Tag Archives: Freddie Mac

The stench of crony capitalism in Washington, DC: Freddie Mac lends $18 billion to the richest of the rich so they can buy more apartment complexes…

Freddie Mac robs the people who need the money by giving it to those who don’t.

Washington’s capacity to foster crony capitalist larceny and corruption never ceases to amaze. But according to the Bloomberg story below, Wall Street’s shameless thievery from US taxpayers is about to get a whole new definition.

To wit, Freddie Mac is handing three private equity billionaires deeply subsidized debt financing in order to undertake $18 billion in rental apartment deals. According to no less an authority than Morgan Stanley, the subsidy embedded in this cheap financing amounts to 150 basis points or roughly $150 million per year on the loan amounts in play.

Yet this largesse will serve no discernible public purpose whatsoever. Indeed, over the 10-year term of these loans the bonanza will amount to billions, but it will not generate a single new unit of housing. Nor will it provide a single dollar of incremental rent relief to any low or moderate income tenant.

That’s because the purpose of these giant loans is not to fund new construction of rental housing—– for which there is currently an arguable shortage. And it’s not even to incentivize owners to convert existing apartment buildings to so-called “affordable” housing.

Instead, its sole effect will be to put the taxpayers in the business of  highly leveraged Wall Street deal making. That is, it will fund what amounts to apartment company LBOs being undertaken by the largest players in the private equity world including Barry Sternlicht’s Starwood Capital Group, Steve Schwarzman’s Blackstone Group and John Grayken’s Lone Star Fund.

Each of these cats are billionaires many times over and their remit most definitely does not include bolstering the social safety net. What they are doing is buying giant apartment companies in high priced takeover deals. These LBOs will shower sellers and speculators with windfall gains, and Wall Street dealers and themselves with prodigious fees now and the prospect of pocketing double, triple or quadruple their modest cash equity investments not too far down the road.

Freddie Mac, of course, is the one and same crony capitalist monstrosity that helped push the US financial system to the brink in 2008. If Washington had any common sense and gumption at all, it would have taken it out back and shot it years ago.

But the K-Street lobbies kept it alive during the dark days after the crash and have now invented a new mission to purportedly facilitate affordable rental housing. But that’s a crock, and the true purpose could not be more blatantly obvious than in the three deals described in the Bloomberg article.

Thus, Freddie Mac will loan the Lone Star Fund $5 billion to finance an LBO of Home Properties. Folks, the latter is a rental housing REIT that is publicly traded, more than adequately financed and in no need of help from the nation’s taxpayers whatsoever. In fact, it already has about $2.4 billion of plain old market debt.

But it can be well and truly said that the punters and hedge funds which own the stock have made out like bandits. Its share price has tripled since the March 2009 bottom, but more importantly, was up by 35% just in the 18-months prior to the June 2015 LBO announcement.
HME Chart

HME data by YCharts

Did Home Properties earnings take-off in the last year or so, thereby warranting the stock price surge shown above?

No they didn’t. During the 12-months ended in June 2015, Home Properties earned $177 million or 4% less than the $185 million of net income it posted two years earlier for the June 2013 LTM.

So here is what was accomplished by putting US taxpayers in harms’ way in this instance.

A rental housing REIT with more than 100 communities and 40,000 apartment units, and which currently is comprised of about 30% “affordable” units under Freddie Mac’s elastic definitions, has been shuffled from public to private ownership.

The transaction was accomplished at the bubble era price of 25X net income—–a vastly inflated valuation which had been reached in June and which reflected the fact that the fast money boys had earlier piled on for the rumored takeover ride.

Yet without Freddie Mac’s funding of the takeout at this absurdly inflated price, the arbs and speculators who sold their stock into the recently completed deal would not have had a snowball’s chance of retaining their winnings.

That’s some public policy accomplishment, and its all there is.

Its proud new billionaire owner won’t be required to add a single additional unit of so-called “affordable” housing, and that term doesn’t mean much anyway. Freddie Mac’s definition includes about 60% of US households!

Well, there is one aspect which has changed, and not in a good way. What was a public REIT with $4.4 billion of equity market cap and $2.4 billion of debt has become a private LBO with $5 billion of debt and a deal fee tab in the order of $300 million.

