The Façade Of Convenience
Yahoo Finance provides this weekend topic based on the following: “Bethany McLean is a contributing editor at Vanity Fair and bestselling author. This excerpt is from her new book, ‘Shaky Ground: The Strange Saga of the U.S. Mortgage Giants,’ published by Columbia Global Reports. ‘Housing was at the root of the global financial crisis in 2008, and seven years on, the mortgage market is still a huge unsolved economic issue. Fannie Mae and Freddie Mac, the government-sponsored enterprises that support American homeownership, were placed on a kind of government life support at the onset of the meltdown. Their ‘conservatorship’ was meant to be temporary, but the government still hasn’t figured out how to resolve their limbo.’”
“‘At one point, Fannie and Freddie had a combined $5.3 trillion in outstanding debt. They’ve become profitable again and have paid $231 billion back to the U.S. Treasury. But their profits are going toward reducing the federal deficit, leaving them undercapitalized. This despite the critical purpose they serve of guaranteeing most Americans’ mortgages. And as explained in the excerpt below, the two companies now also face lawsuits from big investors over the way the government is handling them. This is an investigation into why the country’s mortgage finance system is – again – in a dangerous and unsustainable situation.’”
“On a bitterly cold gray day in December 2014, there was a strangely large crowd at the United States Courthouse in Des Moines, Iowa, where Senior District Judge Robert Pratt was hearing arguments in Continental Western Insurance Company v. FHFA. The title gave few hints as to why the room, the goings-on of which rarely transcend local interest, would be packed close to standing-room-only, filled with representatives of the country’s top investment firms, including a slew of New York hedge fund types, along with prominent Washington lawyers, including a George W. Bush-appointed former U.S. Attorney and a Department of Justice lawyer.”
“The government lawyers were sputtering with outrage about the nerve of the investors to bring a lawsuit at all. It’s not just that investors are accusing the United States government of misdeeds, which in and of itself is obviously a pretty big deal. But on the surface, the lawsuits seem to fail to appreciate the stunning amount of money—$187 billion, or about six times the annual budget of the National Institutes of Health—that taxpayers have put into the rescue of Fannie and Freddie. And taxpayers still could have to contribute more.”
“Said the FHFA’s lawyer, ‘Your honor, even with that $187 billion already infused, at this very moment, Treasury . . . is on the hook to infuse another—if it is required—in excess of another $250 billion of taxpayer dollars, a quarter trillion dollars . . . all this federal money was put in and [the investors] want to avail themselves of that federal money.’”
“To understand why they did it, you have to understand the façade of convenience involved in the 2008 bailout, as well as its unique and punitive terms. When the government put Fannie and Freddie into conservatorship, it got the right to take 79.9 percent of the common stock of both companies. Why not just nationalize them and take 100 percent? ‘If the U.S. government were to own more than 80 percent of either enterprise, there was a sizable risk that the enterprises would be forced to consolidate onto the government’s balance sheet,’ explained housing analyst Laurie Goodman in a report.”
“In other words, the government certainly could have wiped out investors, thereby preventing the problem it has today. But if Fannie and Freddie were nationalized, the federal government’s debt would have skyrocketed. Because any money the government put in would become so-called ’senior preferred stock,’ which would have to be paid before anyone else got anything, it looked like the existing preferred stock and common shares would be worthless. But they still traded on the New York Stock Exchange, albeit for pennies.”
“Because the dividend payment further reduced their net worth, they also had to draw additional money from Treasury to fill the hole caused by the dividend payment. According to a FHFA official, around $45 billion of Fannie and Freddie’s $187 billion bailout consisted of draws that took money from Treasury only to round-trip it right back to Treasury as a dividend payment. (Other analysts think the figure is lower, around $30 billion.) ‘It was a complete payday lender situation,’ says someone close to the situation. ‘It was like borrowing from a loan shark.’”
