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A Slip of the Tongue by Geithner?
11:18am: Martinez: And when will the consultation on reforming the
GSEs conclude and who will end up recommending a solution to the
government's temporary conservatorship of the GSEs?
Geithner: We haven't designed a plan for that yet, but the Federal
Housing Finance Agency and the Department of Housing and Urban
Development will definitely be involved.
Well, the GSE's (fnm,fre) have nothing to do with HUD. HUD runs Ginnie Mae. HUD hates the GSE's. So why would HUD be involved with a solution to the GSE mess?
Simple, FNM,FRE are going to become the "bad bank". Ginnie Mae and HUD are going to become the "good bank". When this happens it will be the end of the Agencies as we know them. It will also be the end of the regulatory control of FHFA.
Could not happen fast enough in my view. The GSE's are at the very top of the list of mistakes from the past.
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In the commercial mortgage realm the GSEs are taking advantage of the CMBS market being dead and having zero competition for multifamily financing. They know their time is coming but if you read the Treasury White Paper it mentions that a decision for the future of the GSEs is not due until some time in 2011. They see their life coming to an end and they are going to try and pump out as much volume as they can, why Freddie recently put out their CMBS-like product and is marketing it heavily.
Great. Soon we'll all be living in beautiful apartments juset like Winston Smith.
Pleeeeeeeeeease put Catherine Austin Fitts in charge down at the GSE's. I think the Chinese have around 700 mil worth of their debt and if we don't make good on it they'll quit building all our stuff. Frank
Raines is not only a free man he was one of Obama's senior economic advisers during the campaign.
No love for either administration concerning management of the financial industry. However, that Raines line is straight from the Gerbervore factory. How much Banana in glass have you been consuming?
"No love for either administration concerning management of the financial industry."
Gotta disagree with you there.
I have no love for the financial industry concerning its management of either administration.
ghost- You write like you are an insider to this story. I have been pounding the MI table for a year. I think that the GSE's are still doing enhanced stuff with these loosers (including United Guaranty/AIG). Not one of the approved providers of PMI have a credit rating that meets the FHFA guideline of AA. You are right, they are trying to get TARP money. No go so far.
I trade MBS, I will be upfront about that, so am well aware of the dance that is going on today.
It is worse than the AA issue - did you see the shell game MGIC is trying to play to get around their statutory R:C ratios? Fund a sub of their existing insurance sub, let the new sub write new business, and the old one go into runoff (and of course exceed r:c restrictions, which won't matter because it isn't writing new business). What a joke.
So yes, the GSEs are still enabling this industry.
My impression from dealing with the GSEs is they have been pretty blind to the fate that they are facing, but in the past few weeks are starting to wake up to the fact that they will probably lose this game.
I'd just like to talk through some implications I see with the FNM/FRE as bad bank scenario. I'm not sure how obvious/blatantly incorrect all these are to the more sophisticated types but here goes anyhow.
The Fed has bought almost a trillion of GSE paper so far since hardly no one else will. As this and other paper starts to deteriorate on the Fed's balance sheet this should debase the dollar as the Fed's assets are essentially the backing for the $. In this way the Fed could implement a devaluation of the currency and facilitate deleveraging without explicitly stating their intentions. I've felt this process has been ongoing so the FNM/FRE bad bank would just be rolled into this existing effort.
Does that make sense as an endgame the Fed has in mind?
If there continues to be a buyer's strike against the GSE's wouldn't that make them bad banks already in all but name?
You ask the right questions, here is how I see it playing out:
The Fed will not suffer credit losses on their MBS, because the govt will provide enough backing to Fannie/Freddie to cover those.
But the Fed would suffer significant market losses if they sold their MBS, because, as you say, there are very few buyers of Fannie/Freddie MBS. If Fannie and Freddie had full faith and credit, there might be buyers, but the govt does not want to provide full faith and credit, because it would mean bringing Fannie/Freddie's debt "on balance sheet". That would be well over a trillion dollars of additional national debt.
But, the govt might just be able to convince investors to buy enough Ginnie/FHA paper, and in fact there is a decent bid for that stuff today, since it does have full faith and credit backing (note the Fed is buying much less Ginnie than Fannie/Freddie: http://www.ny.frb.org/markets/mbs/)
So the Fed would get out of the MBS market, which would become entirely Ginnies, but would have to hold their $1.25T of MBS through maturity, or take a hit on it in a sale.
