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Republicans "Extremely Concerned" At Mel Watt's Taxpayer-Backed Risky-Home-Loan Reforms

Tyler Durden's picture




 

When we commented on Mel Watt's Einsteinianly-insane plans to reform FHFA, allowing bad creditors to buy houses (again) with only 3% down-payments (again), we expected nothing but echoes as the "it's everyone's 'right' to own a home"-meme gets played out for all to see in this goldfish-like societal memory that has entirely lobotomized the actions (and impact) of when this idiocy was trued before. However, a funny thing happened this week... called an 'election'. And The Republicans have been quick to take note of Obama-appointee Mel Watt's (replacing acting director Ed Demarco - who had some less-politik plans for real reform) plans with House Financial Services Committee Chairman Jeb Hensarling exclaiming he was "extremely concerned," about Watt's "efforts to force taxpayers to back high-risk mortgages with ultra-low down payments," concluding this plan "must be rejected."

 

Excerpts from Mel Watt's remarks...

Demand in today’s market is also limited by former homeowners who found themselves unable to keep up with their mortgage payments during the financial crisis, including many who lost their jobs during the recession or faced reductions in their income.  Many of these individuals not only lost their homes, but also seriously damaged their credit.  Many filed for bankruptcy.  Although some of them may be back on their feet in terms of income, their impaired credit records constrain their ability to return to homeownership. 

 

A less quantifiable factor on demand is the psychological impact of the housing crisis across the country.  Many people watched their friends or loved ones lose their homes or suffer financial hardship in the housing crisis, and this has deterred them from entering the homeownership market. 

 

Bottom line, there is no lack of rational explanations for why demand for homeownership is down, and these explanations will continue to change and evolve in the months and years ahead.  While things will not change overnight, it is my hope that many creditworthy individuals and families who are currently renters – but have the ability to pay a mortgage and become homeowners – will have the opportunity to pursue homeownership and will decide to do so.

 

A shift in this direction will not only be beneficial for our economy and overall housing market, but homeownership and paying down a mortgage remains a way that many individuals and families can save and build and retain wealth over time

 

...

 

the fact that home prices are still low in many locations, and the fact that interest rates are low, now is a great time for realtors to be actively encouraging their customers who can afford it to become homeowners.

 

I also announced recently that the Enterprises are working to develop sensible and responsible guidelines for mortgages with loan-to-value ratios between 95 and 97 percent.  As I said earlier, there are creditworthy borrowers in today’s market who have the income to afford monthly mortgage payments but do not have the money to make a large down payment and pay closing costs.  Purchase guidelines that allow for 3 percent down payments will provide an opportunity for access to credit for some of these borrowers.

*  *  *

WATTF!?

*  *  *
And here is Hensarling's terse response...

House Financial Services Committee Chairman Jeb Hensarling Friday criticized Federal Housing Finance Agency Director Mel Watt for supporting a plan that alters some housing finance industry lending standards.

 

In a speech Friday, Watt said Fannie Mae and Freddie Mac will seek to back loans with down payments as low as 3%.

 

"I am extremely concerned about Director Watt's efforts to force taxpayers to back high-risk mortgages with ultra-low down payments as little as 3%," Hensarling said in a statement.

 

"Such loans are inherently risky because the borrower has almost no financial cushion against a personal or economic downturn, vastly increasing the likelihood they will walk away from the loan once it gets significantly underwater," he added.

 

Hensarling continued to assail Fannie Mae and Freddie Mac as poorly functioning relics of an earlier age in mortgage finance.

 

"Since their spectacular collapse in 2008, Fannie Mae and Freddie Mac have continued to exist only through the massive financial support of taxpayers and a strict focus on sound underwriting. To abandon that focus now is an invitation by government for industry to return slipshod and dangerous practices that caused the mortgage meltdown in the first place and wrecked our economy," he said.

 

Hensarling said the chief statutory obligation of the FHFA is to ensure the safety and soundness of the Fannie Mae and Freddie Mac.

 

"Clearly, this initiative is directly contrary to that mission, and must be rejected," Hensarling said.

*  *  *

We suspect this will not be the last we hear of this... but there does appear at least one sane mind in Washington.

