Showing posts with label Fannie. Show all posts
Showing posts with label Fannie. Show all posts
Thursday, March 1, 2012
Wednesday, February 22, 2012
Thursday, January 26, 2012
GOP Candidates Spar on Freddie Mac and Fannie Mae (ContributorNetwork)
American taxpayers have contributed more than $183 billion to bailout mortgage lenders Freddie Mac and Fannie Mae in the years following the housing collapse, according to CNN. Given this considerable burden, the Republican presidential candidates were asked if they played any role in aiding these two firms and how they plan on helping distressed homeowners.
Here is what they said, according to the Florida GOP debate transcript provided by the Council on Foreign Relations:
* Rick Santorum: "There were several of us in the United States Senate back in 2005 and 2006 who saw the problem with Freddie and Fannie, and tried to move forth with a bill. We voted a bill out of committee to try … to constrain Fannie and Freddie, and there were a lot of people out there fighting that, including Harry Reid and his minions. I signed a letter … that said … if we don`t constrain these two behemoths from continuing to underwrite this subprime mortgage problem, then we`re going to have a collapse. The problem now is, what are you going to do about it? And what I've said is … let capitalism work. Allow these banks to realize their losses. And create an opportunity for folks who have houses to realize their losses and at least help them out."
* Ron Paul: "Everybody now admits in Washington interest rates were kept too low, too long. … They kept interest rates especially low with Freddie Mac and Fannie Mae, and there was a line of credit there, and it was a guarantee. As a matter of fact, I had introduced legislation 10 years before the bubble burst to eliminate that line of credit. But then the Community Reinvestment Act added more fuel to it, forcing banks to make loans that are risky loans. … The consequences were anticipated. It was all government manufactured. … The best thing you can do is get out of the way, because you want the prices to come down so that people will start buying them again, but politicians can't allow that to happen. Our policies in Washington still has been to try to stimulate houses and keep prices up."
* Mitt Romney: "Mr. Speaker … you said you were paid $300,000 by Freddie Mac as an historian. They don`t pay people $25,000 a month for six years as historians. … This contract proves that you were not an historian. You were a consultant. … And you were hired by the chief lobbyist of Freddie Mac, not the CEO, not the head of public affairs. You also spoke publicly in favor of these government-sponsored entities at a very time when Freddie Mac was getting America in a position where we would have had a massive housing collapse. … You could have spoken out in a way to say these guys are wrong, this needs to end. But instead, you were being paid by them. You were making over $1 million at the same time people in Florida were being hurt by millions of dollars."
* Newt Gingrich: "I have never done any lobbying. Congressman J.C. Watts, who for seven years was the head of the Freddie Mac Watch Committee, said flatly he has never been approached by me. The fact is that Congressman Rick Lazio, who is chairman of the Housing Subcommittee, said he has never been approached by me. And the only report in the newspaper was "The New York Times" in July of 2008, which said I told the House Republicans they should vote no, not give Freddie Mac any money, because it needed to be reformed."
Tuesday, January 24, 2012
Fannie, Freddie writedowns too costly: regulator (Reuters)
WASHINGTON (Reuters) – The regulator for Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB) told lawmakers that forcing the government-controlled mortgage firms to write down the principal on underwater home loans would require more than $100 billion in fresh taxpayer funds.
In a letter sent on Friday to the Republican and Democratic leaders of a House of Representatives government oversight panel, the Federal Housing Finance Agency explained why it has long opposed principal reductions for borrowers who owe more than their homes are worth. In that situation, the mortgage is deemed "underwater."
About 22 percent of U.S. home mortgages have negative equity totaling about $750 billion, meaning that about one in five U.S. home mortgages is "underwater" with the amount owed exceeding the home's value, according to CoreLogic, a financial information and analytics company based in Santa Ana, California.
The Federal Housing Finance Agency said it had determined that such reductions would be more costly for Fannie Mae and Freddie Mac than forbearance, which was the less expensive option by comparison. The two mortgage firms have been using forbearance to help borrowers struggling to make payments.
