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Mel Watt on Fannie and Freddie - I want to go back to 2008
When Harry Reid (D-NV) changed the rules on how the Senate votes for a Presidential appointment, he opened the door for a critical change in the leadership at the Federal Housing Finance Authority (FHFA). In short order, the Administrations' pick for the job, Mel Watt, got the appointment that had been stalled for a year, and Ed DeMarco is out. Liberals hated DeMarco. And with good reason.
FHFA was formed when Fannie and Freddie went into receivership back in 2009. FHFA was tasked, by law, with one and only one mission:
Minimize losses to taxpayers from F/F
DeMarco succeeded in this mission. As of today, F/F have paid back virtually all of the bailout money they received in 2009 and 2010. By the end of 2014 the taxpayers will be in the black from the bailouts. How was this miracle achieved? Simple - F/F stopped making bad loans.
When I say 'bad loans' I mean mortgages that are not structured or priced right. A good mortgage loan is made to someone who has down-payment money and a job that pays enough to service the mortgage. The borrower must have a credit background that demonstrates that they are able and willing to make monthly payments. Not so complicated.
Mel Watt will take over the FHFA in January. But even before he finds where the bathroom is at his new job he is changing the rules. He stated on Friday that he wants to reduce fees to borrowers who do not have the 20% down-payment and for borrowers with lower credit scores.
Watt's statement is payback for the liberals/progressives who want to take F/F back to the status quo of 2008 and who supported Watt to that end. In 2008 the mortgage giants were agents of federal policy on housing. The 'mission' was to increase home ownership at any cost. As it turned out, the cost of achieving those goals damn near destroyed the global economy. And now Mel Watt wants to turn the clock back five years and make the same mistakes all over.
What is the intent of the fees that were scheduled to go into effect in March of 2014? The goal was to increase the costs of borrowing from F/F in the hope that private lenders would come into the mortgage market and take business away from F/F. The DeMarco plan was to shrink F/F over time, and get D.C. out of the mortgage business. His actions were consistent with his mandate - minimize taxpayer risks. Demarco's words:
"those fees should rise in order to allow private investors, which target a higher rate of return, to compete."
So this frames the political debate. The liberal side of the equation wants to subsidize the mortgage market and exclude private capital. They want to do this to achieve social objectives of home ownership and to make a small step toward wealth redistribution. Lofty and admirable goals. But the tradeoff is that F/F will get bigger and more dominant in the mortgage business. Their role in the economy will expand, not contract - and the USA is once again opening the door for another crisis. A crisis that will work completely contrary to the stated goals of leveling the economic playing field (as it did in 2008).
With Watt taking over, the die is cast. FHFA, Fannie and Freddie are turning a corner and headed in a new (old) direction. When Watt takes over on January 6 we will see a bunch of new measures that will confirm the change in strategy. Many will cheer those efforts. It will mean a bigger role for F/F. It means the USA is doing a u-turn back to 2008. And it means that someday we will have a problem again.
Note:
It's not only liberals who hated DeMarco. Those who speculated in Fannie and Freddie common and preferred shares did too. DeMarco passed a rule (no votes anywhere) that 100% of F/F's income would go to the government and not be used to pay off the borrowings that occurred in the bailout. DeMarco's policy is now subject to suits from various hedge funds. DeMarco's action put the holders of F/F stock behind a huge wall. In theory, those shares are worthless, as F/F were on a glide path to be wound-down to nothing.
Watt can't deliver on his promises to those who got him his new job and at the same time continue with a plan to shutter F/F. If the companies do have a different future with Watt running the show, does that mean that the pref stock has a future too?
These are the actors on this stage:
The Speculators:
How do the specs feel about Watt?
The Good Guys??
&
Talk about strange bedfellows - this one takes the cake. I wonder who will prevail in the end??
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Only if you throw out root cause analysis and go with propaganda from the party of your choice. The cause of 2008 was not Wall Street, it was bad mortgages. The reason those bad loans were made is the real cause of the crises, not whatever spin the Washington and the media use to deflect blame from them. Wall Street largely just adapted to the rules foisted upon them by the rule makers.
Wall Street ?
And like all good capitalists, when they bet the farm and lost, Wall Street quietly accepted their losses and refused to accept a helping hand from the government. And the government, in turn, did not foist those bad bets onto the public.
Geesh, I must have missed that story.
Those mortgages (bad) would never have been made if the bank that made them had to keep them on their books, and not
be able to flip them to Wall Street!
Being able to flip all these morgages the bank make quickly, makes the bank not a bank, but a de facto morgage broker for Wall Street.
Bring back the Glass Seagall Act, and stop this for the sake of our children!
The real problem here is that liberals (and most Americans for that matter) don't understand that LENDING PEOPLE MONEY FOR SOMETHING, DRIVES THE PRICE OF THAT THING UP, NOT DOWN. Sorry for the caps... but fuck, it's just amazing how few people understand this. If you make mortgages available at a lower-barrier of entry, you make housing LESS affordable. Not more affordable! Creating the illusion of "easy acquisition" by locking people into 30 years of debt serfdom is not "affordability" by ANY measure. Affordability requires LOWER prices, not HIGHER prices. Debt is the PROBLEM not the solution. The democrats are simply helping the banks under the guise of helping the people. Part of me thinks they know this and they're just evil, self-serving political assholes -- and the other half of me thinks they probably don't know this because they're mathematically-challenged idiots.
popo; the price may rise but owning with tax advantage vs renting is the stated goal. poor mans chance over time to have something, the dream, a home of their own!!!
the realtor mantra... ah, but your point, the unintended consequence of price rise serves the very point of ownership vs renting. just the REAL problem as stated above is that the standards of ownership with skin in the game was removed. allowed people that basically are daaahs (can't wipe their ass properly) or shall i state it real unabashedly-dumb irresponsible fucks bought homes.
i am trying to buy one of these home(bank owned) for cash and it amazes me what i see when i go in the shit holes. i can hardly imagine how stupid these people had to be to absolutly fuck a home up so bad... many of these homes will need to be scrapped. destroyed by complete losers in 5 or less years-unfucking believable out there!!! the real cost is the hardship these dumb fucks went through, although i am not feeling too sorry for them...