 

 

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Sun, 11/09/2014 - 14:46 | 5429924 Tursas
Tursas's picture

It was so prudent to do this all when house prices were exuberantly high - unacceptable now when house prices are a way down? This means that soon enough jobs, wages and salaries must nosedive in a hurry...

Sun, 11/09/2014 - 14:58 | 5429943 i_call_you_my_base
i_call_you_my_base's picture

House prices are at the same level as 2006 and the ratio of prices to earnings is still far above the historical average. They are only "way down" if you are measuring from the peak years of 07 / 08.

Sun, 11/09/2014 - 15:05 | 5429958 scraping_by
scraping_by's picture

Blackstone and the rest of the PE's are leaving the market, selling off their inventory to anyone dumb enough to buy the securitized stock. The seminar monkeys who trailed along behind used OPM, and will bail when the payments come due. Only after that, will the supply/demand level out. Sooner than we imagine.

Sun, 11/09/2014 - 15:07 | 5429965 kliguy38
kliguy38's picture

"extremely concerned" code for "we need more payoff" before we let it happen

Sun, 11/09/2014 - 20:16 | 5430691 smlbizman
smlbizman's picture

i promise that motherfucker is to fucking dumb to write what he said...watts of course

Sun, 11/09/2014 - 18:24 | 5430426 NihilistZero
NihilistZero's picture

The only thing that could have extended Housing Bubble 2.0 into 2015 would have been a loosening of lending standards.  The fact that I knew the GOP would block this (not on principal, but to make sure the crash happens while Obama is still Pres) is the only reason I enjoyed the election results.

Housing Bust 2.0 will at least lower the cost of shelter for everyone and take a nice bite out of the Rentier Class' faux wealth.  In this environment I'll take whatever small victories we can get.

Sun, 11/09/2014 - 14:52 | 5429932 NeedleDickTheBu...
NeedleDickTheBugFucker's picture

The ticket to the good life?  Debt slavery bitchez!

Sun, 11/09/2014 - 14:54 | 5429940 Bam_Man
Bam_Man's picture

Watt goes up, must come down.

Sun, 11/09/2014 - 14:57 | 5429944 Wilcox1
Wilcox1's picture

Hmmm, I wonder if its possible that your vote does matter

Sun, 11/09/2014 - 14:59 | 5429948 zstard
zstard's picture

clearly racist /s  the obama/holder formula for success

Sun, 11/09/2014 - 14:59 | 5429949 Peconic Bay
Peconic Bay's picture

Maybe now that the Republicans control both the House and the Senate, they can finally kill off these two crony-capitalist monstrosities, Fannie Mae and Freddie Mac, that have created immeasurable distortions in our economy.  They never should have come into existence in the first place.

Sun, 11/09/2014 - 16:23 | 5430129 Buckaroo Banzai
Buckaroo Banzai's picture

You make funny joke!

Sun, 11/09/2014 - 17:43 | 5430310 moneybots
moneybots's picture

"Maybe now that the Republicans control both the House and the Senate, they can finally kill off these two crony-capitalist monstrosities, Fannie Mae and Freddie Mac, that have created immeasurable distortions in our economy. "

 

Why are you blaming Freddie and Fannie?  Freddie and Fannie did not create the no doc loan.  The FBI warned congress of massive mortage fraud in September 2004.  The GSE's were not chasing the housing bubble until 2005.

In 2001, there was a republican congress and President.  There was no attempt to get rid of the GSE's.

The immeasurable distortions in the economy, come from the bankers, who set the lending standards at ZERO, with the complicity of Alan Greenspan, who had the power from congress, to regulate them and refused to do so.

Paul Krugman noted well before there was a housing bubble, that Greenspan needed to create one, in order to grow the economy out of the .com bust.  In February, 2004, Greenspan told home buyers to get adjustable rate mortgages.  Why would Greenspan have said that, except to promote creation of a housing bubble?

Greenspan was ground zero of the housing bubble.