Forbearance lets the borrow reduce or suspend payments on a loan for a specific amount of time.
The regulator, also known as the FHFA, has been under pressure from Democrats to permit the writedown of principal by the two government-controlled mortgage finance providers as a way to help some of the millions of U.S. homeowners whose mortgages are "underwater."
Representative Elijah Cummings of Maryland, the top Democrat on the House Oversight and Government Reform Committee, has pushed the housing regulator to explain its thinking in deciding not to offer principal reductions.
PRESERVING ASSETS A CONCERN
The FHFA, however, has maintained that widespread principal forgiveness would undercut the finances of Fannie and Freddie, which have already received about $169 billion in taxpayer aid. Republicans have supported the FHFA's decision.
"FHFA has a statutory responsibility as conservator to preserve and conserve the assets and property of the regulated entities," FHFA's acting director, Edward DeMarco, wrote in the letter to lawmakers dated January 20.
The Obama administration wants to secure widespread principal reductions in a legal settlement between the government and some of the biggest mortgage servicers. The settlement is aimed at cleaning up alleged foreclosure abuses.
"Given that any money spent on this endeavor would ultimately come from taxpayers and given that our analysis does not indicate a preservation of assets for Fannie Mae and Freddie Mac substantial enough to offset costs, an expenditure of this nature at this time would, in my judgment, require congressional action," DeMarco said in the letter.
In 2008, Fannie Mae and Freddie Mac were taken over by the government as mortgage losses mounted. Millions of loans issued during the housing bubble, many of them made to subprime borrowers with spotty credit histories, soured after the housing bust -- yet they remain on Fannie's and Freddie's books. Delinquencies on those loans continue to rise.
Fannie Mae and Freddie Mac own or guarantee roughly half of all outstanding mortgages in the United States. Of the approximately 30 million mortgages guaranteed by the two firms, close to 3 million of those loans were held by underwater borrowers as of last summer, according to an analysis provided in the letter.
Another barrier to principal writedowns, aside from pushing losses at the two firms even higher, DeMarco said, was the cost associated with new technology and training to servicers that would be needed to launch a program that offers principal forgiveness.
The FHFA told lawmakers that forbearance is a less costly option. Principal forbearance limits accounting losses and allows Fannie and Freddie to recoup the principal at some later point, according to the regulatory agency's letter.
"The net result of the analysis is that forbearance achieves marginally lower losses for the taxpayer than forgiveness, although both forgiveness and forbearance reduce the borrower's payment to the same affordable level," the FHFA's letter said.
The housing regulator also assured lawmakers that the FHFA remains committed to helping borrowers stay in their homes and will continue to work on such principal forbearance plans and government initiatives to modify or refinance loans.
The Federal Reserve, in a white paper to Congress earlier this month, said writedowns "had the potential to decrease the probability of default" and "improve migration between labor markets."
However, the Fed stopped short of endorsing such an initiative and noted concern that writing down loan balances would create a moral hazard - the concept that rescue efforts breed further behavior that exacerbates the existing problem - and could prompt other borrowers to stop making timely loan payments.
(Reporting By Margaret Chadbourn; Editing by Jan Paschal)
Friday, January 13, 2012
CEO who led Fannie after gov't takeover to quit (AP)
WASHINGTON – The executive who was appointed to lead mortgage giant Fannie Mae in 2009 after the federal government seized the company plans to step down as its CEO.
Michael J. Williams announced Tuesday he will continue as CEO and as a director until a successor is found.
"I decided the time is right to turn over the reins to a new leader," he said in a statement. Williams, 53, has been a Fannie employee since 1991.
The government rescued Fannie Mae and Freddie Mac in September 2008 after the two mortgage firms absorbed huge losses on risky loans that threatened to topple them.
Since then, a government regulator has controlled the two firms' financial decisions. Pressure has been building for the government to eliminate or transform the two companies and reduce taxpayers' exposure to further losses.
