Tonight — Silent Roles of Fannie Mae and Freddie Mac — Hiding Behind the Obtuse

How to Withhold Vital Information from Homeowners

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Charles Marshall, Attorney and Bill Paatalo, licensed investigator discuss the moral hazard created by the Government Sponsored Entities (GSEs) banks, the courts and the regulators in allowing “presumptions” to be used even when the actual facts are different from the presumed facts.

Fannie and Freddie have long been a mystery wrapped in an enigma.

Before false claims of securitization, before fabrication and forgery of documents, the GSEs had fairly clear role in the origination, servicing and enforcement of mortgages. Now they are used as cover to hide lack of ownership where the banks and servicers make the homeowner travel and endless loop leading nowhere.

Now, as to any specific loan, we don’t know which of the following applies:

  1.  GSE is the guarantor of the loan (basically like a third party insurer with government backing)
  2. GSE is Master Trustee of a REMIC Trust in which there is a named Trustee who has the same powers, rights and obligations as the Master Trustee — i.e., no powers to actively administer the active affairs of the trust because there is no business or assets in the trust.
  3. GSE is or was a purchaser for cash.
  4. GSE is or was a purchaser using MBS issued by a named trust that either exists or doesn’t exist.
  5. GSE, using Trust A MBS paid Trust A for loans owned by the Trust or for loans not owned by the trust.
  6. GSE was a seller of the subject debt, note or mortgage.
  7. GSE claimed ownership when it didn’t own the subject debt, note or mortgage.
  8. GSE showed subject loan on its website but had no interest in the subject debt, note or mortgage (or foreclosure).
  9. Third parties claimed that GSE owned the subject debt, note and/or mortgage and it was true.
  10. Third parties claimed that GSE owned the subject debt, note and/or mortgage and it was false.

15 Responses

  1. @ ANON

    After reviewing the list at the link you’ve provided, the “pink elephant in the room” appears to be WELLS FARGO.

  2. @ ANON

    Pardon my ignorance: which list is missing the whom?

  3. And, Kalifornia — Who is missing from the list?

  4. @ ALL

    A query stumbled into this link:

  5. @ ANON

    Do web links exist to drill down on in the last comment:

    “…[T]hey have admitted it, and it is contained in FHFA suits against the financial institutions.”

  6. … and the first END NOTE in the WHITE PAPER:

    1 The process described in the text is conceptually the easiest way to understand what happens in a securitization, and it is the basis for some securitizations. More common, however, is a “swap” arrangement, whereby the GSE will swap the securities for the mortgages from the originator. The originator can then decide whether to hold the securities, or to sell them in the secondary market. Similarly, when the GSE wants to hold mortgages in its portfolio, it most often buys back its own MBS from the secondary market; once the GSE posses its own MBS, in essence it just owns the underlying mortgages.

  7. @ ALL


    Guaranteed to Fail: Fannie Mae, Freddie Mac and the Debacle of Mortgage Finance

    “The shapers of the American mortgage finance system hoped to achieve the security of government ownership, the integrity of local banking and the ingenuity of Wall Street. Instead they got the ingenuity of government, the security of local banking and the integrity of Wall
    – David Frum (columnist, and former speechwriter for President George W. Bush), National Post, July 11, 2008


    Chapter 1: Feeding the Beast

    “..the GSEs play an extraordinarily successful double game…[telling] Congress and the news media, ‘Don’t worry, the government is not on the hook’ – and then turn around and tell Wall Street, ‘Don’t worry, the government really is on the hook.”
    – Richard Carnell (Fordham University Law Professor and former Assistant Secretary of the Treasury), Senate testimony, February 10, 2004

    1.1 The Essence of the GSEs

    What exactly do Fannie and Freddie do? The GSEs are engaged in two somewhat related businesses: residential mortgage securitization (currently about $3.5 trillion) and residential mortgage investment (currently about $1.7 trillion).

    The GSEs’ securitization business operates as follows: They buy mortgages from originators (mostly fixed-rate, single-family home mortgages, although they do also buy some adjustable-rate mortgages and some multi-family mortgages); they form pools of these mortgages (so that the “law of large numbers” reduces the variability in outcomes that might arise from a single mortgage); and they issue (sell) “pass-through” mortgage-backed securities (MBS) that are formed from these pools to investors. These MBS represent claims on the interest and principal repayments that are “passed through” from the pool of mortgage borrowers to the securities investors (minus various fees).1

    Because the investors have no direct knowledge of the creditworthiness of the mortgage borrower, they need to be reassured that they will receive the promised interest and principal repayments. Both Fannie Mae and Freddie Mac provide guarantees to investors in their MBS
    against the risk of default by borrowers of the underlying mortgages. In return, both charge a “guarantee fee”.