 

Sun, 11/09/2014 - 18:02 | 5430355 Peconic Bay
Peconic Bay's picture

While I agree that the Fed in conjunction with mortgage banks are the primary villians in the story, you can't overlook that Fannie and Freddie dramtically lowered standards for conforming mortgages and simultaneously raised loan limits right into the teeth of the bubble. They also had used cookie jar accounting to smooth their earnings for years until FASB finally called them on it.  But, the biggest issue is that Fannie and Freddie used highly leveraged balance sheets to provide the liquidity that was a profound market accelerant during the bubble and in the process, put tax payers on the hook for their stupidity.  This is the central element of private profit and public losses which perverts our capitalist system.  They deserve a bullet and I hope the Republican controlled congress gives it to them.

Sun, 11/09/2014 - 18:25 | 5430429 moneybots
moneybots's picture

"Fannie and Freddie used highly leveraged balance sheets to provide the liquidity that was a profound market accelerant during the bubble and in the process, put tax payers on the hook for their stupidity."

 

Freddie and Fannie didn't put the tax payers on the hook.  They did not have a black letter explicit tax payer guarantee of a bailout.  I believe Denninger pointed that out years ago.  At the moment, i am thinking that only Sally Mae had an explicit guarantee.

Sun, 11/09/2014 - 21:21 | 5430852 csmith
csmith's picture

They did not have a black letter explicit tax payer guarantee of a bailout.

Specious. FNM and FRE were already so large that any hint of failure of one or both would've brought instant demand for a bailout from the Democrats. Thus the "implied" guarantee was always very real. They knew it, and, more importantly, the mortgage market knew it, and levered itself to the gills on the taxpayer's nickel. The very definition of moral hazard.

Sun, 11/09/2014 - 17:44 | 5430312 moneybots
moneybots's picture

"Maybe now that the Republicans control both the House and the Senate, they can finally kill off these two crony-capitalist monstrosities, Fannie Mae and Freddie Mac, that have created immeasurable distortions in our economy. "

 

Why are you blaming Freddie and Fannie?  Freddie and Fannie did not create the no doc loan.  The FBI warned congress of massive mortage fraud in September 2004.  The GSE's were not chasing the housing bubble until 2005.

In 2001, there was a republican congress and President.  There was no attempt to get rid of the GSE's.

The immeasurable distortions in the economy, come from the bankers, who set the lending standards at ZERO, with the complicity of Alan Greenspan, who had the power from congress, to regulate them and refused to do so.

Paul Krugman noted well before there was a housing bubble, that Greenspan needed to create one, in order to grow the economy out of the .com bust.  In February, 2004, Greenspan told home buyers to get adjustable rate mortgages.  Why would Greenspan have said that, except to promote creation of a housing bubble?

Greenspan was ground zero of the housing bubble.

 

Sun, 11/09/2014 - 23:48 | 5431272 sun tzu
sun tzu's picture

Actually there was an attempt to reign in the GSE's in 2004 but Barney Hotdog Fwank killed all attempts. As far as getting rid of the GSE's in 2001, there was no problem with them back then. They were not buying the crap loans yet. 

Why do we blame Fannie and Freddie? Because they were the market for bad loans during the housing bubble. Somebody had to buy the crap that banks and mortgage companies were peddling and Fannie/Freddie purchase up to 65% of those crap loans. 

Do I think the Neo-cons are there to reign in corruption and cronyism? No. At least some Republicans are speaking out against it. I'm waiting for any Democrats to call for an end of socializing Wall Street's losses. 

Sun, 11/09/2014 - 14:58 | 5429951 scraping_by
scraping_by's picture

Mr. Watt failed to note the psychological impact of servicing companies disappearing a homebuyer's payment history as a pretext for foreclosure. With no real assurance that won't remain the business model, it's still a complete gamble to do business with the same banks. Fool me once...

Sun, 11/09/2014 - 15:02 | 5429954 Payne
Payne's picture

Buyers are chosing FHA loans since they can walk away, smart buyers.  3% down and if the home goes upside down again you walk.  We do not see the 20% down loans anymore, far and few.

Housing is in trouble due to lack of stable employment, high price to rent ratios, plethora of part time income.

Housing booms are fueled by lots of people buying the starter homes.  We do not have the inventory or the buyers.

Sun, 11/09/2014 - 23:50 | 5431275 sun tzu
sun tzu's picture

Except with FHA you pay $200+ for MIP each month. That's $25K in 10 years. Not such a good deal unless you plan to walk away.