So far, Fannie and Freddie have cost taxpayers more than $150 billion — the largest bailout of the financial crisis. They could end up costing up to $259 billion, according to their government regulator, the Federal Housing Finance Administration, or FHFA.
Williams oversaw the restructuring of Fannie's foreclosure-prevention efforts and managed the troubled firm's reorganization and transition to conservatorship.
Freddie's CEO, Charles E. "Ed" Haldeman Jr., announced in October that he would resign within the next year.
The departures amount to the biggest leadership shake-up for the agencies since their takeover.
Williams, Haldeman and other Fannie and Freddie executives faced intense questioning on Capitol Hill in November over tens of millions of bonuses and compensation they received since 2009. Twelve executives at the firms received roughly $35.4 million in total salary and bonuses in 2009 and 2010. Williams earned about $9.3 million for the two years.
Members of Congress are seeking to end those bonuses and align salaries with other federal employees who earn much less.
In December, the Securities and Exchange Commission brought civil fraud charges against six former executives at the two firms, including former Fannie CEO Daniel Mudd and former Freddie CEO Richard Syron. The executives were accused of understating the volume of high-risk subprime mortgages Fannie and Freddie held just before the housing bubble burst.
No current Fannie or Freddie employees were charged or implicated.
Williams' resignation might also intensify calls for the naming of a new director of FHFA. Edward DeMarco has served as the oversight agency's acting director since September 2009. But some lawmakers complain that DeMarco hasn't done enough to address rising foreclosures or to ease industry lending standards that critics call too restrictive.
The Obama administration nominated Joseph Smith, a North Carolina banking commissioner, to succeed DeMarco in November 2010. But Smith's confirmation was stalled by Senate Republicans, and he withdrew from consideration a year ago.
Washington-based Fannie and McLean, Va.-based Freddie buy loans from lenders, package them into bonds with a guarantee against default and sell those bonds to investors. Together, the companies own or guarantee about half of all U.S. home mortgages — about 31 million home loans — and nearly all new mortgages.
Fannie was created in 1938 in the aftermath of the Great Depression. It was privatized 30 years later to limit budget deficits during the Vietnam War.
In 1970, the government formed Freddie.
Thursday, January 12, 2012
Fannie Mae CEO to leave after successor chosen (Reuters)
WASHINGTON (Reuters) – Fannie Mae Chief Executive Michael Williams said on Tuesday he was stepping down from the government-controlled mortgage firm, which is at the center of a fight over how to reduce foreclosures.
He will depart after a successor is appointed to lead the country's largest provider of U.S. residential mortgage funding, the company said in a statement.
With Williams' announced departure, the government now needs to find leaders for both of the two largest U.S. housing finance companies. Freddie Mac CEO Charles Haldeman announced plans to step down in October.
Williams began working at the Fannie Mae in 1991. He was appointed chief executive in 2009 after Fannie Mae and Freddie Mac were seized by the government at the height of the financial crisis as mortgage losses mounted.
The two companies have soaked up about $169 billion in taxpayer support since being placed in conservatorship.
"I decided the time is right to turn over the reins to a new leader," Williams said in the statement.
To provide funds for housing, the two congressionally chartered companies buy mortgages from lenders and repackage them as securities for investors, which they then guarantee.
They were huge players in the mortgage market even before the housing bubble burst. As private mortgage financing evaporated, their footprint grew even larger.
Along with the Federal Housing Administration, they now provide the funds for about 90 percent of all new U.S. mortgages.
Even so, the Federal Reserve last week recommended expanding their role to help combat foreclosures and revive the downtrodden housing market. William Dudley, the influential president of the New York Federal Reserve Bank, argued that loan principal reductions should be considered.
Two Republican senators on Tuesday criticized the central bank for overreaching with its proposals. The regulator for Fannie Mae and Freddie Mac has only allowed the Obama administration to use the firms for targeted foreclosure prevention programs.