Dude...have you seen the education "system?"
Stupid should be no surprise....
The deeper I look, it seems absolutely everything was designed to break like a straw, (inc health care folks) and then require expensive and damaging treatment to resolve. It's what's inside the design that counts, no industry escapes this madness to design things to go to hell, and aroung here, everything goes to hell, unless YOU prop it up.
Exactly. Everything was designed. People can't afford loans, change the rules so they ignore credit risk. Fannie and Freddy can't buy loans under those rules, sell them to Wall Street. Wall Street can't buy them, change he rules so they are seen as low risk. And who makes the rules. At the end of the day it's the people we elect.
CORRECT. It is always better to buy a house with a lower price and much higher interest rate, then one with a higher price and much lower interest rate......most people dont understand this simple economic fact !
you have a small mind.. in the ZIRP era, it is best to grab long term low interest since time value of money is on your side.. unless you never do anything with money and just want to cash out and be a hermit, then yes you are correct... but if you rather take the low interest and make money with the money you aren't paying today, then you come out ahead..
as long as the asset you buy isn't a lemon, then ZIRP works for you too
Better for the buyer but not better for the seller.
Also worse for the Government
Definitely worsest for .gov's bedfellows - big banks.
That was a total propaganda piece for Mel Watt.
The truth about Mel Watt:
http://www.campaignforliberty.org/national-blog/mel-watt-unfit-to-serve/
Last week, news broke that President Obama will pick Rep. Mel Watt (NC-12) to head the Federal Housing Finance Agency (FHFA), the government agency charged with overseeing Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac.
There are many objections to Watt’s nomination worth considering, and this is merely a brief overview of why Campaign for Liberty (C4L) believes Mel Watt is unfit to serve as head of the FHFA. As his nomination proceeds to the Senate for hearings and a vote on confirmation, C4L will be following the proceedings closely to keep our members informed and to express our strong disapproval with this nominee.
For starters, John Berlau, Senior Fellow at the Competitive Enterprise Institute (CEI), argues that “Two prerequisites for any nominee for government posts is dedication to transparency in government and a respect for the privacy of citizens.”
In this regard, Rep. Watt fails both.
During the 111th Congress, while Watt supported all the costly regulations and mandates on the private sector in the Dodd-Frank “Wall Street Reform and Consumer Protection Act,” he was the most vocal opponent of then-Representative and current C4L Chairman Ron Paul’s Audit the Fed bill and later helped gut the proposal in the conference committee.
Berlau writes, “[H]e thought having the Federal Reserve go through a simple audit of its books by the Government Accountability Office, which nearly every other agency goes through, would place too much of a ‘burden’ on this government entity.”
On the privacy side, Berlau points out that Watt was a cosponsor and vocal supporter of the Stop Online Piracy Act (SOPA).
“When privacy concerns were raised…Watt pooh-poohed what he called the ‘hyperbolic charges.’”
If a nominee fails these two basic prerequisites, that alone should be enough to disqualify them from service to the federal government. But as we’ll see with Mel Watt, this is only the tip of the iceberg.
In an article in The Daily Caller, Charles Johnson recently laid much of the blame for the subprime mortgage lending crisis at the feet of Mel Watt.
Johnson writes, “In 2002, Watt teamed up with Freddie Mac and Fannie Mae, Bank of America, BB&T, and UJAMMA Inc., to announce Pathways to Homeownership, a pilot initiative designed to give home loans to welfare recipients.” For a down payment as little as $1,000 of their own money, the City of Charlotte, North Carolina, would “subsidize” the rest of the 3% down payment on a house.
If confirmed, Johnson notes, Watt would be overseeing the very agencies he made engage in such risky lending practices that inflated the housing bubble.
Johnson continues,
As if ignorant of Watt’s actions and blind to their consequences, President Obama said last Wednesday when announcing Watt’s nomination, “Mel has led efforts to rein in unscrupulous mortgage lenders. He’s helped protect consumers from the kind of reckless risk-taking that led to the financial crisis in the first place. And he’s fought to give more Americans in low-income neighborhoods access to affordable housing.”
This is the political equivalent of naming a convicted arsonist Fire Marshal.
There are even more criticisms worth keeping in mind of Mel Watt’s “qualifications” for this position.
The Washington Post writes,
National Review goes further in their condemnation, writing:
They continue,
When you look at the complete picture of who Rep. Mel Watt is, an ideological partisan who’s in the pocket of Bank of America and other major investment banks, the nomination becomes particularly troubling.
For these reasons and many more that have yet to be fully explored, Campaign for Liberty strongly opposes the nomination of Mel Watt to serve as the head of the FHFA and encourages senators to place a hold on his nomination, as he is clearly unfit to serve.
if i may condense ur thoughts....mel watts is top ten dumbest person on the pile...or corrupt or whatever..but top ten all day...
Or to put it another way, Mel is as fine a human as any other member of Congress. Just look at their approval rating to see the high regard the people have for them.