Foreclosures

Steve ‘Foreclosure King’ Mnuchin Wants to Privatize Fannie and Freddie and This is an Early Sign It’s Primed

An accounting irregularity bordering on fraud, Fannie Mae, Freddie Mac contradict themselves over net worth sweep. Steve Mnuchin is eager to privatize for financial greed.

Update: Fannie Mae, Freddie Mac watchdog set to name IPO advisor

FHFA will announce its choice within weeks, Cowen Washington says in note to investors

The watchdog for Fannie Mae and Freddie Mac has been interviewing advisory firms to handle the public offerings of their shares and is likely to announce a name within the next few weeks, according to Jaret Seiberg, managing director of Cowen Washington Research Group.

“Our expectation is that FHFA in the coming few weeks will announce its financial adviser,” Seiberg said in a note to investors obtained by HousingWire. “We believe the agency in February will publish the proposed capital rules. We expect the enterprises to hire financial advisers this spring.”

Naming the investment bank to start the underwriting process for the companies known as government-sponsored enterprises is the first major step in releasing them from conservatorship. Fannie Mae and Freddie Mac, the nation’s largest mortgage financiers, were seized by regulators in 2008, in the midst of the financial crisis.

For the record, while the process of selling shares to the public is referring to as an “initial public offering,” or IPO, it would be a second go-round for both companies. Fannie Mae began trading on the New York Stock Exchange in 1968, and Freddie Mac began trading on the same exchange in 1989.

The “offering” would be the 80% of Fannie Mae and Freddie Mac held by the federal government since 2008.

Prior to the government takeover in 2008, shares of the Fannie Mae and Freddie Mac traded above $68. After regulators seized them, they were kicked off the NYSE and their share prices tumbled to around 50 cents by the end of 2008. Today, they trade at around $3.

“Next step, in our view, is for FHFA to issue consent orders that will automatically remove each enterprise from conservatorship once they hit the minimum capital level that the capital rule requires,” Seiberg said. “The consent order, however, will maintain FHFA’s control over the enterprises until they are well-capitalized.”

The process of releasing the companies from conservatorship won’t be stopped by the election of a new president if the FHFA has consent orders in place, Seiberg said.

“There will be an election between the issuance of the consent orders and the enterprises becoming well-capitalized,” Seiberg said. “To us, it will be difficult for Democrats to stop this process even if they win in November. And if President Trump gets re-elected, then there should be no real risk of a disruption.”

Calabria: Fannie Mae and Freddie Mac won’t privatize until 2020’s end or later

Published; Sept. 17, 2019

The federal regulator for Fannie Mae and Freddie Mac said the nation’s largest mortgage financiers won’t be privatized until the end of 2020 at the earliest.

“It really depends on how quickly they raise capital,” said Federal Housing Finance Agency Director Mark Calabria in a Tuesday interview on Bloomberg TV.

“What we want to be able to do, essentially, is to some extent put their destiny back in their hands. They’re going to be responsible for building capital, they’re going to be responsible for hitting goalposts.”

Of course, they don’t have a chance of hitting the goalposts until they’re allowed to retain their earnings and build up capital. Since 2013, the companies have been required to send almost all their profits to the government in a so-called “net-worth sweep.” Calabria said he remains on track to reach an agreement with Treasury Secretary Steven Mnuchin within the next two weeks to end the sweep.

“We’ve not settled on a final number, but we’re in the neighborhood and we’re close, and I’m very hopeful that will get done by the end of the month,” Calabria said.

Calbria said he doesn’t plan major changes to the types of loans Fannie and Freddie can buy from lenders once they are private companies. He said he sees “some very modest reductions in risk.”

“The major footprint will look the same,” Calabria said. “It will just look a little bit safer, and I think that’s appropriate, especially given where we are in the housing cycle.”

Fannie Mae and Freddie Mac were seized by the government in 2008 during the financial crisis. Since then, their profits have repaid the $191 billion in bailouts they received, plus they’ve sent an additional $115 billion to Treasury.

On Sept. 6, a day after Treasury released a proposal on reforming housing finance that included a plan to end the sweep, investors who hold shares of Fannie and Freddie won a key court ruling.