"I am surprised that Williams hung out as long as he did," said Anthony Sanders, a professor of real-estate finance at George Mason University. "It is a stressful job to explain to Congress and taxpayers how all that money was lost," he said.
The Obama administration, and Democratic and Republican lawmakers all agree that Fannie Mae and Freddie Mac eventually should be shuttered to reduce the government's role in the mortgage market.
However, they disagree over how quickly to unwind the money-losing firms and what role the government should play in the future.
Williams and Haldeman came under intense pressure from Congress to rein in compensation at the firms after it was disclosed last fall that they paid out $12.79 million in bonuses for 10 executives.
Both argued the hefty pay packages were needed because the uncertain future of their firms was making it difficult to attract and retain staff.
Williams, who worked his way up the ranks from the head of the company's eCommerce division to chief operating officer and eventually CEO, helped reform Fannie Mae's control standards after an accounting and financial restatement scandal.
The company did not provide details on when Williams' successor would be named.
(Reporting By Rachelle Younglai, additional reporting By Margaret Chadbourn; Editing by Kenneth Barry)
Wednesday, January 11, 2012
Fannie Mae CEO to leave after successor chosen (Reuters)
WASHINGTON (Reuters) – Fannie Mae Chief Executive Michael Williams said on Tuesday he was stepping down from the government-controlled mortgage firm, which is at the center of a fight over how to reduce foreclosures.
He will depart after a successor is appointed to lead the country's largest provider of U.S. residential mortgage funding, the company said in a statement.
With Williams' announced departure, the government now needs to find leaders for both of the two largest U.S. housing finance companies. Freddie Mac CEO Charles Haldeman announced plans to step down in October.
Williams began working at the Fannie Mae in 1991. He was appointed chief executive in 2009 after Fannie Mae and Freddie Mac were seized by the government at the height of the financial crisis as mortgage losses mounted.
The two companies have soaked up about $169 billion in taxpayer support since being placed in conservatorship.
"I decided the time is right to turn over the reins to a new leader," Williams said in the statement.
To provide funds for housing, the two congressionally chartered companies buy mortgages from lenders and repackage them as securities for investors, which they then guarantee.
They were huge players in the mortgage market even before the housing bubble burst. As private mortgage financing evaporated, their footprint grew even larger.
Along with the Federal Housing Administration, they now provide the funds for about 90 percent of all new U.S. mortgages.
Even so, the Federal Reserve last week recommended expanding their role to help combat foreclosures and revive the downtrodden housing market. William Dudley, the influential president of the New York Federal Reserve Bank, argued that loan principal reductions should be considered.
Two Republican senators on Tuesday criticized the central bank for overreaching with its proposals. The regulator for Fannie Mae and Freddie Mac has only allowed the Obama administration to use the firms for targeted foreclosure prevention programs.
"I am surprised that Williams hung out as long as he did," said Anthony Sanders, a professor of real-estate finance at George Mason University. "It is a stressful job to explain to Congress and taxpayers how all that money was lost," he said.
The Obama administration, and Democratic and Republican lawmakers all agree that Fannie Mae and Freddie Mac eventually should be shuttered to reduce the government's role in the mortgage market.
However, they disagree over how quickly to unwind the money-losing firms and what role the government should play in the future.
Williams and Haldeman came under intense pressure from Congress to rein in compensation at the firms after it was disclosed last fall that they paid out $12.79 million in bonuses for 10 executives.
Both argued the hefty pay packages were needed because the uncertain future of their firms was making it difficult to attract and retain staff.
Williams, who worked his way up the ranks from the head of the company's eCommerce division to chief operating officer and eventually CEO, helped reform Fannie Mae's control standards after an accounting and financial restatement scandal.
The company did not provide details on when Williams' successor would be named.