    Although the GSE guarantee (so long as it can be honored) removes the credit risk from the securities, the MBS investor is still subject to interest-rate risk. Any long-lived fixed-rate debt instrument carries interest-rate risk: When interest rates for new securities are higher than
    the interest rate on an existing (but otherwise comparable) security, the value of the latter decreases; when interest rates for new securities are lower, the value of the existing security increases. However, for fixed-rate mortgages (and the MBS that are formed from them), the interest-rate risk for the investor is heightened, because mortgage borrowers are usually able to prepay their mortgage (and, in the United States, do so without paying any fee or penalty.2

    The second business for the GSEs is mortgage investment. They buy and hold residential mortgages (or more often their own MBS). The funding for these investments comes overwhelmingly from issuing debt. They earn net income on the “spread”: the difference between the interest yield on the mortgages that they hold and the interest rate on the debt that they have issued. Because their debt is implicitly guaranteed by the U.S. government, GSE debt is relatively risk-insensitive. Further, the GSE shareholders do not pay a premium for these government guarantees nor bear the full cost of their failure. Hence, from the GSEs’ standpoint, the cost of issuing debt is less than the costs of issuing equity, and they have a strong incentive to try to leverage themselves as much as possible – to issue as much debt and as little equity – to the extent that their creditors and regulators will permit.3 By owning these on-balance sheet mortgages, the GSEs are exposed to interest-rate risk as well as credit risk.

  8. Excellent show Bill. Two things stand out — One – derivatives and no actual documents for authority — although they try to lump under the Pooling and Servicing Agreement. Two, the pension funds are controlling and blocking representatives to bring this forward to Congress.

    Would have liked you to mention that Freddie/Fannie’s portfolio includes both direct loans sold to Freddie Fannie and Freddie Fannie’s ownership in the MBS of the private trusts. Under the later, one might not find assignments. You would have a sale from the trust tranche pool to Freddie Fannie, and for the borrower only an assignment to the private label trust. Freddie Fannie do not disclose their MBS investment portfolios. They disclose very little. But, they have admitted it, and it is contained in FHFA suits against the financial institutions. This suggests to me, that the private trusts were always just default debt, recycled, and sold back, and why you will only find assignment of debt (how default debt is transferred) — and not assignment of mortgages — if you find anything at all.

    Has anyone challenged the standing of Lone Star’s L9 “participation” “trusts” that do not have a fiduciary trustee as does a traditional trust, and are not filed as a corporation?

  9. Reblogged this on Deadly Clear.

  10. It’s a bit more complicated and we’ll probably never know just how complex… or who was calling the shots. One thing for sure – Raines and Johnson ought to be interrogated at Guantanamo. A good site to learn GSE inside info:

    It’s time homeowners owned shares and controlled FANNIE & FREDDIE and there are enough of us to make a significant difference. If everyone bought $200 of Fannie Mae shares – homeowners would control the company. Fannie is the “financial agent for the United States” and controls the mortgage industry for the Treasury. As shareholders we could bring issues to light.

    Just think about it – 84 Million homeowners “BUY FANNIE FRIDAYS” …

  11. Good show – Bill should speak more about the GSE’s ‘liquidation’ – interesting subject. What does it mean to ‘liquidate’ and/or ‘transfer’ to another set of books (Fannie statement).

  12. Don’t forget — GSEs bought the top tranches of the private label MBS trusts — (PLMBS number one customer!!), and after the GSEs originally “dumped” the same loans!!!

    And, people, “non-prime” securitization is BACK. Are they for real? Same old scam — different name — suck the little guy — and charge them the rates no one else will pay. Makes sense, right? NOOOO.

  13. Farm Credit is also a GSE….

  14. Ive said all along. Once you crack this egg it all will be exposed. The masterful server and it’s side kicks having investors bid on empty trusts and loans that never qualified for government insurance and were set up to fail from the get go. I go unsigned docs so were did the get signed ones from. Maryland turns a blind eye to fraud in their courts and land records. Dont vote for Sydney Harrison!

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