“One of the first people to call it publicly was an Australian hedge fund manager named John Hempton. In an August 2009 blog post, he noted that the actual cash losses Fannie and Freddie had reported to date were ’simply not large enough to have caused problems.’ After going through filings, he noted that the estimates of future losses were ‘extremely harsh.’ Hempton would later call Fannie and Freddie’s post-bailout financial report the greatest accounting fraud he’d ever seen. He didn’t mean fraud in the usual sense of fraud, in which a company understates its losses, thereby making the financial picture look prettier. He thought Fannie and Freddie were overstating their losses, thereby making the financial picture look uglier.”
“In one way, the investors were right. Fannie and Freddie have indeed produced immense profits—in total, they have paid $239 billion to the government over the last three years. But they were very wrong in another respect. We are now past the 7 year anniversary of the conservatorship, and the financial crisis, and the rhetoric has not changed. The government still says it wants to kill Fannie and Freddie.”
“In a recent note, Bank of America Merrill Lynch analyst Ralph Axel wrote this: ‘The fate of government-sponsored enterprises (GSEs) is not only of critical interest to home buyers, home builders and mortgage bankers but also to almost every investor class across the globe. For a market that thrives on being considered a substitute for Treasury debt, turbulence and uncertainty is the worst case scenario. But unfortunately, the fate of the GSEs is still very much in flux, and more so today, in our view, than ever before.’ The housing market—and as a result, the financial system—remains on shaky ground.”
‘At one point, Fannie and Freddie had a combined $5.3 trillion in outstanding debt. They’ve become profitable again and have paid $231 billion back to the U.S. Treasury’
If you have a 5 trillion dollar balance sheet, 200 billion is a one quarter write down. Let’s take a stroll through history: in the fall of 2004 Fannie Mae executives were the subject of a criminal investigation by the Justice Department. That simply went away.
‘This column discusses Wallison’s views on the first two subjects while the crisis was developing. Wallison is well-known for his long-standing criticisms of Fannie and Freddie, but most people do not know the nature of those criticisms. Wallison praised subprime mortgage loan and complained that Fannie and Freddie purchased too few subprime loans. Wallison (correctly) explained that Fannie and Freddie’s CEOs acted to maximize their wealth – not to fulfill any public purpose involving affordable housing. He also explained that they used accounting abuses to make themselves wealthy. He predicted that low capital costs would increase economic growth. Wallison’s prior views contradict his current claims. Aspects of Wallison’s prior views were correct. They support the conclusion that Fannie and Freddie were accounting control frauds.’
Not long afterward both companies couldn’t produce financial statements. I have a blog post in 2005 with an insider saying something long the lines of ‘Receivership is a valuable thing’. Three years later:
‘On September 6, 2008, FHFA used its authorities to place Fannie Mae and Freddie Mac into conservatorship. This was in response to a substantial deterioration in the housing markets that severely damaged Fannie Mae and Freddie Macs’ financial condition and left them unable to fulfill their mission without government intervention.’
Recall that Fannie had over 900 special purpose entities off-shore, of the sort Enron used. Freddie had some number smaller, but also in the hundreds. Also recall that “hundreds of accountants” were hired to sort out the mess, yet we never heard what they found out. It just all went away.
We hear different numbers, 7 or 9 trillion of dollars lost on US housing. So how did only $200 billion sink these corporations? The answer is, it didn’t. Their losses were and are much larger, probably concealed offshore. This would explain why the government still talks about getting rid of them. These investors have discovered the accounting disparity. “Where are the losses?” They made bets on the stock because the numbers didn’t add up.
Did the Federal Reserve buy up these worthless assets? We don’t know. We do know they bought trillions in mortgage backed securities. We do know they aren’t subject to audit. And the GSE’s have greatly expanded their role in financing the housing bubble despite all this. From the link above:
“If the housing market tanks, so does the stock market. No matter who you are, this is hugely impactful. And no one is talking about it. No one realizes it.” —Ryan Israel, partner at Pershing Square Capital Management’
February 07, 2005
Fannie/Freddie Regulator Preps For Bankruptcy
The Office of Federal Housing Enterprise Oversight is pushing legislation through congress that prepares for the insolvency of the mortgage giants. Patrick Lawler, OFHEO chief economist told a forum “Receivership is a valuable thing”.