As to the latter, it was some kind of Wall Street feast. Yet all of the deal commotion implied by this listing amounted to dead weight cost to society. This pointless LBO deal never would have happened on the free market:

BofA Merrill Lynch acted as financial advisor to Home Properties. BofA Merrill Lynch and Houlihan Lokey provided fairness opinions to the Home Properties Board of Directors in connection with the transaction. Goldman, Sachs & Co. acted as exclusive financial advisor to Lone Star. Hogan Lovells US LLP acted as legal advisor to Home Properties. Gibson, Dunn & Crutcher LLP acted as corporate legal advisor, Hunton & Williams LLP acted as real estate legal advisor, and Skadden, Arps, Slate, Meagher & Flom LLP acted as tax legal advisors to Lone Star Funds. Sidley Austin LLP acted as legal advisor to BofA Merrill Lynch, and Cleary Gottlieb Steen & Hamilton LLP acted as legal advisor to Goldman, Sachs & Co.

In other words, the fools in Washington have descended so far down the rabbit hole of “help for housing” that they have managed to double the debt on these 40,000 rental units in order to cash out public equity investors who had no claim whatsoever to taxpayer support. Oh, yes, and to pay enormous fees to the deal banker, Goldman Sachs, which by all rights should be paying back taxpayers for its 2008 bailout, not scalping them yet again.

But when it comes to lunacy in the rabbit hole nothing comes close to another deal mentioned in the article—— the $5.3 billion LBO of Stuyvesant Town-Peter Cooper Village by Blackstone. It appears that Freddie Mac will provide $2.5 billion of the takeover financing, meaning the annual subsidy will be in the order of $40 million.

Let’s be clear about “Stuy Town” as its called. It has absolutely nothing to do with poor people or any plausible notion of a social safety net. It is a monster housing complex on the lower east side of New York which encompasses 80 acres, 11,000 apartment units and upwards of 35,000 middle class inhabitants—–a good sized city in most of America.

 

It also happens to be ground zero for one of the more spectacular housing debt crashes last time around. It had been a $5.4 billion leveraged buyout in 2006 by Tishman Speyer and a BlackRock fund.  The deal predicate was that this legendary rent-controlled complex originally built by MetLife for returning servicemen after WWII would slowly return to free market pricing as grandfathered tenants passed away or moved on.

But the Greenspan credit bubble expired before the rent-protected tenants did or before mysteriously failing heating, plumbing and electrical services could induce enough of the remaining rent-protected tenants to move along on their own two feet in order to make the pro forma financials work.

Not surprisingly, the deal blew sky high during the financial crisis and resulted in billions of losses for the mortgage lenders. For the past five years it has been operated by a consortium of creditors whose foolish investments in this fiasco deserved no quarter whatsoever from the nation’s hard-pressed taxpayers.

Indeed, as time passed the creditors consortium had become desperate to find a mullet stupid enough to buy them out at a premium to their written down loan values, but the going was exceedingly tough. After all, the giant complex was still financially radioactive after upwards of $3.5 billion of losses from the 2006 LBO.

Moreover, additional headwinds arose from the fact that Stuy Town is a perennial object of local politicians demagogueing on behalf of “affordable” housing.

Then again that’s why we have oily politicians like Senator Chuck Schumer. As a real estate industry publication described it,

Their proposal was almost the exact opposite of Tishman Speyer’s 2006 bid: They would take on little debt and keep the apartments as rentals, eyeing steady returns instead of swift profits. And they deemed it essential to win over the city, tenants and local politicians — perhaps in part to New York’s senior senator, Chuck Schumer.

At a tenant meeting at Stuy Town last week, Schumer said the Tishman Speyer saga had taught him the need for “outside leverage.” “And I found a way,” he added. “I realized that to get such a huge mortgage, you need the backing of Freddie Mac and Fannie Mae.

So here is what’s going to happen. The busted lenders to the 2006 deal are going to make a killing by getting $5.3 billion for positions which are not remotely worth that.

At the same time, Blackstone will get subsidized financing from Freddie Mac, $225 million worth of benefits from New York City through an additional loan and uncollected taxes and the rights to sell the complex’s 700,000 square feet of air rights, which could be worth hundreds of millions.

