Tag Archives: Freddie Mac

Mosler proposal for the housing agencies

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Have the Fed Financing Bank fund the agencies with fixed rate amortizing term funding.

Have the FFB eat the convexity and allow prepayments of advances at par as mtgs pay down.

Have Congress set the FFB’s advance rate for the mtgs for public purpose.

Have fed member banks originate agency mtgs on
Congressionally dictated terms as agents for the agencies on a fee basis.

Have the agencies hold all these newly issues loans in portfolio.

Have the banks do the servicing for a fee.

This would lower mtg rates maybe 1%.

Have the agencies offer refi’s for existing agency loans at current rates without new appraisals or income statements.

Am i missing anything?

Feel free to distribute!

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GSEs renting foreclosed properties

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>   
>   (email exchange)
>   
>   On Mon, Mar 1, 2010 at 3:40 PM, wrote:
>   
>   Hi Warren,
>   
>   I believe this is along the lines of your idea a while back to mitigate the
>   foreclosure problem by having the US Gov’t step in and take ownership of the
>   real property and rent the home to the current homeowners. I was sifting
>   through this Goldman piece about GSE reform and it looks like Fannie may be
>   already doing this in a program called ‘deed-for-lease.’ Were you aware of
>   this?
>   

The largest landlord in the nation? How the GSEs deal with loans headed for foreclosure is critical. According to the recent announcement, these loans will be held in their retained portfolios. However, moving this many loans into the portfolio—worth at least US$300bn—would threaten to violate the caps put in place by the Treasury (see Box). One way out of this situation would be to take ownership of the collateral, thereby converting loans, which count against the cap, into real property, which does not. With close to 2 million current and expected delinquent loans this year, how the GSEs dispose of this property will become an important issue. The GSEs will be under political pressure to hold property off the market, and may be inclined to do so in any case if they see property values bottoming. This could mean renting the properties: in November 2009, Fannie Mae announced a ‘deed-for-lease’ program, which allows homeowners to relinquish ownership of the property and rent it instead. In January, Fannie Mae took another step in this direction with the announcement of a policy to allow tenants in Fannie-Mae foreclosed property to rent the property on a month-to-month basis after foreclosure.

Yes, heard they were trying it late in the game, without many takers, but good that they at least did some, thanks!

Prof James Galbraith had presented the idea a year or more ago to a congressional committee. Don’t know if that was the source or not. Never did get any feedback.

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Bloomberg: Thoughts on Treasury plan

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My take is an RTC type solution only works when the government owns the institutions, so this will probably be different.

I suspect it will be more like Japan, where the government bought a new class of preferred stock in the banks to add capital.

Whatever they will do will cause credit spreads to come in, which will make the assets of AIG far more valuable and probably result in a ‘profit’ for the government.

Unsold Lehman assets will also appreciate.

More comments below:

Paulson, Bernanke Push New Plan to Cleanse Books

by Alison Vekshin and Dawn Kopecki

Government Options
Options that U.S. officials are considering include establishing an $800 billion fund to purchase so-called failed assets

I see this as problematic as above and as below.

and a separate $400 billion pool at the Federal Deposit Insurance Corp. to insure investors in money-market funds, said two people briefed by congressional staff. They spoke on condition of anonymity because the plans may change.

This puts money funds on par with insured bank deposits. Seems no need for both.

Instead, better to remove the $100,000 cap on bank deposit insurance to allow large investors use bank deposits safely. There is no economic reason for the low cap in any case.

Another possibility is using Fannie and Freddie, the federally chartered mortgage-finance companies seized by the government last week, to buy assets, one of the people said.

That’s already in place. They already have treasury funding to buy mortgages.

“We will try to put a bill together and do it fairly quickly,” House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, said after the meeting. “We are not in a position to give you any specifics right now” on the proposals, he said when asked about the potential cost.

The likelihood of the government taking on yet more devalued assets, after the seizures of Fannie, Freddie and AIG and the earlier assumption by the Fed of $29 billion of Bear Stearns Cos. investments, may spur concern about its own balance sheet.

We need to get past this concern about government solvency. It’s simply not an operational issue.