(Reporting By Rachelle Younglai, additional reporting By Margaret Chadbourn; Editing by Kenneth Barry)
CEO who led Fannie after gov't takeover to quit (AP)
WASHINGTON – The executive who was appointed to lead mortgage giant Fannie Mae in 2009 after the federal government seized the company plans to step down as its CEO.
Michael J. Williams announced Tuesday he will continue as CEO and as a director until a successor is found.
"I decided the time is right to turn over the reins to a new leader," he said in a statement. Williams, 53, has been a Fannie employee since 1991.
The government rescued Fannie Mae and Freddie Mac in September 2008 after the two mortgage firms absorbed huge losses on risky loans that threatened to topple them.
Since then, a government regulator has controlled the two firms' financial decisions. Pressure has been building for the government to eliminate or transform the two companies and reduce taxpayers' exposure to further losses.
So far, Fannie and Freddie have cost taxpayers more than $150 billion — the largest bailout of the financial crisis. They could end up costing up to $259 billion, according to their government regulator, the Federal Housing Finance Administration, or FHFA.
Williams oversaw the restructuring of Fannie's foreclosure-prevention efforts and managed the troubled firm's reorganization and transition to conservatorship.
Freddie's CEO, Charles E. "Ed" Haldeman Jr., announced in October that he would resign within the next year.
The departures amount to the biggest leadership shake-up for the agencies since their takeover.
Williams, Haldeman and other Fannie and Freddie executives faced intense questioning on Capitol Hill in November over tens of millions of bonuses and compensation they received since 2009. Twelve executives at the firms received roughly $35.4 million in total salary and bonuses in 2009 and 2010. Williams earned about $9.3 million for the two years.
Members of Congress are seeking to end those bonuses and align salaries with other federal employees who earn much less.
In December, the Securities and Exchange Commission brought civil fraud charges against six former executives at the two firms, including former Fannie CEO Daniel Mudd and former Freddie CEO Richard Syron. The executives were accused of understating the volume of high-risk subprime mortgages Fannie and Freddie held just before the housing bubble burst.
No current Fannie or Freddie employees were charged or implicated.
Williams' resignation might also intensify calls for the naming of a new director of FHFA. Edward DeMarco has served as the oversight agency's acting director since September 2009. But some lawmakers complain that DeMarco hasn't done enough to address rising foreclosures or to ease industry lending standards that critics call too restrictive.
The Obama administration nominated Joseph Smith, a North Carolina banking commissioner, to succeed DeMarco in November 2010. But Smith's confirmation was stalled by Senate Republicans, and he withdrew from consideration a year ago.
Washington-based Fannie and McLean, Va.-based Freddie buy loans from lenders, package them into bonds with a guarantee against default and sell those bonds to investors. Together, the companies own or guarantee about half of all U.S. home mortgages — about 31 million home loans — and nearly all new mortgages.
Fannie was created in 1938 in the aftermath of the Great Depression. It was privatized 30 years later to limit budget deficits during the Vietnam War.
In 1970, the government formed Freddie.
Saturday, December 17, 2011
Regulators sue former top Fannie, Freddie execs (Reuters)
NEW YORK (Reuters) – Six former top executives at Fannie Mae and Freddie Mac were sued by U.S. regulators on charges of misleading investors about the mortgage finance companies' exposure to risky home loans in the run-up to the 2008 financial crisis.
The case is one of the U.S. Securities and Exchange Commission's biggest actions against high-level financial industry executives, although the regulator did not specify a dollar amount for damages in the alleged fraud. Many lawmakers consider Fannie Mae and Freddie Mac at least partly responsible for the 2008 crisis, saying they encouraged lax lending to home buyers that led to a massive real estate bubble.
The SEC brought civil fraud charges on Friday against former Fannie Mae CEO Daniel Mudd, former Freddie Mac CEO Richard Syron and four other one-time executives.
Mudd, now chief executive of Fortress Investment Group, and Syron left the mortgage finance companies after they were taken over by the government in 2008 as mortgage losses spiraled. The two firms have been propped up by $169 billion in federal aid since they were seized.