Why all this largesse?

At the end of the day it will mean that a mere 500 units out of the 11,000 will be reserved for families making no more than $62,000 per year, and another 4,500 for families making up to $128,000 per year.

That’s right. The taxpayers of America are being dragged into a $5 billion LBO on the very site where an identical one blew up less than seven years ago—–purportedly to help families that are in the top 10% of income earners in the nation.

Needless to say, there is a simple alternative. Abolish Freddie Mac, Fannie Mae and all the rest of the Washington’s crony capitalist machinery and turn housing finance over to the free market where it belongs.

If there are citizens in need who can pass a means test and can’t work owing to age or genuine disability give them cash to fund their own shelter choices. And if they are able bodied and willing to work, top up their wages with earned income tax credits or similar cash transfers.

But let’s stop being stupid. Blackstone is not the United Way.

From Bloomberg

Who do billionaires turn to when they want to buy apartment complexes? The U.S. taxpayer.

Barry Sternlicht’s Starwood Capital Group and Stephen Schwarzman’s Blackstone Group LP are in talks with Freddie Mac to finance two transactions totaling more than $10 billion, according to people with knowledge of the negotiations. Those discussions come after the government-owned mortgage giant already agreed to back Lone Star Funds’ $7.6 billion deal to buy Home Properties Inc. and Brookfield Asset Management Inc.’s $2.5 billion takeover of Associated Estates Realty Corp.

The mortgage guarantor — which along with its larger counterpart Fannie Mae was rescued in a $187.5 billion taxpayer bailout in 2008 — is boosting its multifamily lending as their regulator eases restrictions on that part of their business. Cheap debt from the U.S.-backed companies is helping sustain a five-year surge in values for apartment buildings and fueling some of the biggest real estate deals since the financial crisis.

“They wield a very big stick,” said John Levy, a principal at a real estate investment banking firm in Richmond, Virginia, that bears his name. “It takes more time and it’s going to be more expensive” to get transactions done without the two companies, which can lend at rock-bottom rates because their deals have implicit government backing.

Winning Bet

Buying apartment buildings in the U.S. has been a winning bet for the past several years as rents rise amid a shift away from homeownership. That’s attracting investors such as Starwood, which on Oct. 26 said it agreed to purchase 72 rental communities across the country from Equity Residential for $5.4 billion. The announcement came just days after Blackstone reached a $5.3 billion deal to buy Stuyvesant Town-Peter Cooper Village, Manhattan’s largest apartment complex.

Freddie Mac’s deals are getting bigger as its regulator expands the definition of affordable housing, enabling the company to make more loans. Properties that are deemed affordable by the Federal Housing Finance Agency are exempt from a $30 billion cap that limits how much the government-sponsored entities can lend to apartment landlords each year.

“We’re helping to push more capital into this part of multifamily,” said David Brickman, head of multifamily operations at McLean, Virginia-based Freddie Mac. “A very small percentage of what we’re doing is luxury.”

Freddie Mac provided $34.1 billion for multifamily acquisitions and refinancings this year through September, more than double the $14.1 billion for the same period in 2014.

Stuyvesant Town

At Stuyvesant Town, home to about 30,000 New Yorkers and one of the last bastions of affordable housing in Manhattan, Blackstone worked out a deal with the city to protect residents from skyrocketing rents. The New York-based private equity firm and its partner in the transaction, Canadian investor Ivanhoe Cambridge Inc., agreed to keep about half of the more than 11,000 units affordable for 20 years.

Relatively cheap financing supplied by Fannie Mae and Freddie Mac makes large debt loads for projects such as Stuyvesant Town more manageable. Interest rates on mortgages from the agencies can be below 3 percent, compared with average financing costs of 4.5 percent from Wall Street banks, according to Richard Hill, an analyst at Morgan Stanley.

Other than the government-sponsored companies, there aren’t many lenders that have the capacity to fund a purchase as large as Blackstone’s, according to Sam Chandan, president of Chandan Economics, a provider of real estate data and analysis.

“You could argue convincingly that the deal wouldn’t get done in its current form without agency financing in the market,” he said.

