“Big Banks Win, Taxpayers Lose as FHFA Spikes Fannie Insurance Overhaul,” American Banker Article:
“Incompetence or corruption. It’s got to be one or the other,” said Robert Hunter, a consumer advocate and former Texas insurance commissioner whose opinions dovetail with those of people closer to Fannie.
Fannie officials eventually concluded that the simplest fix was for the GSE to buy insurance for itself. Such a move would cut banks out of the equation and enable Fannie to leverage its size into bulk discounts.
“It seemed like a clear way for the GSE (and hence the taxpayer) to save money,” writes Laurie Goodman, a mortgage bond analyst for Amherst Securities, in an email to American Banker. “If Fannie was able to implement its plan, private label [mortgage security] investors would clearly be interested in replicating it.”
Fannie officials expected bank insurance industry advocates to push back against price cuts and market changes. But they figured that regulatory probes and bad press had severely hurt the industry’s credibility and leverage.
Details of the specific moves to foil Fannie are hazy. What is clear is that by early this year, the industry had shifted its sights from swaying Fannie toward convincing the FHFA to stall the process.
On Friday February 8, the FHFA informed Fannie it was vetoing the plan. GSE staffers were baffled. They became even more so when the FHFA convened a call the following Monday with the Mortgage Bankers Association, the Consumer Mortgage Coalition and other trade groups.
You might ask why a residential income-property buyer or owner should care. Well, Fannie Mae also deals in income properties. If Fannie can’t save money via direct insurance deals, then won’t the extra costs be past on to the general taxpaying public and won’t it also reduce investors’ ability to get good deals via Fannie?
Felix Salmon, Reuters, says that it’s time to even abolish the FHFA.
With all of that in mind, consider what’s going on in the broader sense. Here’s an article covering developments that tie in with this maneuver by the FHFA: “Former Regulatory Leaders Propose Government Scaling Back Housing Market Involvement.”
The question comes down to one of which path serves the most people the best. Is it only an ideological battle? We have to be careful because Bernie Madoff made off with billions (until he was exposed). Members of the Bipartisan Policy Center may have good intentions, but that doesn’t mean we shouldn’t check for potential risks/downsides in their “Housing America’s Future: New Directions for National Policy” plan.
It wasn’t Fannie Mae or Freddie Mac that caused the subprime problem, and the “private sector” (non-GSE’s) made the most loans based upon the lowest standards, or without any standards, loans that could not meet Fannie or Freddie criteria.
Here’s a great deal of food for thought from Clifford V. Rossi, Executive-in-Residence and Tyser Teaching Fellow, Robert H. Smith School of Business, University of Maryland: “Raising FHA’s Game .” He keeps in mind that “FHA provides a critical countercyclical role that limits economic and social damage when markets implode.” He doesn’t want to design the role of the GSE out of existence, but reform/enhance it.
Here’s another view of FHA, this one from Gary Thomas, President, National Association of Realtors (NAR).
How’s Freddie Mac been doing? Here’s a report by Christina Mlynski, HousingWire: Freddie Mac $11 billion annual net income shows improving housing market.