on the nation’s mortgage mess to the House Committee on Capital
Markets. He addressed a number of key issues. There was a recital of the
steps being taken to mitigate losses to the taxpayers. A sub set of
that was a discussion of the status quo on the matter of the banks
having to repurchase billions of loans from Fannie and Freddie. These
loans never met the Agency's guidelines and of course, went bust. This
is an old news story. It has been widely reported that the banks were
baulking on their obligations to do the buybacks. DeMarco did not leave
much wiggle room on this issue. Some cut and pastes from the testimony:
been clear that the Enterprises should actively enforce lender
compliance with their contractual obligations, which includes pursuing
repurchases from those institutions whose loans did not meet the
Enterprises’ underwriting and eligibility guidelines.
As of the end of the second quarter 2010, Fannie Mae had $4.7 billion in outstanding repurchase requests, and Freddie Mac had $6.4 billion in outstanding repurchase requests.
More than one-third of these repurchase requests have been outstanding for more than 90 days.
Many of the lenders with aged, outstanding repurchase requests are among the largest financial institutions in the United States.
FHFA may look to its supervisory and conservatorship authorities provided under the statute to resolve the situation.
I love it when they talk tough like this. DeMarco is saying that he
sitting on $11b of IOUs from the same banks who got the biggest chunks
of the TARP money. He calls them “the largest in the US”. Okay, we know that list. Pikers.
DeMarco says this matter is under discussion. But he leaves little room
for what the outcome will be. The banks will pay. Or he will sue them
and they will pay.
$12 billion is nothing to these banks. If that were all there was to
this there would not be any nasty Congressional testimony. They would
have written the check(s) and said that they now had a clean book with
D.C. Clearly that is not the case.
Based on his bio
I guess that DeMarco is in his early 40’s. So no gray hair. Possibly
that is the reason why he has not yet been appointed as the Director of
the FHFA (vs acting). That’s too bad. My guess is if this guy had the
title and the backing he could kick some butt. He’s the only one who has
a vision of what housing finance in the US should be, and what role
government support should play.
These big issues will be up for discussion in 2011. As of now the only
plans have come from Barney Frank and the Mortgage Bankers Association.
Barney does not really have a plan. But his primary objective will be to
use credit as an elixir rather than a right. The Mortgage Bankers want
to break Fannie and Freddie into small pieces. They want to own the
stock of these pieces. They want the government to guarantee all of the
debts of the new pieces. With these plans we would repeat both sins of
the past. We need a better voice and a different plan. This is too
important to screw up again.
Something else DeMarco said on the Hill that I thought was significant.
This stuff doesn’t win votes. But the idea that someone is trying to
save the taxpayer some bucks is welcome:
very supportive of the efforts to discourage borrowers who can otherwise
make their mortgage payments from walking away from their obligations.
So-called “strategic defaults” not only result in increased losses for
taxpayers, but also have a deleterious effect on neighborhoods.