Lone Star

Freddie Mac granted its largest apartment loan ever to Lone Star, a $5 billion mortgage to fund the private equity firm’s takeover of Home Properties. More than 30 percent of that deal met the FHFA’s guidelines for affordable housing, Brickman said.

Lone Star, based in Dallas and founded by billionaire John Grayken, said in June that the acquisition of Home Properties — with 121 communities, primarily along the East Coast — was consistent with its strategy of buying second-tier apartment complexes, such as workforce housing, rather than expensive newly built properties.

Representatives from Blackstone, Lone Star and Starwood declined to comment on their financing strategies.

Bubble Fears

U.S. multifamily-building prices are 33 percent higher than they were at the prior peak in 2007, according to Moody’s Investors Service and Real Capital Analytics Inc., a jump stoked partly by the abundant financing from Fannie Mae and Freddie Mac. That’s raised concerns that a bubble is forming that might pop when interest rates rise, according to Levy, the investment banker. Taxpayers could be on the hook for losses incurred by the mortgage companies if apartment values were to fall sharply.

The losses that dragged Fannie Mae and Freddie Mac to the brink of insolvency seven years ago sprung from the companies’ single-family portfolios, which dwarf their apartment holdings. The multifamily segment of their businesses emerged from the financial crisis relatively unscathed and stayed profitable during the recession.

At Freddie Mac, private investors would shoulder about the first 15 percent of losses on multifamily deals, providing a cushion in the event of a decline in building values, Brickman said.

“It would be extremely unlikely that we would ever be called upon to support our guarantee,” he said. “We are sticking to our principles and underwriting prudently.”

‘Public Subsidy’

Detractors argue that providing subsidized loans to deep-pocketed real estate investors isn’t in line with the mandate of the government-sponsored entities.

“If the purpose of the GSEs is to provide liquidity to the secondary mortgage market, in an effort to promote homeownership, a focus on funding multifamily rental properties seems inappropriate,” Josh Rosner, an analyst at research firm Graham Fisher & Co., said in an e-mail. “This approach only serves to deliver a public subsidy to private players.”

Brickman said Freddie Mac doesn’t view its business through the prism of the institutions it lends to.

“Our focus in on supporting middle-income and workforce housing,” he said. “Who owns it is somewhat irrelevant.”

Fannie Mae

Fannie Mae, which hasn’t been involved in the year’s biggest multifamily deals, said it evaluates each request for financing based on its terms.

The company “is committed to providing critical financing for multifamily housing in all markets,” Andrew Wilson, a spokesman for Washington-based Fannie Mae, said in an e-mailed statement. “We’ve done this throughout the year, working to effectively maintain our business and support rental-housing needs.”

The real power of Fannie Mae and Freddie Mac is that they continue to lend in times of difficulty, according to Warren Friend, executive managing director at Situs, a commercial real estate consulting firm. They kept the multifamily market humming in the depths of the recession in 2009, he said.

“What they provide is that stability when everybody else shuts down,” he said.

 

[from David Stockman’s CONTRA CORNER]

 

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As always, posted for your edification and enlightenment by

NORM ‘n’ AL, Minneapolis
normal@usa1usa.com
612.239.0970

 

 

 

 

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Hillary’s ties to Fannie Mae, Freddie Mac are large liabilities as next election approaches…

Fannie Mae and Freddie Mac are hurtling toward another possible taxpayer bailout, a development that could put an uncomfortable election light on the Clintons’ record of enabling the government-backed mortgage giants to engage in risky practices that led to the 2007 financial crisis.

There is growing consensus in financial circles that the seeds of the mortgage market collapse were sown during Bill Clinton’s presidency in the mid-1990s. That was when he helped push through changes that empowered Fannie and Freddie to give more mortgages to minorities and lower-income Americans, often at below-prime interest rates and with little down payments.

When the Federal Reserve and other respected voices began warning a decade ago that those changes were threatening the mortgage markets, Hillary Rodham Clinton joined fellow Democratic senators, including Barack Obama and John F. Kerry, in providing the votes to block Republican reforms designed to stave off a collapse.