None of this is reported on the official website of the regulator. Also mentioned in this story was this tidbit;”..a coalition of 37 federal, state, and local groups urged the federal government and Congress to cut ties with Fannie and Freddie Thursday. Warning that Americans are threatened by a potential taxpayer bailout of the two companies”.
http://thehousingbubble.blogspot.com/2005/02/fanniefreddie-regulator-preps-for.html
“Fannie/Freddie Regulator Preps For Bankruptcy”
And here they are 10 years later with a hole in front of us 3x deeper than it was then.
Might as well be hung for a sheep as a lamb.
These GSEs have been the lingering fraud by the U.S. government and banksters, which have kept this housing bubble from deflating.
Where do they hide the off-balance-sheet, offshore Enron-style debt accounts?
“Did the Federal Reserve buy up these worthless assets? We don’t know. We do know they bought trillions in mortgage backed securities.”
Apologies for the redundant post below, but I had the same question in mind before reading this: How much of F&F’s claimed ‘profitability’ were due to a direct cash infusion from the Fed?
Any business that qualifies for sufficiently-large QE infusions is going to look profitable on paper.
“Any business that qualifies for sufficiently-large QE infusions is going to look profitable on paper.”
FWIW, it should be against the law to lobby with QE funds.
“Where are the losses?”
Or more accurately, where are they hiding all the losses? This has been central to the point of all this since year 2000. We fully understand and its well documented that housing transactions since 1999 or 2000 have been at a very minimum double the actual value. It’s the obvious that’s right in front of you all.
This is critical:
‘Australian hedge fund manager named John Hempton…in an August 2009 blog post noted that the actual cash losses Fannie and Freddie had reported to date were ’simply not large enough to have caused problems.’ After going through filings, he noted that the estimates of future losses were ‘extremely harsh.’
That’s because the filings are false, IMO.
‘Hempton would later call Fannie and Freddie’s post-bailout financial report the greatest accounting fraud he’d ever seen. He didn’t mean fraud in the usual sense of fraud, in which a company understates its losses, thereby making the financial picture look prettier. He thought Fannie and Freddie were overstating their losses, thereby making the financial picture look uglier.’
All he’s saying is the numbers reported don’t add up to failed companies whose stock is worth pennies. These guys bought a bunch of the stock and are in court. It is the greatest accounting fraud ever. Just it’s opposite of what the writer says. What purpose is there in “overstating their losses…making the financial picture look uglier”?
‘The title gave few hints as to why the room, the goings-on of which rarely transcend local interest, would be packed close to standing-room-only, filled with representatives of the country’s top investment firms, including a slew of New York hedge fund types, along with prominent Washington lawyers’
If any of you lawyers want some tips, I’ve got blog posts that were all over this going back to 2004.
July 31, 2003
‘Under no circumstance does either Fannie Mae in its corporate capacity or the lender retain control ofthe loans within the trust. Fannie Mae serves as both the guarantor and trustee for the trust. The lender may
or may not provide servicing on the uoderlying loans. There are no reissuances ofbeneficial interest, and uoderlying loans may be replaced only ifthey fail to meet pre-specified uoderwriting criteria uoder
normal representation and warranty provisions. These are passive structures with Fannie Mae, as trustee, holding the loans for the benefit ofcertificateholders and Fannie Mae io its corporate capacity, passing
through the payments received from the servicer, and to the extend applicable, paying uoder its guaranty.’
‘Investors in these securities hold the security on their balance sheets. Fannie Mae records on its balance sheet both a contingent and non-contingent liability (uoder FIN 45 and FAS 5 respectively) as a result of the guaranty, while the servicer records a mortgage servicing right on its balance sheet. The current accounting is consistent with both the risk and rewards and control models.’
