House Proposes To Wind-Down GSEs Within 5 Years

Tyler Durden's picture

There will be an increasing cry of 'not fair' from the Perry Capital's of the world as Jeb Hensarling unveils a dramatic plan to overhaul the GSEs (and broad housing finance in general).  The chairman of the House financial services committee wants Fannie and Freddie to be wound-down within 5 years - removing the explicit government guarantees and demanding that:


and not:


Higher down-payments for FHA loans, limited to first-time-homebuyers only, and reducing the conforming loan-limits are all likely to drive the hedge funds to more litigation and complaint that this will end the housing recovery and their dividend stream. Hensarling wants to create a securitization platform 'utility-like' entity with the government serving only as a catastrophic reinsurer.

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Element's picture

Well that's novel ... taxpayers get the cheese, rather than the shaft ... dat just ain't right!

ParkAveFlasher's picture

Is it the cheese, or simply a less-painful shaft?  I'm seeing "catastrophic insurer" and I'm thinking, that's what we have now.

Dr. Engali's picture

Uhmmmm..that's some pretty moldy cheese the tax payer is "getting".

Hubbs's picture

Same old shit. We'll clean this fucking mess up.....later.

CPL's picture

They won't be able to afford food by that point.  Talking about 'homes', like it's a religion of some sort for central planners.  At this point they are just setting up decoys and strawmen to ignore and publically present while people get eaten ass up from the list of other things that allow life and society to function.  

I know it sounds demented, but this is how these dolts think.  They truely believe that they may extend and pretend FIRE markets at any cost as long as they wish.  

the grateful unemployed's picture

the Fed has a list of emergency measures which are now a matter of policy, and the Presidents Working Group on the Finanical Markets was the catastrophic insurer in 1987. they own the market right now, so why not just quit the bullshit here.

hand over the keys of the mortgage finance business to Wall Street, and let government continue in their role as catastrophic insurer of stocks, ergo dial up ben can put any number on the dow he wants, just so his bosses get reelected.

what he's saying is that housing finance should be handed over to wall street. (corporations have the same rights as individuals, including owning their own home(s), lots of them actually)

kito's picture


MsCreant's picture

GSEs? Let's get Ben to eat it!

xtop23's picture

Not a chance that this gets legs.

Housing bubble pop 2.0...... never happen.

14.6% U6 and they want to implode sub prime!????

Say goodbye to unicorns.

pods's picture

And THIS time it will work.

Yep, trust me, I'm from the government.

Shit will never be sustainable because all our $$ is borrowed into existence, with interest attached.

Same old, same old.

Crooks, all of them, either too stupid or too dishonest to admit that yet again we will try something that mathematically cannot work.


Dr. Engali's picture

Catastrophic insurer? You mean a bazooka isn't big enough?

buzzsaw99's picture

Translation: We have to sell them to jpm for a song before they start making money.

This is a screw job. It has nothing to do with taxpayers and everything to do with helping the maggot bankers.

ChanceIs's picture

Hmmmm.  Could be.

At the end of the day, this i all about who will hold the bag for the bad debt issued with the beginning of the real estate boom back in '02.  Or should I say the internet boom in '98 - Greenspan was still at the helm.  Or should I say the government debt boom starting with LBJ and Viet Nam/Great Society.  (How is that Great Society working out for Detroit?)

If..IF..the system can hold together for another five years, then you may be right.  (You might be right about the intention behind the plan - such as it is.)  If it choks on its crackers in the next year then it is global write-down, FNE/FRE included.  I vote for the latter.

ChanceIs's picture


>>> Also driving the surplus in June, state-backed mortgage companies Fannie Mae and Freddie Mac, which were bailed out by taxpayers in the wake of the financial crisis but have sincere turned to profitability, poured billion of dollars into public coffers.

Fannie Mae, which said in May it would return $59 billion tothe Treasury in dividends, provided most of the funds.<<<

Profits?????  What profits.  Mind you I haven't looked at FNE/FRE's financials.  Buuuuuuuuuuuuuttttttttttttttttttttttt........

If they have positive cash flow, AND ARE CARRYING THEIR ASSETS AS WORTH MOAR - HENCE BOOKED AS PROFITS/BALANCE SHEET IMPROVEMENT, might they not just be claiming virtual profits and sending cash flows to the Treasury - only to have said cash flows returned by Treasury to FNE/FRE later when they implode???

I mean......isn't this where all of the TBTF's profits come from?  I forget the accounting term....appreciating assets???  Mark-to-Make-Believe increasing when the whole market is rising???

1eyedman's picture

suddenly hensarling's reelection prospects dont look so good.   he doesnt understand who he works for.

ChanceIs's picture

I am still wondering why the government guaranteed the FNE/FRE paper.  I mean...there is no expicit guarantee at all. Rather there is an explicit denial on the front of each one.  Yes the aAgencies are liable, but not the government.

You know...if you were stoooooopid in '05 and bought FNE/FRE paper, or stock, or debt, then you should get hosed.  Housing always goes up 100% per annum, and there is never a shortage of qualified buyers.  Here - fog that mirror baby.  (We had all heard that before.)

Why does the government love debt so much?  Why not make the borrowers pay the tax on the interest instead of the lender?  Why not make equity gains tax free?  Equity adds stability to society.  Debt adds instability - unless you are REALLY good at applying it.  That would be for building businesses and not flat screens or marble countertops.

One notes that the Agencies have been in "conservatorship" for five years.  It is now proposed to take another five to wind them down.  Might not Obama step in n the middle of his third term and decide - as he just did with ObamaCare - that this is going too quickly?  Has the government produced a budget once in the last five years?  Is Social Security cash flow negative?  Has the credit rating of the US been downgraded?  Is the US backing any Italian debt - well Ben, is it?

How can the government commend itself to anyone as a fiduciary/steward?

nomorebuyins's picture

Bubble will soon pop, taxpayers will be the bag holders, hedgies will be out before the shit show. Thanks for the confirmation.

Burticus's picture

Sure, get rid of FNMA and FHLMC and remove federal gubmint that the (not really) Federal (with no) Reserves has bought all of their worth-less mortgage-backed "securities" from their bank stockholders for 100 cents on the FeRN.

That would be consistent with their normal practice of privatizing gains, then sticking others with the losses, while giving the sheeple the pork sword.

evernewecon's picture





Education and enabling mechanisms, and direct

support, including married to bootstrapping

where appropriate, makes more sense than

banks selling mortgages where the GSE’s will

get the losers mainly.


But the existing privatizing the profit, socializing

the cost mechanism would still be preferable to

nothing where the borrowers have some qualification

connected with the process.


Amtrak was born when the main growth phases in

the highway system and air travel made the RR’s

no longer want the passenger traffic, though, of course,

rail travel is really less expensive than car travel,

where rail’s not given the kiss of death (lack of

connections, parking, etc.)


At its outset, Medicare was National Health Insurance

for unwanted customers.


ObamaCare’s aligned along privatizing the profit, socializing

the cost, actually with a monopolistic profit regimen,

instead of applying any such thing as unitized

risk equalization.


Pollution, ditto.


I don’t have to go into TBTF for regular readers of ZH,


I assume.

W74's picture

The only recovery is prices downward.  With lower housing costs all around people can spend more on other starting businesses and saving.

Higher house prices only lead to more in taxes.  More property taxes for bloated police and teacher's unions, and more taxes passed onto your children when you die or transfer the home, more taxes when you sell.