Sun, 11/09/2014 - 15:20 | 5429984 Joebloinvestor
Joebloinvestor's picture

Barry just wants to hand off a shit economy and make some banksters some money.

Sun, 11/09/2014 - 15:28 | 5429992 Racer
Racer's picture

Homeowners

There goes that spin again... they won't be home owners for a very very long time

They are DEBT owers

 

And the amount they will have paid for their ownership will be many many times what they originally offered for the house

And in the meantime, they have to fork out for all the bills and repairs whilst the real owner, the banksters, sits back and does nothing but collect his monthly wad

Sun, 11/09/2014 - 15:27 | 5429998 kchrisc
kchrisc's picture

Community Reinvestment Act 2.0

And for those completely in the know, Mel Watt is W. E. B. Du Bois 2.0

An American, not US subject.

 

"Why send a...when you can send a goy."

 

 

Sun, 11/09/2014 - 15:31 | 5430013 AdvancingTime
AdvancingTime's picture

I was stunned to have this come out right after a Republican election rout and even more stunned to see home-builder stock rally big-time.

I have owned an apartment complex in the Midwest for many years and we are currently experiencing the largest number of vacancies we have ever had. Many houses in the area are empty or under leased. In 2005 and 2006 prior to the housing collapse many people were looking at second homes, for investments or as a vacation getaway.

Today many of those people have shed the extra homes and some have doubled up with family or friends reducing the need for housing. In many areas of America we are pushing on a string and calling it demand when someone who can barely pay the rent is encouraged by the government to buy a house they can neither afford or maintain. We have a shortage of "qualified" buyers and renters. More on this subject in the article below.

 http://brucewilds.blogspot.com/2013/12/super-low-interest-rates-disservive-to.html

Sun, 11/09/2014 - 15:35 | 5430027 MASTER OF UNIVERSE
MASTER OF UNIVERSE's picture

These shills would sell their own family for a slice of pizza. Condos are a glut, single family are a glut, multi-family are a glut, commercial is a glut, and retail is a glut in the markets. Government Sachs is searching madly for another avenue of subprime predatory loans to pump and then dump.

Does the Real Estate Industry really think that the entire population of North America is really this fucking stupid? I cannot understand how the 'system' of subprime predatory lending is not outlawed entirely after the

08 fiasco and the sanctions by industry? Doomsday cannot possibly be too distant if this foolishness continues. Insanity, it would seem, has become the rule of the day, and normalized in terms of TBTF. This lunacy is getting to be old and tired IMHO.

Sun, 11/09/2014 - 15:55 | 5430076 AdvancingTime
AdvancingTime's picture

Great comment! Everywhere I look buildings are for lease or sale. I did not sleep well last night because I was afraid. I was haunted by fear and I found all the reassurances by Janet Yellen and the Federal Reserve are not helping.

Like the young boy in the movie years ago the spirits of those who once filled the world with life will not let me rest, in this case I'm haunted by dead businesses and not people. The article below concerns the cost and problems of buildings sitting vacant because of business failures. I have my finger on the pulse of small business and it is far from healthy.

 http://brucewilds.blogspot.com/2014/10/i-see-dead-businesses.html

Sun, 11/09/2014 - 18:50 | 5430340 moneybots
moneybots's picture

"Great comment! Everywhere I look buildings are for lease or sale.  I did not sleep well last night because I was afraid. I was haunted by fear and I found all the reassurances by Janet Yellen and the Federal Reserve are not helping."

 

The potential of a Great Depression is not in the rear view mirror, prevented by Bernanke.  Bernanke built the record credit bubble even bigger.

I read the other day that the FED is supposed to be concerned about a repeat of 1937, in which they claim they raised rates too soon.

The actual concern is 1929, in which a credit bubble burst.  Bernanke prevented that bubble from bursting yet, by his monetizing.  Thus the bursting in still in the future, not in the rear view mirror, as it was in 1937. 

We are heading into 1929, not 1937.

Sun, 11/09/2014 - 21:47 | 5430931 malek
malek's picture

Subprime is so 2007.
Ask yourself instead, why are prices not falling if everything is in a glut?
Because the banks allow for extend-and-pretend on those mortgages/loans if they are so big that letting them default woud hurt their own (banks) books most due to realized losses.