The one-two punch could prove a political liability for Mrs. Clinton’s presidential bid, portraying her and her husband as facilitators for highly compensated mortgage brokers and undercutting her argument that she has been a longtime champion of the middle class.

“I certainly think we’re going down the path of another bailout of the mortgage market. If we keep on this path, it’s inevitable. It’s a concern people have,” said Mark Calabria, director of financial regulation studies at the Cato Institute. “It’s going to be a tough needle for her to thread — people on the left still believe Fannie and Freddie was a good model and that the housing crisis was all about Wall Street greed. She’s got a tough road to walk on this.”

Complicating the picture, the Clintons were benefiting politically from Freddie and Fannie’s largesse. Mrs. Clinton was among the biggest recipients of donations from the mortgage giants in all of Congress, and Mr. Clinton’s charitable foundation received a sizable donation from Freddie Mac in the mid-2000s as the mortgage firm was teetering financially.

Mrs. Clinton’s campaign did not respond to repeated requests seeking comment on Fannie and Freddie.

Homes for the poor

The Clintons’ mortgage policy saga began two decades ago during the booming early Internet era, when concern grew in Washington that minorities and the working poor weren’t reaping the benefits of an improving economy, especially in the housing market.

In a bid to create affordable housing for minorities and low-income residents, Mr. Clinton in 1995 ordered new bank regulations to encourage lending in poor neighborhoods. The Community Reinvestment Act gave banks higher ratings if they lent more in credit-deprived localities.

Maintaining a high CRA score was essential to the banks, pressuring them to give more loans to riskier clients, studies have shown. A lowered CRA rating would make it more difficult for a bank to become licensed to conduct business in other parts of the country, participate in other government lending programs, or complete mergers and acquisitions that needed the government’s approval.

The CRA was the channel through which “a U.S. Congress, worried about growing income inequality, towards expanding low income housing, joined with the flood of foreign capital inflows to remove any discipline on home loans,” Raghuram Rajan, a former chief economist and director of research at the International Monetary Fund, wrote in the Financial Times in 2010.

The National Bureau of Economic Research, a nonprofit organization, examined the impact of the CRA on risky mortgage lending. In a 2012 study, it found “that adherence to the act leads to riskier lending by banks: in the six quarters surrounding the CRA exams, lending is elevated on average by about 5 percent and these loans default about 15 percent more often.”

Three years before Mr. Clinton altered the CRA to encourage investment in lower-income communities, Rep. Barney Frank, Massachusetts Democrat, pushed to impose an “affordable housing” requirement on Fannie Mae and Freddie Mac.

The thought was that minorities were being shut out of the housing market because Fannie Mae and Freddie Mac were underwriting loans only to banks that were issuing prime mortgages — 30-year fixed mortgages that required healthy down payments. Minorities and the working poor often didn’t have the cash or creditworthiness to qualify for such loans.

A 1992 affordable housing “mission” led by Mr. Frank allowed the government-sponsored enterprises to back riskier loans and make sure a quota of all loans from Fannie Mae and Freddie Mac were going to this pool, which was defined by the U.S. Department of Housing and Urban development.

“At first, this quota was 30 percent; that is, of all the loans they bought, 30 percent had to be made to people at or below the median income in their communities,” Peter Wallison, who served on the Financial Crisis Inquiry Commission in 2010, wrote in an article for The Atlantic. “HUD, however, was given authority to administer these quotas, and between 1992 and 2007, the quotas were raised from 30 percent to 50 percent under Clinton in 2000 and to 55 percent under [President George W.] Bush in 2007.”

“By 2000, Fannie was offering no-down-payment loans. By 2002, Fannie and Freddie had bought well over $1 trillion of subprime and other low quality loans,” Mr. Wallison wrote. “Fannie and Freddie were by far the largest part of this effort, but the [Federal Housing Administration], Federal Home Loan Banks, [the Department of Veterans Affairs] and other agencies — all under congressional and HUD pressure — followed suit.”

This was no accident. The Clinton administration made affordable housing a priority and appointed people in top positions to make it happen.