A panel of federal appeals court judges in New Orleans (the Fifth Circuit) said they could pursue claims that the government’s profit seizures were illegal.

The pace of the so-called “recap and release” of the GSEs will depend on Trump’s outlook for re-election, Jaret Seiberg, managing director of Cowen Group, said in a note to clients on Friday.

If polls show the Democrat’s eventual nominee as beating Trump, it may speed up the privatization of Fannie and Freddie, he said.

The timing “may well depend upon how the polls look for Donald Trump and on which Democrat emerges as the nominee,” Seiberg said. “We have trouble believing this Treasury Department or this FHFA wants to leave housing finance reform to many of the Democrats now in the race.”

Who is Mark Calabria?

The Trump administration appointed economist Mark Calabria to run Fannie Mae and Freddie Mac’s regulator, a  controversial pick because he has advocated for policies that would reduce the government’s role in the housing market.

Calabria replaced Federal Housing Finance Agency Director Mel Watt, a Barack Obama appointee who led the regulator since President Donald Trump took office, several people familiar with the matter said.

Calabria was Vice President Mike Pence’s chief economist.

Among the ideas Calabria has previously pushed for are putting Fannie and Freddie into receivership, a process similar to bankruptcy. The companies, which are crucial to the U.S.’s $10 trillion mortgage market, have been under federal control since the 2008 financial crisis.

Calabria, a former scholar at the libertarian Cato Institute, has also called for abolishing the mortgage-interest deduction, something millions of homeowners benefit from. In addition, he has supported getting rid of government subsidizes for the 30-year fixed rate mortgage.

The White House declined to comment on Calabria’s past statements.

Fannie and Freddie don’t lend. Instead, they underpin the housing market by buying mortgages from banks, packaging them into securities and offering bond investors guarantees in case borrowers default.

Calabria’s past views have made those with vested interests in the companies – including bankers and bond investors – leery of him potentially leading the FHFA.  But he has sought to calm those concerns in private meeting in recent months by presenting a more tempered approach to overhauling Fannie and Freddie, some of the people said.

Calabria now holds significant influence over the housing finance market. The FHFA director can affect mortgage rates by ordering Fannie and Freddie to raise or lower certain fees they charge lenders. Its leader also can restrict the size of home loans that Fannie and Freddie can buy, leaving such borrowers to get their mortgages financed through the private market.

From the Federalist Society

Mark Calabria is director of financial regulation studies at the Cato Institute.

Before joining Cato in 2009, he spent six years as a member of the senior professional staff of the U.S. Senate Committee on Banking, Housing and Urban Affairs. In that position, Calabria handled issues related to housing, mortgage finance, economics, banking and insurance for Ranking Member Richard Shelby (R-AL).

Prior to his service on Capitol Hill, Calabria served as Deputy Assistant Secretary for Regulatory Affairs at the U.S. Department of Housing and Urban Development, and also held a variety of positions at Harvard University’s Joint Center for Housing Studies, the National Association of Home Builders and the National Association of Realtors.

Calabria has also been a Research Associate with the U.S. Census Bureau’s Center for Economic Studies. He has extensive experience evaluating the impacts of legislative and regulatory proposals on financial and real estate markets, with particular emphasis on how policy changes in Washington affect low and moderate income households. He holds a doctorate in economics from George Mason University.

Death of Corporate Reputation: How Integrity Has Been Destroyed on Wall Street

Trust and reputation are central to the operation of capital markets. But in our generation, reputational mechanisms are failing; and when they fail, markets and societies are also at risk of failure.

The usual response has been to call for more aggressive regulation, yet this only worsens the problem, as Jonathan Macey shows in his new book.

There, he demonstrates how and why poorly considered regulation has undermined traditional trust mechanisms throughout financial institutions, credit rating agencies, and accounting and law firms.

Please join the Federalist Society and Cato for a discussion of these issues, including a better path to restoring trust and integrity.