And allowing the banks to limitlessly do so is the real scandal these days.

Sun, 11/09/2014 - 15:43 | 5430046 Elliptico
Elliptico's picture

Deafulted on a RE loan and need to borrow to buy more?  No problema.  See Tishman Speyer.

Sun, 11/09/2014 - 18:03 | 5430361 bonin006
bonin006's picture

Sorry, doesn't work for us. We are not a Tishman.

Allan Sherman, If I were a Tishman:

https://www.youtube.com/watch?v=asvVrm6xvG4

Sun, 11/09/2014 - 15:51 | 5430064 ekm1
ekm1's picture

FHFA is under congress rule, nothing to do with the white house.

Sun, 11/09/2014 - 17:32 | 5430281 rqb1
rqb1's picture

You are correct, but my understanding is that Treasury has been calling the shots.
I thinking the administration may release before the newly elected congress is sworn in.
Fnma common has 20x upside if this occurs. Take a look at it ekm1.

Sun, 11/09/2014 - 20:21 | 5430704 SpanishInquisition
SpanishInquisition's picture

Who hired Mel Watt then?

Sun, 11/09/2014 - 16:04 | 5430093 B2u
B2u's picture

Simple solution.  If you purchase a home with less than 20% you cannot remove the debt with a bankruptcy.  

Sun, 11/09/2014 - 17:19 | 5430245 moneybots
moneybots's picture

Republicans "Extremely Concerned" At Mel Watt's Taxpayer-Backed Risky-Home-Loan Reforms

 

Are republicans extremely concerned?  10,000 property appraisers petitioned the government in 2001, about appraisal fraud.  A republican government did nothing.  Same too, when the FBI warned a republican congress of massive mortgage fraud, in September 2004They did nothing.  A republican SEC gave leverage waivers to the big investment banks.  A republican President sued the states to prevent them from prosecuting lenders for predatory home loans.

As a result, in 2008 we had a democratic congress and President.  So what is it they are complaining about, now?

Sun, 11/09/2014 - 19:55 | 5430646 NihilistZero
NihilistZero's picture

Are republicans extremely concerned?  10,000 property appraisers petitioned the government in 2001, about appraisal fraud.  A republican government did nothing.

Duh.  There was a Republican president in 2001.  This is why the Clinton era was so good for consumer prices and RE.  A "fiscally consevative" GOP congress only lives up to it's name with a Dem in the White House.

Sun, 11/09/2014 - 23:54 | 5431280 sun tzu
sun tzu's picture

The bush adminstration in 4/2001 raised red flags, the 2002 budget requests declares Fannie Mae and Freddie Mac 
"Potential problem.. and can cause strong repercussions in the financial markets"

In 2003 the White House upgraded the warning to a systemic risk that could spread beyond the housing sector.
John Snow Treasury Secretary called for Regulations & Supervision of GSE's.
Barney Frank (D-MA) denied there was any problem " Fannie Mac & Freddie Mare are not in Crisis"
Encouraging the government to do more to get low income families into homes, Ultimately blocking the regulation.

Allan Greenspan , 2/17/2005 spoke about the dangers of Fannie Mae & Freddie Mac "enabling these institutions to 
increase in size -and they will once the crisis in their judgement passes-we are placing the total financial system of 
the future at a substantial risk

Charles Schumer (D-NY) 4/6/2005 ..."I think Fannie & Freddie have done an incredibly good job, and are an intristic 
part of making america the best housed people in the world....if you look over the last 20 or whatever yrs. Theyve 
done a very, very good job.

McCain (R-AZ) 5/25/2006 For years I have been concerned about the regulatory structure that governs Fannie Mae & Freddie Mac...
and there sheer magnitude of these companies and the role they play in the housing market...the GSE's need to be reformed without delay."

Mon, 11/10/2014 - 01:17 | 5431399 NihilistZero
NihilistZero's picture

BULLSHIT!  Bush was the BIGGEST housing cheerleader with his "ownership society".

Quit trying to rewrite history GOp troll.

