Banks Want Pieces of Fannie-Freddie Pie


“I don’t think that private shareholder-owned entities should issue federal government guarantees,” said Michael S. Barr, who worked on housing issues at the Treasury Department until the end of last month and then returned to his job as a law professor at the University of Michigan. “I think that creates the same conflict we had in the past.”

Wells Fargo and some other large banks would like private companies, perhaps even themselves, to become the new housing finance giants helping to bundle individual mortgages into securities — that would be stamped with a government guarantee.

banks view the government’s overhaul of the mortgage market as a potential profit opportunity. Treasury officials have met with executives from several institutions, including Wells Fargo, Morgan Stanley, Goldman Sachs and Credit Suisse, according to a public listing of the meetings.

EDITOR’S NOTE: EVEN I AM ASTONISHED AT HOW BRAZEN THIS IS. THE BANKS THAT “OWN THE PLACE,” AS SENATOR DICK DURBEN SAID, REALLY WANT TO OWN IT. 30 years ago we knew better than to treat this proposal as anything but a bad joke. We had learned our lesson from 1929. But the government is listening, incredibly, to these so-called “proposals.”

I’ve made some far-out predictions on this blog for the last 3+ years. But here is one that comes with a virtual guarantee, now that the Banks obviously feel they are untouchable. Until and unless we break up the bank oligopoly, we are headed for dissolution of the United States into between 3and 7 geographical countries where the United States once stood. The mega banks have stood as a somewhat secret club directing everything from laws to regulation to court decisions. But the prospect of government intervention was always there, so the banks had a common “enemy” the U.S. Government.

If that threat is removed, then the ties that bind them will be gone — they will have no common enemy and they will start ankle biting and turf wars that will inevitably end up with various banks controlling large swaths of geography that we carved up over 200 years ago. “Peace” will be achieved when each of them is granted sovereignty. Then we have the interesting prospect of actual wars that might make the Civil War seem gentle.

Whether this actually leads to armed rebellion by the people is hard to say, but it certainly raises the possibility. Some of these titans of the universe might regret their support of the second amendment.

In the meanwhile, as they move closer in on controlling the systems of Fannie and Freddie, they get to control the information that could be used as evidence against the people and companies that caused this mess. The strategy is obvious — it’s the consequences that nobody is thinking about.

NY Times ——————————————————————————————–


As the Obama administration prepares a report on the future of Fannie Mae and Freddie Mac, some of the nation’s largest banks are offering a few suggestions.

Wells Fargo and some other large banks would like private companies, perhaps even themselves, to become the new housing finance giants helping to bundle individual mortgages into securities — that would be stamped with a government guarantee.

The banks have presented their ideas publicly through trade groups. Housing industry consultants and people familiar with recent meetings at the Treasury Department say these banks view the government’s overhaul of the mortgage market as a potential profit opportunity. Treasury officials have met with executives from several institutions, including Wells Fargo, Morgan Stanley, Goldman Sachs and Credit Suisse, according to a public listing of the meetings.

The administration’s report, to be released later this month, is expected to be sweeping and could address basic questions like whether a government guarantee is needed at all for middle-class homeowners. While other arms of the government are dedicated to making loans available to lower-income borrowers, Fannie and Freddie have helped lower rates for the bulk of homeowners. Some Republicans are trying to narrow this broad role, and on Thursday, several conservative researchers released a proposal on how to do so. But banks, for their part, have told the administration that removing the guarantee would wipe out the widespread availability of the 30-year mortgage, fundamentally reshaping the American housing market. Though some other countries do not promote long mortgages, some analysts warn that such a change would be devastating to the market here. At firms like Goldman, analysts are predicting that a government guarantee on a broad swath of mortgage securities will survive in some form.

A spokesman for the Treasury declined to comment on the administration’s plans, but one former Treasury official warned against the banks’ proposal.

“I don’t think that private shareholder-owned entities should issue federal government guarantees,” said Michael S. Barr, who worked on housing issues at the Treasury Department until the end of last month and then returned to his job as a law professor at the University of Michigan. “I think that creates the same conflict we had in the past.”

Mr. Barr said that banks with the largest mortgage businesses had suggested that they be allowed to issue the government’s guarantee, setting themselves up as a second-generation of Fannie and Freddie. As for the two housing giants, Mr. Barr said, “No one argues for Fannie or Freddie to continue in their current form. It’s just not politically plausible.”

