices of homes drop down to where they really should be.

financeguru500's picture

Did I say YOU. I meant to say "Investors from other countries".

TruthInSunshine's picture

Good luck to all!

If FHA financing goes away and/OR anything more than the now 3% on a FHA loan is required, the housing market and, more broadly, the economy, is TOAST.

Think I'm exaggerating? If so, you don't know how the modern real estate market is staying alive, even if barely.

And if you think this approach on housing, which isn't the rapidly depreciating (until recently) and consumable product that automobiles are, will be limited to housing, think again.

Go back to 20% or even 15% down mortgages, conventional, and we'll see housing sales plunge far deeper than they have.

This is literally the shot across the bow.

unununium's picture

There can be no surer sign that mortgage interest rates are heading higher, than the government getting out of the business.

Bloomberg carries a story today in which Jamie Dimon trashes the GSEs.  He must have forgotten the WAMU trash he's sitting on.

I think you meant this is figuratively a shot across the bow.

TruthInSunshine's picture

I meant literal 'shot across the bow,' as millions of homes will be good for nothing more than target/range sessions.

Kobe Beef's picture

Good. Let's see that they are fairly priced then.

Government meddling in price discovery fails again. Long live the free market!

trav7777's picture

I'm forced to agree; without the effective subsidy that the GSEs provided to the housing market, we're looking at probably another 20% decline at a minimum.  The presence of a size buyer basically willing to take losses fluffed prices up far more than warranted.

Xibalba's picture

Not to worry.  JPM is on the way!

Xibalba's picture

from 8:59 to 9:05 silver just dropped .22 cents.  Blythe enters stage right. 

bankrupt JPM buy silver's picture

Blythe just hit the sell algo's, you fuckin wench

Xibalba's picture

You've got option expiry today in the paper SLV.  What will the 'custodian' do?

In Fed We Trust's picture

As  I was saying yesterday "The GSE model is Dead."

But the way they said it on NPR was that the "Government footprint in the mortgage market was to big" and steps had/were being taken to bring in private money.

Amazing how the President gets briefed the same day on the subject as I do!

This of course is just getting the law/paper work out of the way.

Let houses collaspe for another 2 years or 20 % decline , and that private money

money should start showing up form Goldman and JP Morgan to snatch up some steals in the GSE market.

Like I said, in the end the FED will own a large percent of all the homes in the US.

thru it's affilate members of course. "They Reluctently had to step in" will be Benarke's words.

The pistol in Bernake's hand is the interest rate.


In Fed We Trust's picture

I dont understand why this issue of the FED being the biggest landlord is never talked about on this site?

Isn't it true, that the FED with an increasing share of the GSE market (the biggest stake) and growing , will place this into private money at sometime in the future.

Private hands,  just means JP Morgan and Goldman Sachs. Houses should continue to drop in price , allowing for the fed to acquire a few million more units before the big garage sale.

Now home prices are 30-40% of their peak, as the FED sells its inventory to JP Morgan, Goldman Sachs, at a bargain price.  Seeing how these banks are part of the FED, they are really selling the houses to themselves!

Bernake can can rasie rates at any time and force millions more into foreclosure.

Will are dealing with the biggest baddest landlord of all time,

So, even though the GSE might be worthless, toxic, at the bottom of the bag are actually physicla homes, several million.



In Fed We Trust's picture

Ok I think I might of answered my own question.

During times of hyperinflation the price of realestate, is pegged.

So the group, controling the real estate and ownership of such are the winners at the end of the hyperinflation.

Meet the new boss. Same as the old boss...

wisefool's picture

Keepers of the "perks" i.e. McMansions, and the ability to leverage them in a post-modern "MTV cribs" world.

..... And people say religious types are morons reading obsolete books.

trav7777's picture

well, the income tax wasn't enough apparently.  I guess they figure by owning all the mortgages, they'll get their money back

GreenSideUp's picture

I dont understand why this issue of the FED being the biggest landlord is never talked about on this site?

I've actually thought about this a bit, and tried to contemplate what the end game might be.   No matter what, it won't be pretty, and it certainly won't benefit Main Street. 

monopoly's picture

Nothing will come of this. The banks will not allow it and they run our govt.

dick cheneys ghost's picture

lock stock and barrel. banks will never accept private losses. the taxpayer must be responsible for all loss.

KickIce's picture

Yeah, the Fed has already purchased much of this garbage at the bubble prices.  My guess is the banks will get to buy it back at the current value and the taxpayer will eat the difference.  Disgusting.

plocequ1's picture

Taxpayers are becomming scarce. If you are unemployed , and alot of them i may add, and living in your car, How does one pay taxes?

Rodent Freikorps's picture

Sales tax will still get you. At least that is local.

plocequ1's picture

Thank you. I have to admit, I am getting a little worried

JLee2027's picture

It's all going to collapse, and quite suddenly at some point. Buy and hold physical silver. 

Agent P's picture

Well, unemployment benefits are considered taxable income.  That is moot however, considering that roughly 45% of Americans end up with zero (or negative) federal tax liability.  This is not a recent phenomenon's an article from 2006 (peak of the "good times") showing the number at 41%.  If you don't like/trust the source, there are plenty of others out there.

I'm guessing some of the increase has to do with what you're describing, but some also has to be attributable to the additional tax credits recently enacted (lifetime learning credit, etc.).  Point is, there have always been plenty of free riders on the bus.

KickIce's picture

My guess, once they get control of all the assets, land in particular, they'll just convert to a digital currency.

Rodent Freikorps's picture

I'm not paying for this.

That is going to be my war band's motto. After the Zombpocalypse, of course.