‘We understand the FASB’s overall objectives ofclarifying aspects ofFAS 140 related to the permitted activities ofqualifying special-pnrpose entities (”QSPE”) in FAS 140 and providing guidance on reissuing beneficial interests. We believe the FASB’s primary focus was to exclude entities that actively manage the activities within the SPE from qualifying as a QSPE. However, we believe the language in the proposal is so restrictive that any type ofcontinuing involvement by the transferor would preclude QSPE status for plain-vanilla, passive structures used to create mortgage-backed secnrities guaranteed by
government sponsored enterprises (”GSEs”) and inappropriately result in consolidation by either the lender or GSE under FASB Interpretation No. 46, Consolidation ofVariable Interest Entities-an Interpretation ofARB No. 51 (”FIN 46″).’
‘If consolidation were required on March 31, 2003 for Fannie Mae guaranteed MBS held by other investors, Fannie Mae would have recorded an asset and liability gross up ofapproximately $1.108
trillion. Our total assets would increase from $913 billion to approximately $2.021 trillion even though we do not own and have no control over the assets underlying the MBS. This balance sheet
gross up would substantially increase Fannie Mae’s minimum capital requirements.’
‘Based on statistics from the Bond Market Association, agency MBS issuances in the U.S. mortgage securitization market have increased from $23 billion in 1980 to approximately $1.5 trillion in 2002. Outstanding agency MBS totaled approximately $3.2 trillion at the end of 2002.’
And this on page 9:
‘3. Fanuie Mae assumes credit risk on swapped loans and retains credit risk on out-of-portfolio pooled loans by guaranteeing the timely payment ofprincipal and interest on the MBS.
4. Fannie Mae uses a separate trust for each MBS pool to facilitate securitization. The pool of loans underlying the MBS is legally isolated from the transferor.
5. Under the lender swap program, Fannie Mae returns the MBS to the lender and the lender may sell the MBS to investors. Under the out-ofportfolio transaction, Fanuie Mae sells the MBS directly to investors.’
Here’s one footnote:
‘FAS 140, paragraph 136, “Those accounting results would disregard one of the fundamental tenets of the Board’s conceptual framework; that is, ‘… accountants must not disguise real differences nor create false differences.•
WARNING: this link is a PDF!
Apr 4, 2005
Ofheo Is Looking at Fannie Mae’s Accounting for Trusts - WSJ
I’ll add that both GSE’s were apparently broke before house prices even started going down, before foreclosures shot up and almost at the peak of the housing bubble.
I may have stumbled onto something:
‘If consolidation were required on March 31, 2003 for Fannie Mae guaranteed MBS held by other investors, Fannie Mae would have recorded an asset and liability gross up of approximately $1.108 trillion. Our total assets would increase from $913 billion to approximately $2.021 trillion even though we do not own and have no control over the assets underlying the MBS. This balance sheet gross up would substantially increase Fannie Mae’s minimum capital requirements.’
This document is a letter from Fannie Mae to FASB, pleading with them to not apply rules that would result in higher capital requirements, ie keep more money around in case there’s a problem. I’m guessing Fannie lost that, couldn’t meet the cap requirements and found themselves in trouble soon after. By 2004 and 2005, the document hiding, deleting databases was starting to be uncovered. Look near the end on beneficiaries. Everybody had their hand in the cookie jar.
‘the U.S. mortgage securitization market have increased from $23 billion in 1980 to approximately $1.5 trillion in 2002. Outstanding agency MBS totaled approximately $3.2 trillion at the end of 2002.’
Not just pleading. It’s a blatant attempt to influence and shape or create an exception to proposed FASB rules.
-What additional correspondence occurred from the date of this letter and the roundtable discussion on August 23, 2003?
-Did PhoneyMae reps attend the August 23 meeting? Where are the minutes?