Fannie and Freddie have been barred from lobbying the administration or Congress about their future since they were placed in government conservatorship more than two years ago. The companies are able to receive unlimited aid from the Treasury Department until the end of 2012. In the meantime, they are administering some of the government’s housing programs and enabling the housing market to sputter along through their guarantee of most new mortgages.

The administration’s paper about the future of housing policy will probably address what should be done with Fannie’s and Freddie’s existing assets, a combined $1.5 trillion portfolio. That is entirely separate from the discussion about the future business model. Lawmakers will eventually decide if Fannie and Freddie will survive and if they can compete in the new model.

One trade association, the Mortgage Bankers Association, has suggested to the Treasury Department that the government might want to auction off Fannie and Freddie’s assets, including their brands and their mortgage data, to private companies.

Wells Fargo has been most public in its support of the proposals, but JPMorgan Chase and other large banks helped develop the plans within trade groups. Michael J. Heid, the co-president of Wells Fargo Home Mortgage, testified before Congress last year that allowing private companies to issue the guarantee would add “innovation and efficiency” to the process.

Asked about the proposals from the trade associations, Kristin Lemkau, a JPMorgan spokeswoman, said: “While we are members of these groups, we have not endorsed any specific proposal.”

Still, some housing experts critical of the idea warn that giving the large banks a bigger role could lead to an even greater concentration in a market already dominated by a few big players. And they warn that the banks are unlikely to add the affordable housing assistance that Fannie and Freddie provided. Furthermore, they do not see why private entities should profit from the government’s good credit standing.

Several housing consultants pointed out that the banks’ latest proposals resemble ideas that banks circulated in Washington several years before the financial crisis. Back then, companies like General Electric, Wells Fargo, JPMorgan and the American International Group lobbied through a group called FM Watch, warning that Fannie and Freddie had too much power, had taken on too much risk and had unfair advantages in the marketplace. FM Watch disbanded in 2008, when Congress passed legislation requiring more regulation of the two housing giants.

Representatives of the industry say the entities they are now proposing would be less risky because the government would have strict oversight of them as well as the ability to require hefty amounts of capital to back the mortgage bonds. They also say that companies would pay a fee for the government guarantee, which would cover losses above a certain level. That level has not yet been determined.

In at least one version being proposed, the private companies would have to be separate enough from banks that they could not be pulled down by a bank’s collapse. Also, the proposals say the government would guarantee only the mortgage bonds, and not the private companies. However, the government never explicitly guaranteed the survival of Fannie and Freddie or their mortgage bonds; nonetheless it ultimately stepped in to back both.

Still, another trade group, the Housing Policy Council, an arm of the Financial Services Roundtable, expects banks to look for ways to become licensed to help issue government-guaranteed mortgage bonds.

“I wouldn’t be surprised if some banks did,” said John H. Dalton, president of the council and the former president of Ginnie Mae, an arm of the government that backs mortgages.

John P. Gibbons, an executive vice president of capital markets at Wells Fargo Home Mortgage, said the bank is not eager to own one of the new private companies playing this role, but that it would consider doing so if it thought it was necessary for the market.

“In general we still support those positions because we think they are ways of bringing private capital back into mortgage finance,” he said.

It is unclear just how profitable the new business may be. Mr. Heid, the Wells Fargo executive, told Congress that private investors in the companies should receive a “reasonable” return, but he did not say how much.

Jay Brinkmann, chief economist of the Mortgage Bankers Association, which has a similar proposal to the Housing Policy Council’s plan, said his group is “not trying to protect profits for a handful of banks.”

“I don’t think anybody is going to be making the kind of profit that Fannie and Freddie were making in their heyday,” he said.

Even if large banks are not allowed to give a government guarantee, they might have control over the private companies by investing in them or by placing representatives on their boards.

There is a risk that small banks would be shut out of the market and consumers would face higher costs on their mortgages, said Mark Willis, resident research fellow at New York University’s Furman Center for Real Estate and Urban Policy.

“Some fear that a market ruled by a few large banks will limit access to the secondary market by smaller, local institutions,” said Mr. Willis, who visited Treasury officials in November to discuss the issues.

Mr. Willis pointed out that the mortgage market has become more concentrated since the financial crisis, as several prominent originators — like Wachovia and Washington Mutual — hit trouble and were sold to larger banks.