Mr. Clinton named Andrew Cuomo, now New York’s governor, as HUD secretary. Mr. Cuomo pushed to keep homeownership numbers rising under Mr. Clinton’s watch by increasing the quota of affordable housing loans to 50 percent of the government-sponsored enterprise business.

Under Mr. Cuomo, HUD commissioned a report that showed Fannie’s automated underwriting system disproportionately screened out minority borrowers — and urged the agency to correct the disparity.

Mr. Cuomo also refused to impose safeguards that would have prevented Fannie and Freddie from rushing into buying subprime mortgages, such as requiring lenders to provide details about these types of mortgages. In October 2000, Mr. Cuomo sided with the government-sponsored enterprises, arguing that this sort of transparency would impose an “undue additional burden” on the agencies.

Incentives for Fannie Mae

The Clinton administration also replaced many of Fannie Mae’s top executives, including its chief executive officer with Mr. Clinton’s former White House budget director Franklin Raines. It replaced Fannie’s No. 2 in charge and nearly half of the board of directors.

Fannie Mae then restructured its executives’ salary structures to give incentives to buy more mortgages.

“This was a clear case of the Clinton administration embarking on a massive folly,” said Norbert Michel, a research fellow in financial regulations at The Heritage Foundation. “Fannie and Freddie were relatively unimportant until [Mr. Clinton] blew it up. It was all in the goal of getting homeownership numbers up from 65 percent — where they had been holding stable for years — to somewhere around 75 percent. They made no bones about it — they wanted cheaper loans. To think you can increase homeownership rates with a flip of a switch with nothing to go wrong is completely insane. This is when it started — there’s no doubt.”

A 2002 HUD report says, “From 1993 to 1998, the number of subprime refinance increased tenfold.”

In 1999, Mr. Raines boasted to The New York Times: “Fannie Mae has expanded homeownership for millions of families in the 1990s by reducing down payment requirements.”

The riskiness and sustainability of these loans were highlighted in multiple warnings to Congress while Mrs. Clinton was a U.S. senator.

The Bush administration — although partly culpable for the housing crisis in that it raised the government-sponsored enterprises’ affordable housing goals to 55 percent — also called 17 times for reform of the agencies.

“We at the Federal Reserve remain concerned about the growth and magnitude of the mortgage portfolios of the government-sponsored enterprises, which concentrate interest rate risk and prepayment risk at these two institutions and makes our financial system dependent on their ability to manage these risks,” Alan Greenspan, chairman of the Federal Reserve, testified at an April 2005 hearing. “To fend off possible future systemic difficulties, which we assess as likely if GSE expansion continues unabated, preventive actions are required sooner rather than later.”

From 1998 to 2004, Fannie executives improperly reported $10.6 billion in earnings. Executives such as Mr. Raines were raking in huge paychecks because of the rising number of mortgages they were issuing.

During the six-year period, Mr. Raines received $52.8 million in bonuses, according to a 2006 report of an investigation by regulators at the Securities and Exchange Commission and the Office of Federal Housing Enterprise Oversight.

Republican reforms rebuffed

Worried that Fannie Mae and Freddie Mac had grown too independent and bullish under Mr. Clinton’s watch, a Republican-controlled Congress under Mr. Bush tried to rein in the entities.

Yet Democrats including Mrs. Clinton — who were receiving huge campaign donations from Fannie Mae and Freddie Mac — filibustered reform.

By 2006, a bill to reform Fannie Mae and Freddie Mac had passed through the full House of Representatives and out of committee in the Senate, along party-line votes (all Republicans voting for it, all Democrats against).

The bill proposed the creation of a regulator for Fannie Mae, Freddie Mac and the Federal Home Loan Banks. The legislation would give the regulator the authority to shut down either Fannie or Freddie if they encountered a severe financial crisis, and would give it the power to regulate any new activities. The bill required an annual audit of the mortgage giants’ books and a provision that all directors be elected — not appointed by the president.

Five Senate Democrats needed to step forward and offer their support to end a filibuster and allow a vote.

None did, so the bill never even came to a vote on the Senate floor.

Sen. Christopher J. Dodd of Connecticut, then the ranking Democrat on the Banking, Housing and Urban Affairs Committee and No. 1 recipient of government-sponsored enterprise lobbying funds, opposed the bill. When Barack Obama entered the Senate in 2005, he was among the people supporting the filibuster.