The SEC is seeking to bar the defendants from serving as officers or directors of public companies, among other penalties.
Fortress, one of the few publicly traded hedge fund and private equity companies, said it would review "the matters addressed in the complaint" against Mudd, but noted that the lawsuit concerned his previous job at Fannie Mae.
An attorney for Syron said the SEC case was "without merit" and relied on a mistaken approach in examining the mortgage giant's disclosures. He said the firm had appropriately disclosed the amount of risk underlying its loans.
"Simply stated, there was no shortage of meaningful disclosures, all of which permitted the reader to assess the degree of risk in Freddie Mac's guaranteed portfolio. The SEC's theory and approach are fatally flawed," attorney Thomas Green said.
Other defendants include former Fannie Mae Chief Risk Officer Enrico Dallavecchia, who later became chief risk officer at PNC Financial Services. PNC spokesman Frederick Solomon said Dallavecchia stepped down from his PNC post on Friday and was on administrative leave.
Attorneys for Mudd and Dallavecchia did not immediately respond to requests for comment.
LIGHTNING RODS
Since Fannie Mae and Freddie Mac nearly went bust, the congressionally chartered firms have become political lightning rods.
Republicans point to them as the culprits behind the foreclosure and housing crisis, and Democrats and Republicans alike want to dismantle them, although they cannot agree how.
Republican presidential front-runner Newt Gingrich has been harshly criticized by some of his opponents for accepting up to $1.6 million as a consultant to Freddie Mac from 1999 until 2008. Gingrich says he was not a lobbyist but was paid for "strategic advice."
Both firms have recently drawn fire on Capitol Hill for extending multimillion-dollar pay packages to executives, and Republicans and Democrats largely agree that the mortgage giants eventually need to be shut down. Fannie Mae and Freddie Mac buy loans from lenders and repackage them as guaranteed securities for sale to investors.
"Today's news underscores how important it is that Congress work to end the ongoing taxpayer bailout of Fannie and Freddie," said Republican U.S. Congressman Scott Garrett of New Jersey. "Fannie Mae and Freddie Mac played a leading role in the 2008 financial collapse that wreaked havoc on the U.S. economy and, in domino effect, economies across the globe."
The SEC said on Friday that Fannie Mae and Freddie Mac will cooperate with the agency and have agreed to admit responsibility for the alleged misconduct, without acknowledging or denying liability. The firms have also entered into non-prosecution agreements with the agency, the SEC said.
Freddie Mac, in a statement, said it had reached an agreement with the SEC but did not comment on the charges against its former executives. Fannie Mae representative Andrew Wilson also declined comment on the charges, but said "we are pleased to bring the SEC inquiry to a close."
MORTGAGE RISKS
In lawsuits filed in U.S. District Court in Manhattan, the SEC said the six defendants made it appear that their companies had far less exposure to risky mortgages in their loan portfolios than in fact existed.
In one episode in 2006, the SEC said, Syron said on an earnings conference call that "we, as you know, weren't really involved in underwriting much of that business, any of that business, directly," referring to the subprime loan market.
That statement, the SEC said, was "materially false and misleading," because at around that time Freddie Mac's single-family credit guarantee portfolio contained $141 billion worth of subprime loans, 10 percent of its total.
The SEC also charged Thomas Lund, a former executive vice president at Fannie Mae. His lawyer, Michael Levy, said his client "did not mislead anyone."
Lawyers for the two other defendants, former Freddie Mac executives Patricia Cook and Donald Bisenius, did not immediately respond to requests for comment.
The SEC is asking the court to order the six defendants to pay back alleged illegal profits. The documents did not specify what amount the SEC would be seeking.
"The companies adopted very broad definitions of subprime, leaving reasonable investors to conclude that what was disclosed in their filings was the entirety of their subprime exposure," Robert Khuzami, director of the SEC's enforcement division, said at a news conference.
"Investors were robbed of the opportunity to make informed investor choices," he said.