-Did the FASB’s final ED rule materially change and why?
they r totally solvent companies. buy some stock.
https://www.coursehero.com/file/p1gj64f/Federal-National-Mortgage-Association-Fannie-Mae-admitted-that-they-transferred/
April 26, 2005
Armando Falcon, the head of OFHEO, which is the regulator of Fannie Mae, was interviewed by the Associated Press and he didn’t have good news. “Asked Tuesday whether further discoveries could emerge from OFHEO’s investigation, Falcon said, ‘We very well might find more problems as we continue to review the company’s accounting.’”
Might? Fannie has thousands of “special entities” off balance sheet. The size of the disaster is unprecedented. And Mr. Falcon thinks the OFHEO saved the day. “If the agency hadn’t acted to identify and correct problems at Fannie Mae, Falcon said, ‘I think they would have eventually manifested themselves in the form of some larger problem that might have created some kind of systemic disruptions’ in the housing market.”
Time will tell on that one. Mr. Falcon has already turned in his resignation and the replacement of the regulator is almost certain; that doesn’t sound like a triumph of enforcement. Without going into the politics being thrown about, both Democrats and Republicans were happy to have the GSE’s making easy money available for years and the wrangling now won’t put the bubble back in the bottle. At least there is this, “The Justice Department is pursuing a criminal investigation.”
http://thehousingbubble.blogspot.com/2005/04/more-problems-for-fannie-its-just.html
March 17, 2005
“Fannie Mae (FNM) shares sank to a new low, losing 4%, after The Wall Street Journal reported that regulators are probing instances of employees falsifying signatures and accounting records.”
http://thehousingbubble.blogspot.com/2005/03/smart-money-last-to-get-word.html
March 15, 2005
“Fannie’s Regulator Says Problems Not Yet Resolved, the worst may be yet to come.” The Wall Street Journal gave us an update on the Fannie Mae fiasco today. Some tidbits: “‘Fannie’s problems are worse than those of sibling Freddie Mac and that a hefty fine could be in the works’. said Armando Falcon, director of OFHEO.”
As it became known last week, Fannie employees have been “falsifying signatures and altering information in databases” and Mr. Falcon says such problems were “not isolated incidents.”
“Moreover, he adds, ‘there are additional issues that we still haven’t looked at yet,’ and these issues could haunt Fannie for some time.”
http://thehousingbubble.blogspot.com/2005/03/wsj-fannies-problem-persist.html
March 31, 2005
Reuters is covering the news that Freddie Mac, the second largest home mortgage firm in the US, has reported a much lower net income for 2004. “Freddie Mac..(which) is pushing to emerge from a scandal-marked era, on Thursday posted a more than 40 percent drop in 2004 net income as the value of contracts used to hedge against interest rate changes fell.”
Yet again, accounting for derivatives is to blame. Sure. But MarketWatch slipped in another bit of bad news. “For 2005, Freddie said it expects to report net interest income “materially lower” than in 2004.”
http://thehousingbubble.blogspot.com/2005/03/freddie-mac-2004-profit-down-2005-down.html
March 15, 2005
They are laughing it up in the mortgage origination industry, or so reports Inman News. “‘We’re coming out with a ’stated Social Security program’,deadpanned Dan Rawitch,..igniting a delayed wave of laughter in his audience of listeners.”
“Though joshing, Rawitch was making a serious observation about the headlong rush by lenders to market a slew of new, and more liberal, loan products intended to open up new flows of business, at a time when “traditional” originations are shrinking by as much as 40 percent.”
What kind of “products”? “One revived category is the “stated income” loan, where customers “state” their income amounts, without delivering the normal documented proof.’(T)he 40-year mortgage is really just a response to the fact that the market is shrinking.’ Lenders are trying to figure out “how to get that next customer into the game.” One firm “will pretty much originate [any]loan if an investor will buy it.”
But not everyone is pleased with the environment, “Appraisers themselves are writing anonymous letters to regulators telling them that they are being pressured by lenders to come in with agreed upon values..and if they don’t come up with the value they’re off the job.”
http://thehousingbubble.blogspot.com/2005/03/mortgage-business-joke.html
Securitization by F&F - I hadn’t even thought of that happening until reading that article.