Mrs. Clinton joined with Mr. Dodd and Mr. Obama to oppose the measure. All the other Senate Democrats lined up behind them.

Clinton’s encouragement

That same year, Mrs. Clinton was actively promoting broader lending to lower-income Americans — along the same philosophical policy lines as her husband did when he was president.

She introduced legislation to strengthen the Federal Housing Administration, specifically proposing to raise the ceiling on loan amounts that could be insured by the government in high-cost areas, and for the entity to be able to offer loans requiring no down payment.

Mrs. Clinton met with credit union leaders across New York in 2006 to congratulate them for making more than $180 million worth of first mortgage loans in underserved areas, exceeding their goal of $150 million. Encouraged, the credit union leaders committed to another $180 million the following year.

During this same period, Freddie Mac and Fannie Mae’s political action committee and individuals linked to the companies donated $75,500 to Mrs. Clinton’s senatorial campaign — making her the fourth-largest recipient in Congress of the mortgage firms’ total donations in the years 1989 to 2008 behind Mr. Obama, Mr. Kerry, now secretary of state, and Mr. Dodd, according to the Center for Responsive Politics, a nonpartisan group that studies campaign finance and political influence in Washington.

Freddie Mac also gave the Clinton Foundation a $50,000 to $100,000 donation.

By mid-2006, the Senate Republican sponsors of the regulatory bill became frustrated and wrote an open letter pleading for action from Senate leaders in both parties.

“We are concerned that if effective regulatory legislation for the housing-finance government sponsored enterprises (GSEs) is not enacted this year, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole,” they wrote.

The risky lending escalated. Fannie acquired $135 billion in what was dubbed as Alt-A mortgages — that is subprime or other risky lending — in 2006 and 2007, more than double the sum in all years before 2005, according to its annual reports.

The proposed 2006 reform was never passed, and the market collapsed a year later — with American taxpayers on the hook for $187.5 billion in defaulted loans guaranteed by the two mortgage giants.

Although Fannie Mae and Freddie Mac were put in conservatorship and have repaid American taxpayers for the bailout, they have not been reformed.

Blaming the banks

In her 2008 presidential run, Mrs. Clinton spun the reason for the financial crisis into predatory lending by commercial banks that unfairly targeted unsuspecting and oftentimes minority communities — the same communities her husband said he was trying to target with more affordable mortgages during his administration.

“If I were president, I would address abuses across the mortgage industry with a plan to curb unfair lending practices and hold brokers and lenders accountable, give families the support they need to avoid foreclosure and increase the supply of affordable housing,” Mrs. Clinton said in a campaign appearance in August 2007 in Derry, New Hampshire.

Mrs. Clinton outlined a commitment of $1 billion in federal money to help local governments build and renovate more affordable housing, reforms aimed at “cracking down on unscrupulous brokers who lure unsuspecting families into unfair mortgages,” and those aimed at helping homeowners in foreclosure. She never proposed reforming the two entities that many believe led to the mortgage crisis: Fannie Mae and Freddie Mac.

With Mrs. Clinton on the campaign trail again, the housing crisis seems to be a distant memory. She hasn’t addressed it or what her plans would be for Fannie Mae or Freddie Mac.

Those within the industry, however, say reforms need to be made.

Fannie Mae and Freddie Mac may need another taxpayer bailout in the next few years because they have been undercapitalized by the Treasury Department as they stall out in conservatorship — where 100 percent of their profits has to go to the Treasury, William Isaac, a former chairman of the Federal Deposit Insurance Corp., warned in a March op-ed in The Wall Street Journal.

On an earnings call in February, Fannie Mae CEO Tim Mayopoulos warned that the company’s lack of capital “increases the likelihood that Fannie Mae will need additional capital from Treasury at some point.”

As for the government’s role in affordable housing — it’s only expanding. This month, HUD introduced rules that allow the government to withhold money from communities that fail to address historical segregation. Communities will be required to submit data analysis of segregation within their borders, set goals on how to reduce it and then track the results.

For many conservatives, this represents — again — an overstep of the government into the private market.