In Fed We Trust's picture

GSE reform won't be completed for many years, and certainly not before the next major financial crisis wipes out the entire securitization market out for good. In other words - more taxpayer money spent to pretend we are changing the status quo, when doing anything but.

Dear Tyler,

Anything coming out of DC with the word "reform" in it really means "new fraud"

Deep in these bs bills of reform, are the future tracks, and legal framework

that allows for legal future theft of assets that are in question. Meaning:

So i read your above piece, not only is this a pretend bill, but it the bill are the exact assets that they want to steal and when they want to steal them, and the reform laws that give them the advantage, or right out steal.

Don Birnam's picture

<< Anything coming out of DC with the word "reform" in it really means "new fraud" >>

Absolutely so; akin to the periodic economic bulls issued by the old Soviet Presidium -- and, in the end, likely just as resultant.

Cognitive Dissonance's picture

Just another example of the USA talking it's book in order to maintain (or prevent from plunging) it's financial credibility. There is no way to exit from the Mexican standoff. While they talk of reducing risk, that's all it is, talk. They fully understand that they must actually rush more people into the fight in order to keep the collapse at bay.

As Todd Harrison said back in 2008, they sold the car crash and bought the cancer. We are now seeing the effects of not only the cancer as it eats away at the body, but we are seeing what the chemo is doing to the immune system. The only thing remarkable about all this is the amount of abuse the body can take before it collapses into a bowl of quivering jelly.

SheepDog-One's picture

Yep CD or in somewhat more laymans term theyre all full of crap! 'The amount of abuse the body can take'...hell theyre just in denial claiming the 100% life support terminal patient will soon be running the Boston Marathon...DENIAL is not a river in Egypt, central planners!

DaveyJones's picture

"The GSE model is dead!" Ironic Mr. President since the only financial institutions left standing are the ones that are "government sponsored." 

Cognitive Dissonance's picture

Does this mean "we the people" are sponsoring the government?

Unless we say "no" (and back that no up) we are in effect saying "yes" to everything the government is doing and saying. BTW it stopped being "my" government well over a decade ago. But even though I reject the present government as not acting for me or in my interests I'm still responsible for making an effort to stop this madness just like the Egyptian people are finally recognizing their own responsibility to stop the madness over there.  

Agent P's picture

Silence is acceptance.  You are correct sir.

DaveyJones's picture

those in the know know its all about backing up the no

eigenvalue's picture

I think China will be screwed more than the US when the 2 GSEs finally default on their obligations. 

SheepDog-One's picture

China cares less if theyre screwed, they can write off a couple billion unarmed peasants, what do they care? Here, they  know when TSHTF theres about 100 million armed americans at least that can wreak a whole lot of havoc.

Rodent Freikorps's picture

Marcus Antonius:
And Caesar's spirit, raging for revenge,
With Ate by his side come hot from hell,
Shall in these confines with a monarch's voice
Cry "Havoc!" and let slip the dogs of war,
That this foul deed shall smell above the earth
With carrion men, groaning for burial.

Julius Caesar Act 3, scene 1, 270–275

redarrow's picture

No. China is not screwed, they have a lot of our manufacturing assets, they are good at reverse engineering. So if the US says, FU to china, they will reply FUT by taking ownership of all those factories and telling the Apples, P&G's of the world to shove it.

So we will end up exchanging GSE/Treasury debt for factories. Ain't life a bitch?

SheepDog-One's picture

I dont see how people figure China is screwed. What do they care? Theyve got most of our manufacturing, and would hardly care about a billion less Chinese peasants. 

China already has us by the nuts anyway, and Obama just made the deal for 500 Chinese cities here in the US anyway. No americans say a word about it, ignorance is bliss!

Dr_Dazed's picture

500 "Chinese" cities to be set up in the US?  Now where'd that tin foil hat go?

TruthInSunshine's picture

No. China is not screwed, they have a lot of our manufacturing assets, they are good at reverse engineering.

I do not have personal animus towards the Chinese People, but - their leaders are not our friends, they have malice-saturated intentions, and the gap between their much-touted 'skills' and the reality of their ability to innovate or engineer is vast.

They have, however, edited 'Top Gun' footage and used it in an attempt to pass off the incredible capabilities of their new J-20 'stealth' fighter jet:


China uses Top Gun scene in its stealth fighter jet video
trav7777's picture

the article said "J10," which is incidentally a reverse-engineered Lavi.  Or else the israelis sold them the design.

the only things built well in china are in western factories.  Anything local is a counterfeit, cheap, and shoddy.

TruthInSunshine's picture


I know a highly skilled machinist who works for a boutique precision CNC shop that 'reworks' and fixes industrial machine parts.

90% of his work involves fixing bastardized Chinese parts, outsourced due to low cost, that are sent back stateside, because they are literally so out of spec that they won't even fit on their intended equipment.

He told me that it would be significantly less expensive and much more efficient to just craft these parts here to begin with, even at much higher original prices, as the things would get produced properly 99.99% of the time to begin with.

He jokes about it, but in an almost sad manner, because he knows that this insane loop is benefitting both him (he makes over $70/hour, non-overtime - he pulls 50% more than that with overtime hours- , but he is highly skilled) and his company, but he also knows that if this insanity isn't reversed, the Chinese probably will improve with time.

As an aside, this guy is so skilled, he reproduces out of production motor parts for older gen VW motors and Benz diesels (his employer allows him to use their equipment in his off time; the price of retaining a brilliant employee, I guess. And yes, he's an American of German heritage).

Sudden Debt's picture


even the ugly chicks.

Rodent Freikorps's picture

What's your point? Sounds like any bar at last call.

kridkrid's picture

thank god for ugly chicks.

"I hope, you got... fat.  I hope, you got, really fat.  Cause if you got really, really fat, you just might want to see me come back... I hope you got... FAT"