If they do hold it, this is debt that was monetized, the money created to buy these will only be taken out of the system as the debt is paid off. So that is a debasement of the currency.
If they sell, they will probably have to sell at a loss (by my calculations they are several billion underwater today), and that is money that will never be withdrawn, which is also a debasement.
The exit strategy from this MBS buying is going to be interesting to see, and is, of course, a great untold story because the MSM has no clue how the MBS market works.
I don't see how the Fed can exit the market in six months with Fannie and Freddie in their current forms. Which suggests either the Fed won't exit the market, and/or Fannie and Freddie will not exist in their current forms.
I was about to craft a similar answer and I saw that you had. I love your words more every time I see them, GhostFace
muchicimas gracias, very helpful explanation
Oops "Stop Trading"
He finally started reading Zero Intelligence (cough, I mean Hedge, cough)?
Why is Cramer sayng, "Stop Trsing?"
"Simple, FNM,FRE are going to become the "bad bank". Ginnie Mae and HUD are going to become the "good bank". When this happens it will be the end of the Agencies as we know them. It will also be the end of the regulatory control of FHFA."
Agreed. Another hint - Treasury is letting the private Mortgage Insurance industry starve to death. Fannie and Freddie and FHFA have been lobbying to get that industry bailout money, but Treasury is not interesting. No MI industry = no over 80 lending for Fannie/Freddie.
Also note that they last announcement to let Fannie and Freddie guarantee 125LTV refis was done by Geithner and DONOVAN, not Lockhart.
Pretty clear he wants to put Fannie and Freddie into runoff mode, and concentrate govt-supported housing in the FHA.
On that issue, i am with you. As much as I hate govt interference in housing, I would rather have it be upfront with a govt agency, than these private/public monsters.
re: "No MI industry = no over 80 lending for Fannie/Freddie.
"
wrong.
They'll just change the rules.
Maybe they can pull the MI inhouse so they can extract another couple hundred dollars per month from the borrowers.
You could be right, I am actually surprised the GSEs have coddled the MIs this long and have not explored their other options.
Getting a charter change at this point to allow the GSEs to self-insure would be impossible; the last thing they want Congress to do is open up the charter.
BUT, they don't even have to change the rules: under their existing charters, they could guarantee over-80LTV loans if the seller/originator of the loan kept a 10% participation.
Isn't this what Congress wants anyway - for the originators to keep some skin in the game?
If I worked at a GSE and wanted to preserve my job, I would cut off the MI industry immediately and force sellers to take a 10% participation. 10% ain't that much, and they aren't doing many over-80 non-FHA loans anyway. But the political capital generated would be huge, for both the GSEs and the lenders: "we are developing our own solutions to the problems, etc". They could even throw it into the face of the FHA - "we require lenders to have skin in the game and they don't". Lord knows the FHA is soon going to need a massive injection, so the criticism would hit home.
But then again, most of the leadership of those companies has long since left, leaving few astute enough to protect their own hides.
I love this dinosaur: government "interference" with housing. Show me one fact in history which goes to establishing that government has ever NOT "interfered" with housing.
You are a police state goon.
Ah yes, another useless criticism from the "Anonymous" crowd to cheapen the value of this site. Don't suppose you have a vested interest in this argument that scares you from registering?
Govt always has intefered with in the housing market. Did I dispute that? But the level of involvment is higher today than any point in history. Between Fannie/Freddie (which are now under govt control) and FHA, the govt provides over 95% of all mortgages originated today.
I would rather have the govt out of the housing market entirely, but barring that, my second choice would be to have the govt be upfront about their involvement. This private/public charade was a disaster.
Not just the level of involvement higher today, but also in such an absurdly grotesque fashion.
And I'm with you on your last point. I'd rather have them absent from the market, but the charade is not just wrong it's insulting to our intelligence.
Just like the Fed itself...a disaster.
And Raines is still a free man after all the fraud money is counted.
So is Rubin, Maheres, Neal, Cassano , Greenspan , etc etc