“For whatever good HUD does, it clearly has not won the war on poverty,” Rep. Jeb Hensarling, Texas Republican and chairman of the House Financial Services Committee, said in a June hearing. “Only economic growth and equal opportunity can do that. In other words, the greatest housing program in America remains a good career path in a growing economy, not a HUD program.”

 

[by Kelly Riddell, writing for The Washington Times]

 

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As always, posted for your edification and enlightenment by

NORM ‘n’ AL, Minneapolis
normal@usa1usa.com
612.239.0970

 

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Obama’s strange choice to direct US mortgage giants…

One of Obama’s most controversial appointees yet was sworn in as director of the Federal Housing Financial Agency last month. Democratic representative Mel Watt now oversees Freddie Mac and Fannie Mae, the two giant government-owned mortgage companies.

Ironically, he was also one of the chief architects of the housing bubble that popped in 2007, sending the US economy and much of the rest of the world into a major recession.

Watt was chairman of the Congressional Black Caucus and is perhaps best known for pushing banks to give risky loans to blacks and other minorities who could not afford them. In the lead-up to the housing bubble, he drafted legislation that would have pushed banks even to give mortgages to people on welfare as long as they could come up with $1000. To placate the banks, which rightly resisted his plan, Watt called on the government to cover any losses incurred by banks by guaranteeing the mortgages.

In October of 2002 Watt announced the public-private partnership called “Pathways to Home Ownership.” This was a plan designed to coerce banks to give mortgages to people even if they could not scrape together a down payment.

Watt’s main approach to the mortgage market always seems to be to get people to buy homes whether they can afford them or not. He worked to expand government mortgage insurance programs, government handouts, and generous tax credits. Even in 2007, when the housing market was imploding from all these subprime loans, Watt encouraged passage of a bill to force Fannie and Freddie to make even more loans to non-creditworthy minorities in inner cities.

Watt fought vehemently against any efforts to reduce subprime lending. He and former Rep. Barney Frank led the successful effort to block the 2003 Fannie and Freddie reform effort.

Watt has already told us, in fact, what his new agenda will include: He STILL wants to reinflate the housing bubble by helping voters to buy houses they cannot afford.

Even before he was confirmed, Watt pledged to stop the planned increases in government-backed mortgage fees — increases that were designed to wean the mortgage market off government subsidies. He also put his name on a letter calling on Fannie and Freddie to forgive the debts of underwater homeowners who speculated on houses at the height of the bubble.

NORM ‘n’ AL Note: Mel Watt sounds like he fits right in around the Obama administration, doesn’t he? Just one more Democrat who thinks the US government, which is already printing money as fast as the presses will run, has all the answers in addition to having all the money. How do we manage to find all these idiots…and then actually get other people to believe in them enough to put them in a position to cause more havoc? Did Mr. Watt learn nothing at all from the past six or seven years?

Mel Watt’s record is public knowledge. So why didn’t Republicans challenge him on it, rather than criticizing his lack of business experience? Here’s one reason: Everybody is afraid, in Washington DC today, of being called a racist. No one wants to be associated with anything that can be twisted or perceived to be against minorities. The race card is a powerful motivator in today’s political climate.

Additionally, Republicans were complicit themselves in the housing bubble and in pushing banks to issue risky loans to people who could not afford them.

But there is a bigger reason.

Big banks and real estate groups are some of the biggest donors to BOTH political parties. As the Center for Responsive Politics points out, players in the financial industry (commercial banks, investment banks, and insurance companies) are three of the top five contributors to Watt’s past election coffers.

That makes Mel Watt just the right man for Wall Street. He said he wants to reinflate housing prices, and he is all for lowering the lending standards again. The big banks couldn’t be happier. They love giving subprime loans to those who can’t afford them, because now they know the government will subsidize them and bail them out when things go wrong.

By appointing Watt as the mortgage market regulator, Obama has signaled that government-backed loans are here to stay.

So brace yourself. Housing Bubble 2.0 appears to be right around the corner.

[from an article published in the current issue of THE TRUMPET]

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As always, posted for your edification and enlightenment by

NORM ‘n’ AL, Minneapolis
normal@usa1usa.com
612.239.0970

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