Sun, 11/09/2014 - 17:21 | 5430254 Bemused Observer
Bemused Observer's picture

I want to hear one of these guys acknowledge that prices are too high, and NEED to come down.
They dance around this fact, let's try lower interest rates, let's try no-money-down loans, let's try any god damned thing EXCEPT lowering the frickin' PRICES! Even though this kind of thing tanked the markets a few short years ago, it is seen as the ONLY possible cure now.

This is the same kind of stupid that ends up on a remote jungle compound, passing around little cups of Kool-aid. Or lying on beds in a rented house, draped with purple scarves. The WILLFUL blindness to obvious fact is very cultlike. Instead of seeing the failure of their actions as indicating the need to try something else, they see it as divine punishment for not trying hard ENOUGH, and they repeat their failures over and over and over again in an attempt to "get it right this time!".

Sun, 11/09/2014 - 18:40 | 5430467 moneybots
moneybots's picture

"The WILLFUL blindness to obvious fact is very cultlike. Instead of seeing the failure of their actions as indicating the need to try something else, they see it as divine punishment for not trying hard ENOUGH, and they repeat their failures over and over and over again in an attempt to "get it right this time!"."

 

They want us to see it as that, so we won't oppose their continued financial game.  Greenspan left before the housing bubble blew up.  Bernanke did more of it, knowing well in advance that QE wouldn't work.  It is now left for Yellen to deal with the next crash.

 

Sun, 11/09/2014 - 18:02 | 5430360 moneybots
moneybots's picture

Chairman Jeb Hensarling exclaiming he was "extremely concerned," about Watt's "efforts to force taxpayers to back high-risk mortgages with ultra-low down payments," concluding this plan "must be rejected."

 

What about the plan to force tax payers to pay for another Iraq war?

Sun, 11/09/2014 - 18:40 | 5430470 10mm
10mm's picture

Anybody named "Mel" leaves alot to desire

 

Sun, 11/09/2014 - 18:45 | 5430480 Choomwagon Roof Hits
Choomwagon Roof Hits's picture

It's different this time.

Sun, 11/09/2014 - 23:23 | 5430612 livefreediefree
livefreediefree's picture

Who needs banks? A gov't that prints money and deficit spends has enough money to loan everybody whatever they need for anything, in some cases using the banks as intermediaries, and in some cases not. As time goes on, gov't will nationalize the loan process (eg, student loans) to the point where all banks except for the fed wiill disappear.

"Hi, Mr. consumer. I'm Janet Yellen. If you open up a checking acct today in the Federal Bank of Infinite Resources, we can loan you enough money tomorrow to buy the Andromeda galaxy. If that's not to your liking, there's a number of ten-million-star globular clusters that Freddie has in its inventory, just purchased from aliens who demanded such a silly, silly thing from us: The entire inventory of our gold, silver, platinum, and about 25 or 30 other precious metals; and 100 copies of Lena Dunham's autobiography."

Mon, 11/10/2014 - 00:20 | 5431328 honestann
honestann's picture

I have a better idea.  No more home mortgages.  None.  All sales cash (or better yet, in gold).

What would happen?

#1:  Everyone who owns their home, continues to.

#2:  The price of new homes would fall 80% to 90%.

#3:  Now people can buy homes for what was a down payment.

#4:  New buyers have no mortgage payments to make.

#5:  And so, 100% of their income is available for spending/saving.

#6:  Thus buying soars, and the economy takes off like a rocket.

-----

The lie that higher home prices helps people is... terminally insane.  How anyone in their right mind could even imagine paying 5 to 10 times as much for the most expensive item in life could benefit them, is beyond comprehension for any sane human being.

Oh, and by the way, if the above happened, everyone who finds themselves underwater just walks, the banksters go broke, and we don't need them anyway because now people pay cash (or gold or silver) for everything.  So... no real downside either.  In fact, to remove the massive burden of the banksters from everyone would be a huge upside.

Mon, 11/10/2014 - 00:53 | 5431360 Youri Carma
Youri Carma's picture

We are having a big party here right now because "... at least one sane mind in Washington."

Mon, 11/10/2014 - 14:16 | 5433014 waterhorse
waterhorse's picture

More smoke and MERS.

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