If the government decides to continue offering a guarantee for a broad swath of securities backed by mortgages to middle-class homeowners, it does not have to use a private company. A government agency could issue that guarantee, much the way the Federal Housing Administration does now for borrowers with lower incomes or other factors that disqualify them from conventional loans.

The banks’ proposals also throw out Fannie and Freddie’s longtime role in affordable housing. Part of the reason the housing giants enjoyed such broad support from lawmakers was because they aided low-income borrowers. Banking associations say that distorted and endangered the two companies and that any new companies should not be saddled with those responsibilities. Instead, the banks say, the private companies could pay a fee to the government to support such lending.

18 Responses

  1. Bon Scott…wow strong stuff

  2. Last post off subject but anyhoo…indymac onewest FDIC Fannie Freddie forclosure mill trustee Corp and LPS and toll brothers buying from FDIC. ( gibralter holdings company) they built my home they were the ” lender” tjeyvwere the title company What a ” gentlemans club” now who did the underwriting

  3. I’ll share with you this. When a patient is dying guess where they so wsnt to be HOME

  4. Louise. Funny can you feel the rip of coming. You made me laugh today thanks ( dry )

  5. Hey, come on Neil. I’m starting to feel like a broken record, inspired by the nationally sanctioned rut we are being buried in! LOL
    What you see in action here in America, and patterning globally as well, is an ice age scale shift, that happened a hairs width a day, but in 20 or 30 years the place is as good as a biblical Sodom when all is said and done.

    Reading about it over centuries, in multiple locales such as the slow disintegration, to re-assimilation of the Roman empire’s chief character attributes, in 3 or four inches of a history book, is a related process. You get to mill over centuries of change, that happened a day at a time, in a few hours. Then you can look at the Nazi Germany debacle, or Stalinist Soviet Union Follies, in a much more accelerated timeframe to dysfunction, and go, wow!, how come no one could tell what was going to happen?

    Well, they could tell, and they were the uncommon few. The majority, are led by the very same carrots of distraction, as their zombified leaders. So, don’t expect Americans to miraculously catch on – too busy watching TV fantasies, porn fantasies, commercial fantasies, tea bagger fantasies, and all kinds of other assorted dopamine tickling mythologies spreading like gangrene. This place is in a classic delusional phase, with a hugely apparent social-psychological disorder in play, Narcissistic Personality Disorder, verging far into social socio pathologies. (Don’t worry, it’s a pattern endemic to all nations, whose leaders begin the slow sink into power lust, greed and illusion. It’s not only irreversible, but it took years to condition the proper social response, a day at a time, through various cherry sweet philosophical poisons.

    Now, the bank delusion for power, is striking, because they are not even absolute in power, yet according to the old adage, by the behaviors they instigate and practice, maybe they are heading for the steering wheel of absolute power, and the obvious attendant corruption so suitably displayed. I mean everyone else is broke right? Uncle Sam; destitute beggar, Municipalities? Infrastructurally decaying and dead intensive care units. The education system? Don’t blame the students, it’s teachers are the root retardation of the whole, hence a chief progenitor of the previously covered delusional fantasies, taught as truth. The military complex? Besides being the right hand of global profiteering, and that obligatory system of greed’s extension, they are the chief consumers of the “protection” money, for global use, which this whole debacle ads up to, since the farce Bush regime began running this place into destitution, for the profit of the few, a whole society is heading for a miserable wake-up call of reality: true collapse on a scale never before witnessed by humans on earth. The crazier this whole thing gets day by day, the more rationale and farsighted the Jehovah’s Witnesses sound – I mean they were at my door, telling me about this stuff 15 years ago, and sure enough, it’s now the reality knocking down my door! LOL

    So, The only one’s with money, are banks, and religious entities. Not hard to see one of the next victims to fall within the crosshairs of this banking psychos greed gun! LOL. Either way, to get back to the historical concepts teaching lessons for the future above, many people, but not the majority, will clearly and lucidly see what’s happening, and they of course will be labeled the lunatics, and conspirators, and what have you, by the ones who are the chief zombies making this all possible, the deaf, dumb and blind, pleasure addicted, power addicted, and greed addicted monsters we have created. They look quite fancy, every weekend up at the country club, and that just might be part of the chief quality of this national deception, the aura we have installed, worshipped and promoted across our land, and globally, for three good decades, is the good intentioned “visual” and social road, and like the old adage, you know where that tends to lead people. Very interesting to watch this one unfolding, daily, on schedule, and fulfilling a hundred historic patterns, right before our eyes. It will end up becoming a very useful anecdote, for a future race of man, of what to avoid, at all costs! LOL

  6. What a prick, Blocking my posts. Whatever


    The chief executive of the privately-held Mortgage Electronic Registration Systems, or MERS, is planning to leave the company and an announcement of his departure could come within days, according to people familiar with the matter.