  • Jonathan Macey, Yale Law School and Yale School of Management
  • Damon Silvers, AFL-CIO
  • Harvey Pitt, Kalorama Partners and Former Chairman, U.S. Securities and Exchange Commission
  • Moderator: Mark Calabria, Cato

“An accounting irregularity bordering on fraud”, Fannie Mae, Freddie Mac contradict themselves over net worth sweep

Published; Nov. 10, 2019

The “net worth sweep” continues to be a topic of major debate for Fannie Mae and Freddie Mac shareholders. On one hand, there are plenty of reports that the net worth sweep is over, but on the other, the government-sponsored enterprises’ financial reports seem to say something different.

Bank analyst Dick Bove of Odeon Capital describes Fannie’s and Freddie’s latest reporting as “an accounting irregularity bordering on fraud.”

Government is unwilling to do anything for shareholders

He argues that the government wants total control over the recapitalization and release of the GSEs and over their operations “for now and the future.” He also said that the courts will be the ones to provide “meaningful gains” for shareholders in the fight against the net worth sweep.

Bove also believes that some assumptions many shareholders are making are just wrong. For example, he doesn’t expect that the government will ever concede that the senior preferred shares and their dividends have been paid.

He noted that during the Senate hearings, it became clear that the Treasury secretary believes the U.S. government is a creditor of Fannie Mae and Freddie Mac even though there is no outstanding debt. In Bove’s view, it looks like Secretary Steven Mnuchin sees the senior preferred shares owned by the government as debt rather than preferred equity.

He also believes the government will “take a hefty fee for providing any guarantees to Fannie Mae and Freddie Mac.”

Contradictions in Fannie’s and Freddie’s filings

The Fifth Circuit Court ruled that the net worth sweep was unconstitutional, but the Treasury Department has asked the Supreme Court to review that decision.

While it’s true that the GSEs are being allowed to retain more capital, Bove spoke out again against what he has previously termed as “accounting chicanery.” He called attention to several statements in Fannie Mae’s and Freddie Mac’s earnings reports and regulatory filings.

On the income statement in Fannie’s 10Q filing for the third quarter, the GSE states “Dividends distributed or amounts attributable to senior preferred stock – $3,977 {million}. Net income (loss) attributable to common stockholders ($14 {Million}). On the second page of the same filing, it states “… no dividends were payable on the senior preferred stock for the third quarter of 2019 … no dividends will be payable for the fourth quarter of 2019.”

He noted a similar contradiction in Freddie Mack’s 10Q filing for the third quarter. It stated: “Undistributed net worth sweep, senior preferred stock dividends, or future increase in senior preferred stock liquidation preference – $1,848 {million}. Net income (loss) attributable to common stockholders ($139 {million}).

On the second page of the same filing, it states ” We were not required to pay a dividend on the senior preferred stock to the Treasury on September 30, 2019 … and we will not have a dividend requirement to the Treasury in December 2019 …”

“The reason that this approach is being taken is simple,” Bove wrote. “By refusing to acknowledge that a dividend has been paid the two companies do not have to lower their retained earnings to reflect the fact that they both lost money in the quarter. Instead they raised their retained earnings by the amounts of the dividends that they show were paid but claim were not paid.”

Bove also wondered why the Securities and Exchange Commission is not questioning something else in the filings.

Both GSEs list two different sets of senior preferred stock. Fannie has $120.6 billion in senior preferred stock and $6.4 billion in senior preferred stock with a liquidation preference.

Freddie has $72.6 billion in senior preferred stock and $4.8 billion in senior preferred with a liquidation preference.

Bove states that these two groups should be the same, so it’s unclear why they are listed separately.

Senior Preferred Stock Are Quasi-bonds

The bank analyst still recommends holding preferred shares of Fannie and Freddie but continues to rate their common shares as a Sell.

“Once all of the sound and fury related to legal and governmental issues are over the primary factor that will drive their stock prices will be interest rate shifts,” Bove clarified. “These are equities that are really quasi-bonds. At this moment, however, investors in these stocks are buying into a lawsuit and/or the potential actions of a governmental bureaucracy.”