The cases are SEC v. Daniel Mudd et al., No. 11-9202 and SEC v. Syron et. al No. 11-9201, U.S. District Court for the Southern District of New York.
(Additional reporting by Margaret Chadbourn in Washington and Svea Herbst-Bayliss in Boston; editing by Martha Graybow, Gerald E. McCormick, Gunna Dickson and John Wallace)
Saturday, December 3, 2011
Watchdog: Fannie, Freddie abuses went unchecked (AP)
By DEREK KRAVITZ, AP Real Estate Writer Derek Kravitz, Ap Real Estate Writer – Tue Nov 29, 1:01 pm ET
WASHINGTON – A government watchdog said Fannie Mae and Freddie Mac improperly foreclosed on homeowners and cost the government billions of dollars by not holding major banks to strict underwriting requirements.
The report released Tuesday also said the Federal Housing Finance Agency gave "undue deference" to Fannie and Freddie officials and didn't scrutinize more than $35 million in bonuses and compensation to Fannie and Freddie executives.
FHFA's inspector general had previously released each of the findings on an individual basis. But the semi-annual report to Congress sketched a portrait of abuse at the two mortgage giants that the government failed to stop.
Fannie, Freddie and the FHFA didn't respond to the report. But they have responded to similar allegations in previous reports.
Fannie and Freddie own or guarantee about half of U.S. mortgages, or nearly 31 million loans. The Bush administration seized control of the mortgage giants in September 2008.
Like banks, the mortgage giants relaxed lending standards during the housing boom and didn't thoroughly check incomes and assets weren't properly checked. High-interest loans, some with low "teaser" rates, were doled out to risky borrowers.
The inspector general report found that Fannie and Freddie did not force banks to repurchase mortgages when they failed to meet strict underwriting requirements. That decision cost the government billions of dollars.
When a senior examiner at FHFA raised "serious concerns" about Freddie' process for reviewing Bank of America's mortgages, senior Freddie managers disagreed, according to the report. The managers also said they feared losing business from Bank of America if the government became more aggressive in getting money back for bad mortgages, the report said.
The report also found:
• Fannie knew about allegations of improper foreclosure practices by law firms as far back as 2003 but did not act to stop them.
• Fannie failed to establish an "acceptable and effective" way to monitor foreclosure proceedings between 2006 and early 2011.
• FHFA failed to oversee the government's signature foreclosure-prevention program, the Home Affordable Modification Program. As a result, it cost the government extra time and resources to fix it.
Fannie officials said they told a government official about false foreclosure practices in 2006. That unnamed official, who now works for Fannie's regulator, the Federal Housing Finance Agency, said he couldn't recall the conversation, the report said.
And both mortgage giants have defended executive bonuses and compensation as necessary to keep talented officials.
Friday, December 2, 2011
Fitch may lower Fannie, Freddie debt outlook (AP)
NEW YORK – The Fitch ratings agency will likely lower its outlook for debts linked to the U.S. government to negative, including debt of government-controlled mortgage buyers Fannie Mae and Freddie Mac.
Fitch, one of the three major ratings agencies, said Tuesday it expects to announce the revised outlooks over the next several days.
The announcement comes a day after the agency downgraded its outlook on U.S. debt to negative. The agency kept its rating for long-term U.S. debt at the top AAA level but said it has less confidence in the federal government's ability to rein in the deficit.
Ratings are based on the likelihood of default. The AAA rating is the highest available and signifies an extremely low likelihood of default.
A special congressional panel failed last week to reach an agreement on $1.2 trillion in deficit cuts over the next decade. The impasse triggered automatic cuts of the same amount, which are scheduled kick in beginning in 2013.
The U.S. government rescued Fannie and Freddie in September 2008 and has funded them since the financial crisis. The two mortgage giants own or guarantee about half of all U.S. home loans and nearly all new mortgages. So if the U.S. government can't pay its bills, neither can Fannie and Freddie.