It boggles the mind how they could easily be in very deep problems. A lot of banks were (are) because of doing them.
Fannie and Freddie, and the host of other government real estate and debt-insurance agencies (USDA, VA, FHA, etc) represent a very advanced form of “privatize the profits, socialize the losses.”
The current system been good to the FIRE sector and politicians.
The mortgage finance system had been moving towards nationalization since the Great Depression. With the 2008 Financial Crisis, it snapped into its current, perhaps final, form.
Not final. We haven’t had the pain yet.
Arvada, CO Housing Prices Plummet 16% YoY; Housing Demand Craters
http://www.movoto.com/arvada-co/market-trends/
Fannie and Freddie had a combined $5.3 trillion in outstanding debt.
Light travels six trillion miles in one year. It’s a measurement that we can not wrap our heads around. We talk about a time-space continuum to explain the speed of light.
We now have perhaps the speed of debt. Housing discussions revolve around the space it moves in.
The question at large is whether we have a number that can be addressed and resolved. The clear answer is no. At best we end up with an EQUILIBRIUM of disorder.
I think the numbers are so astronomical that few people can comprehend this disaster waiting to happen.
Cash is king.
I was at my neighborhood bar yesterday talking with a neighbor and another bar customer. The neighbor was saying he has enough saved for a house. The customer and I advised him not to. The customer is in the real estate business. He was citing facts that coincide with the top of the last bubble. Maybe he’s read HBB too. I did not mention it.
I advised to hold onto your cash. $1350 per month rent is a bargain. I said if you want to rent a house, there are $2500 rents in the neighborhood. He said well I would be throwing away my money. The other customer said house PMIs in this neighborhood are $4200. So I said to Eddie that he could “throw away” $4200 or throw away $2500 or throw away $1350. which of those is worse?
The RE guy said his ex wife and him bought a house for $350,000 in the neighborhood years ago. Now it’s up for sale for $700,000. His ex will pocket the tax free gain and she is now renting an ocean view place on Belmont shore in LB.
This whole deal is bigger than the Chinese locusts propping up the west coast North America real estate bubble. This is the Merrill Lynch guy’s quote: “The housing market—and as a result, the financial system—remains on shaky ground,” [because the fate of the GSEs is on shaky ground.]
Essentially the housing bubble is finally on shaky ground.
Middlesex County, MA Housing Prices Dive 9% As Prices Fall Statewide
http://www.zillow.com/middlesex-county-ma/home-values/
“The government lawyers were sputtering with outrage about the nerve of the investors to bring a lawsuit at all. It’s not just that investors are accusing the United States government of misdeeds, which in and of itself is obviously a pretty big deal. But on the surface, the lawsuits seem to fail to appreciate the stunning amount of money—$187 billion, or about six times the annual budget of the National Institutes of Health—that taxpayers have put into the rescue of Fannie and Freddie. And taxpayers still could have to contribute more.”
What corporation could possibly fail to be ‘profitable’ after an infusion of $187 billion in taxpayer funds?
And what about all the tens of $ billions in the Fed’s printing-press money used to snap up mortgage bonds? Did some of that possibly spill over into the GSEs’ bottom line as well?
“‘At one point, Fannie and Freddie had a combined $5.3 trillion in outstanding debt. They’ve become profitable again and have paid $231 billion back to the U.S. Treasury.’”
$5.3 trillion = $5,300 billion. Does this mean that they remain $5,300 billion - $231 billion = $5,069 billion = $5.1 trillion in the hole, before considering any interest accrued on the outstanding debt?
Apologies if I fail to understand Beltway maths, but I am scratching my head over the supposed good news in this infoblurb. One side of my brain screams ‘outrageous!’ while the other whispers ’so what?’.
P.S. A bit more non-Beltway maths:
Assuming the 7-year period to repay $231 billion remains constant and no interest ever accrues on the $5.3 trillion dollars of debt, at this rate it would take 7*5300/231 = 161 years to repay the debt owed.