Fannie Mae, Freddie Mac will soon let borrowers take out mortgages over $500K

Published; Nov. 27, 2019

The Federal Housing Finance Agency has raised the maximum conforming loan limit for the fourth straight year

Fannie Mae and Freddie Mac will let mortgage borrowers nationwide take out home loans over $500,000 in 2020.

The Federal Housing Finance Agency announced Tuesday that it will increase the limit on conforming loans, meaning mortgages that adhere to the standards imposed by Fannie Mae and Freddie Mac to a maximum of $510,400 nationwide. In high-cost areas, the maximum loan limit for mortgages acquired by Fannie Mae and Freddie Mac will be $765,600.

On a local level, the loan limits were set higher in all but 43 counties across the country, the FHFA reported. The FHFA published a full list of the loan limits for each county nationwide for borrowers to reference.

By law, conforming loan limits must be adjusted to reflect changes in home prices across the U.S. The FHFA noted that its data show home prices had increased on average 5.38% between the third quarters of 2018 and 2019. Therefore, the loan limits increased by that percentage.

In high-cost areas, the law allows loan limits to be set 50% higher than the baseline level nationally. Special provisions also establish different loan limit calculations for Alaska, Hawaii, Guam and the U.S. Virgin Islands.

This is the fourth consecutive year that the conforming loan limit has increased. Between 2006 and 2016, the FHFA held loan limits at $417,000.

When loan limits were increased for the first time in 2017, it sparked enthusiasm across the mortgage industry as lenders expected it could lead to more people seeking home loans, because the lower loan limit forced many people to get jumbo loans that don’t always offer competitive financing.

Higher loan limits aren’t necessarily something to celebrate though. Some market observers have argued that by allowing Fannie and Freddie to purchase larger loans, the FHFA is increasing the risk that they will go belly-up the next time there’s a market downturn.

And for consumers, the higher limits are an indication that while home price growth has slowed from its breakneck pace in recent year, prices are still heading higher. That’s exacerbating the affordability crisis occurring in many housing markets across the country, keeping thousands of would-be home buyers out of the market.

Goldman Sachs Quietly settles bond-rigging lawsuit and The Settlement Agreement is NOT publicly available in the NY Court.

Nov 15, 2019

Goldman Sachs Group Inc agreed to pay $20 million to resolve claims by investors that it conspired to rig prices of bonds issued by Fannie Mae and Freddie Mac.

The preliminary settlement filed on Thursday night in federal court in Manhattan requires a judge’s approval, and is the third in litigation by investors against 16 financial services companies.

Deutsche Bank AG settled for $15 million and units of Tennessee’s First Horizon National Corp settled for $14.5 million in September. Both settlements won preliminary court approval in October.

Goldman did not admit wrongdoing, and its settlement requires that it have strong antitrust compliance procedures.

Investors including Pennsylvania Treasurer Joe Torsella accused banks of exploiting their market dominance to overcharge for Fannie Mae and Freddie Mac bonds from Jan. 1, 2009, to Jan. 1, 2016, and keep more profit for themselves.

According to the investors, the defendants underwrote $3.97 trillion, or 77.2%, of Fannie Mae and Freddie Mac bonds in that seven-year period, with Barclays Plc, JPMorgan Chase & Co and UBS Group AG having the largest shares.

Fannie Mae and Freddie Mac guarantee more than half of U.S. mortgages, and have been in a conservatorship since taxpayers bailed them out in September 2008.

The case is In re: GSE Bonds Antitrust Litigation, U.S. District Court, Southern District of New York, No. 19-01704.

Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Most Popular

Laws In Texas is a blog about the Financial Crisis and how the banks and government are colluding against the citizens and homeowners of the State of Texas and relying on a system of #FakeDocs and post-crisis legal precedents, specially created by the Court of Appeals for the Fifth Circuit to foreclose on homeowners around this great State. We are not lawyers. We do not offer legal advice. We are citizens of the State of Texas who have spent a decade in the court system in Texas and have been party to during this period to the good, the bad and the very ugly.

Donate to LawsInTexas. Make a Difference.

Subscribe to Our Newsletter

We keep your data private and share your data only with third parties that make this service possible. See our Privacy Policy for more information.

© 2020 Laws In Texas. | All Rights Reserved.

To Top