Debt Concern
The Treasury has pledged to buy up to $200 billion of Fannie and Freddie stock to keep them solvent, while the Fed agreed Sept. 16 to an $85 billion bridge loan to AIG. The Treasury also plans to buy $5 billion of mortgage-backed debt this month under an emergency program.

“It sounds like there’s going to be a giant dumpster for illiquid assets,” said Mirko Mikelic, senior portfolio manager at Fifth Third Asset Management in Grand Rapids, Michigan, which oversees $22 billion in assets. “It brings up the more troubling question of whether the U.S. government is big enough to take on this whole problem, relative” to the size of the American economy, he said.

This is ridiculous and part of the problem that got us to this point.


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Bloomberg: Stern Says Fed Rate Rise `Can’t Wait’ for Markets to Stabilize

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A minority view but a growing one.

They are thinking the low rates are destabilizing the housing and financial markets via the weak USD channel.

Stern Says Fed Rate Rise `Can’t Wait’ for Markets to Stabilize

by Vivien Lou Chen
(Bloomberg) Federal Reserve Bank of Minneapolis President Gary Stern said the central bank shouldn’t wait for financial and housing markets to stabilize before raising interest rates.

“We can’t wait until we clearly observe the financial markets at normal, the economy growing robustly, and so on and so forth, before we reverse course” and begin raising rates, Stern said in an interview in Minneapolis today. “Our actions will affect the economy in the future, not at the moment. Forecasts play a critical role.”

The comments by Stern, a voter on the rate-setting Federal Open Market Committee this year, may reinforce traders’ forecasts for a rate increase by year-end. Stern indicated that Treasury Secretary Henry Paulson’s rescue plan for Fannie Mae and Freddie Mac will help prevent a deeper housing and economic slump.

“We’re pretty well-positioned for the downside risks we might encounter from here,” said Stern, 63, the Fed’s longest-serving policy maker. “I worry a little bit more about the prospects for inflation.”

The bank president compared the current credit crunch to the one in the early 1990s, which restrained economic growth for almost three years. That’s a more sanguine assessment than others have. The International Monetary Fund has said it’s the worst since the Great Depression and former Fed Chairman Alan Greenspan said it’s the most intense in more than half a century.

17-Year High
Stern spoke two days after government figures showed consumer prices surged 5 percent over the past year, the biggest jump since 1991. Excluding food and fuel, so-called core prices rose 2.4 percent, higher than the 2.1 percent average over the last five years.

“Headline inflation is clearly too high,” Stern said. He added that he’s concerned that will feed through to core prices and public expectations for inflation.

As long as energy and food costs level off, core inflation ought to slow over the next year, Stern said.

Crude oil has surged 73 percent in the past 12 months, and rose to a record of $147.27 a barrel on July 11. Worldwide, prices for food commodities such as wheat and rice were 43 percent higher in April than a year earlier, according to the United Nations Food and Agriculture Organization.

Stern declined to say when policy makers may shift toward raising rates. The FOMC halted its series of seven reductions last month, after reducing the benchmark rate to 2 percent, from 5.25 percent last September.

Rate Outlook
Traders estimate 58 percent odds that the Fed will boost its main rate at least a quarter point from 2 percent in October, after keeping borrowing costs unchanged in August and September. There’s a 73 percent probability of a move by year-end, futures prices show.

Minutes of the Fed’s June 24-25 gathering, released July 15, showed that some Fed officials favored an increase in rates “very soon.” Fed Chairman Ben S. Bernanke this week said there are risks to both inflation and growth, abandoning the FOMC’s June assessment that the threat of a “substantial” downturn had receded.

“This is a very challenging policy environment,” Stern said today. “I don’t think we ought to pretend that” an end to the credit crisis “won’t take some time,” he said.

The Fed on July 13 offered Fannie Mae and Freddie Mac access to direct loans from the central bank in case the firms needed the financing before Congress acts on Paulson’s rescue plan. The Treasury chief is seeking power to make unlimited loans to and purchase equity in the companies if needed.

Stern said the proposals are “clearly designed to bolster Fannie and Freddie.”

Stern is the only FOMC member who’s served with three chairmen: Paul Volcker, Greenspan and Bernanke. He became the bank’s president in 1985.


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