“Because the dividend payment further reduced their net worth, they also had to draw additional money from Treasury to fill the hole caused by the dividend payment. According to a FHFA official, around $45 billion of Fannie and Freddie’s $187 billion bailout consisted of draws that took money from Treasury only to round-trip it right back to Treasury as a dividend payment.”
In what world does that even make sense?
The same world where Greece borrows money from the EU so it can make its debt payments the EU.
“In a recent note, Bank of America Merrill Lynch analyst Ralph Axel wrote this: ‘The fate of government-sponsored enterprises (GSEs) is not only of critical interest to home buyers, home builders and mortgage bankers but also to almost every investor class across the globe. For a market that thrives on being considered a substitute for Treasury debt, turbulence and uncertainty is the worst case scenario. But unfortunately, the fate of the GSEs is still very much in flux, and more so today, in our view, than ever before.’ The housing market—and as a result, the financial system—remains on shaky ground.”
Please, oh God, please make them go away!
We might have a disaster here much bigger than what we have imagined.
Remember, F&F where the backstop for 90% of the mortgages being written. Let us play a little scene out:
F&F in addition to providing insurance for these 90%, they “invest” in bundled mortgages “securities” and resell them to third parties in other parts of the world, for which they collect a fee as they would have sold them to a freshly minted company in say Denmark who resold them to a Dane pension fund.
The market falls by 50% and the pension fund sues both the Danish company and F&F. The Danco reaches an out of court settlement and F&F as principal shareholder borrows the payout funds via the Fed.
But F&F are still on the hook so they sell MBS to the Fed at face value, charging admin fees, and declare a profit which they dividend to their owners - government.
But the Fed has stopped buying MBS and we know two numbers - 5.4, F&F exposure, and 1.0 the MBS purchased by the Fed. Take away a couple of markets shadow inventory (LA and San Francisco) say as much as 1.0 and you still have shoe dropping number of 3.4 - probably twice the damage possible to what already has happened !!!
I hope I am all wet. The economy is far too fragile to handle something this big.
‘the U.S. mortgage securitization market have increased from $23 billion in 1980 to approximately $1.5 trillion in 2002. Outstanding agency MBS totaled approximately $3.2 trillion at the end of 2002′
Note that is up to 2002. I’ve long suspected house prices were inflated well before what is considered the bubble years, and that it stemmed from these housing agencies. Lots of other things have happened since 1980. The US went from the largest creditor nation to the biggest debtor. In the early 80’s Social Security was “saved” by a quadrupling of tax and added employer matching. Where’s the money? They spent it.
What we’ve seen is the government taking over more and more functions of the economy. Our retirement, Now the government through central banks decides what interest rates should be. What the price of stocks should be, and houses. Whatever one thinks about the role of government, it should be noted; they aren’t very good at it. They squandered the Social Security fund. They allowed house prices to nearly destroy the global economy. They utterly failed to regulate lending and failed to prosecute the guilty.
Janet Yellen doesn’t know what my house should cost. But she presumes that she does. Same with stocks and interest rates. It is a supreme folly to have Fannie and Freddie captured by the government, because they will almost certainly screw it up again. Heck, they already have.
I’m not sure how much real exposure F&F has to very high priced markets like SF and LA…many of the homes are too expensive to fit within the GSE box, unless the buyer is putting a huge amount down.
So, the exposure to the really expensive markets might be a lot less than $1T…making your point stronger.
“high priced markets” are all jumbo and no doc, no proof of income mortgage areas.
The government has put much more than 187 billion into F&F.
They caused the FED to purchase 1 T of MBS at insured face value - values that could be 50% inflated !!!
1.4 T
Jacksonville Beach, FL Housing Prices Crater 8% YoY; Housing Prices Fall Nationally
http://www.zillow.com/jacksonville-beach-fl/home-values/
Charleston, SC Housing Prices Plummet 8% YoY As Housing Demand Craters To Record Low
http://www.movoto.com/charleston-sc/market-trends/
visit a GSE
taj mahal level and free HC after working there 5 yrs !
crater