    The company has been under fire by Congress and state officials for its role in the mortgage-document crisis. The firm’s board of directors has met in recent days to address the fate of the company and its chief executive, R.K. Arnold, people said.

  8. The whole credit worthiness issues needs to be rethought out.

    Rather than assigning higher interest rates to those with allegedly worst credit ratings, they should get the same interest rates, but access to less credit.

    While this may sound bad, it is not. This actually would keep prices of homes from rising too rapidly while those who can’t borrow enough are able to start saving.

    Eventually, the two shall meet.

  9. Neil

    This is astonishing!!!! Just more control in this country by the banks — they have tremendous power over Congress, the Administration, and they rule politics. This is the most frightening post, as yet, that you have posted.

    People have to wake up and realize what is going on. New study by the New York Communities for Change, revealed a study that although 32% of homeowners in NY are blacks and Latinos — they account for 56% of homes entering the foreclosure process in NY. The study noted that neighborhoods with a high proportion of minority homeowners were targeted by lenders with predatory loans. Study also states that from 2004 to 2007 – in the city and on Long Island – lenders were four to five more likely to target to issue high-cost loans to blacks and Latinos than they were to whites. I have spoken to many of these homeowners– and continue to be shocked by what I hear.

    I am not in foreclosure, am not a minority — and whites were targeted too — but where the heck are consumer advocacy groups challenging the outrage of what is reported in the above study?? Have we returned to the atrocity that sparked civil rights 50 years ago?? Is President Obama a front for the banks?

    And, some are actually contemplating the turn-over of the mortgage system to the likes of Wells Fargo (and others) — who are among the top predatory lenders of the past decade???

    If we do not speak up — do not file class actions — we continue to not be heard. Where are the predatory lending class actions???? And, has no one, in power, any conscience??

    Heard today — home prices will drop another 20% this year. This will result in 40% of homeowners — underwater. Comment was — that strategic default will be common cocktail party talk. Also talk of deflationary expectations and pressure — not experienced since the great depression.

    Has government no solution but to further turn over the future of this country to the very predators that caused the crisis??? And, more going on — behind the scenes debt buyer investors pressuring banks the front guys –such as Wells Fargo.

    Still others reporting that there will be no recovery until the market is cleared of all foreclosures. Oh Yeah?? Foreclosures will go on and on and on — with no one knowing who is really foreclosing — no economy to speak of — and with banks in control…………………………..what then???

  10. Neil,
    Please Post this as a permanent link, while we still have time left.

  11. @ Gregory Bryl – Congratulations! Haha on Aurora – love to hear about homebuyer victories.

  12. this sounds like a set-up. Did they plan on this from the beginning???

  13. FIRST STANDING-RELATED VICTORY IN VIRGINIA: Aurora’s claim to title thrown out for lack of standing!

  14. Can you feel the ripoff coming? Allowing these mega banks to take over government will be the biggest screw job of all. Absolutely outrageous. Our Congress is worthless. We need to fight this one with everything we have. More property rights down the tubes.

  15. “J. Heid, the co-president of Wells Fargo Home Mortgage, testified before Congress last year that allowing private companies to issue the guarantee would add “innovation and efficiency” to the process.”

    Idiot! Just like the banksters’ idea of MERS added “innovation and efficiency” to the process…



    OneWest Bank, formed in the aftermath of IndyMac Bancorp’s failure, may have its mortgage- servicing ratings downgraded by Moody’s Investors Service, which cited “potential irregularities” in the foreclosure process.

    The ratings of IndyMac Mortgage Services, a division of OneWest, may be downgraded if faulty foreclosures increase the time it takes to sell bank-owned homes or boost legal costs, Moody’s said today in a statement. OneWest is resubmitting affidavits in certain cases after a review, Moody’s said.

    “Employees signing affidavits may not have had full personal knowledge of every item in the affidavit,” Linda Stesney and Cecilia Lam, analysts at New York-based Moody’s, said in the statement. “Notaries may not always have been physically present at the time of signing.”

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