However, the Federal Housing Finance Agency, the government regulator that oversees Fannie and Freddie, has said the entities will meet their financial obligations because the government will continue to fund them.
An array of bonds and securities and the 12 Federal Home Loan Banks also have credit ratings that are directly tied to the credit rating of U.S. debt.
In August, Standard & Poor's Ratings Services downgraded the credit ratings of Fannie and Freddie from AAA to AA-plus, reflecting the same downgrade S&P made of long-term U.S. government debt a few days before. It was the first time the agency had lowered the nation's AAA rating since granting it in 1917.
If Fitch were to downgrade U.S. debt in the next two years, Fannie and Freddie would certainly see its ratings fall too. Fitch said there is slightly greater than a 50 percent chance it would downgrade U.S. debt by 2013.
Tuesday, November 22, 2011
Fannie, Freddie tentacles embraced many in Washington (Reuters)
By Tim Reid, Margaret Chadbourn and Mark Hosenball Tim Reid, Margaret Chadbourn And Mark Hosenball – Thu Nov 17, 7:24 pm ET
WASHINGTON (Reuters) – While presidential hopeful Newt Gingrich was forced to defend his lucrative former role with Freddie Mac this week, the mortgage giant and its larger cousin Fannie Mae had a roster of Washington heavyweights on their payroll for years, many of them Democrats.
The two entities spent over $170 million on political and lobbying operations in a 10-year period leading up to the financial crisis of 2008 when both were seized by the government as they teetered on the brink of failure, according to the Center for Responsive Politics.
Fannie and Freddie hired figures such as Tom Donilon, now President Barack Obama's national security adviser, and Rahm Emanuel, Obama's former White House chief of staff, as part of a campaign aimed at protecting government ties that allowed them to borrow money cheaply from financial markets.
"It was a mob-like operation," said a senior congressional official who over the years dealt with the political and lobbying operations at the firms, the two biggest sources of U.S. mortgage finance. "They had tentacles everywhere."
Fannie Mae and Freddie Mac are congressionally chartered firms that buy loans from lenders and repackage them as guaranteed securities for sale to investors.
In turn, the debt they issue was seen as having implicit government backing. Since nearly going bust, they have received about $169 billion in taxpayer aid and the government has relied on them to help revive the housing market.
Gingrich was just one of a lengthy list of political power brokers with close ties to Congress and Republican and Democratic administrations hired by Fannie and Freddie as either board members, senior executives, lobbyists or consultants.
"They used to be the near-exclusive domain for Democrats," said John Taylor, president and CEO of the National Community Reinvestment Coalition. "But both Fannie and Freddie realized the perilous way of that strategy and eventually they began dealing with either party."
Emanuel and Donilon were hired when they were working in the private sector. Donilon was a top executive at Fannie Mae for five years, essentially running its lobbying operation. He departed in 2005.
Emanuel was named to the board of Freddie Mac by former Democratic President Bill Clinton in 2000, where he served for 13 months, earning more than $320,000.
POWER BROKERS
Fannie also hired other Washington power brokers during this time, including Bill Daley, who is now Obama's current White House chief of staff; Jamie Gorelick, a deputy attorney-general under Clinton; and Robert Zoellick, the current head of the World Bank.
From 1993 until 1997 Zoellick served as Fannie Mae's executive vice-president. Gorelick was vice chairman of Fannie Mae from 1997 to 2003, after she left the Clinton administration.
Kenneth Duberstein, former White House Chief of Staff for Republican President Ronald Reagan, served on the board of Fannie Mae from 1998 until 2007.
Another recognizable Washington name tied to the mortgage giants is a former director at the Office of Management and Budget during the Clinton White House. Franklin Raines, former CEO of Fannie Mae, was implicated in an accounting scandal for massaging earnings at the firm.
Congress and federal regulators played a role in their expansion as the housing market moved toward a peak by relaxing restrictions on the size of loans they could back and the speed at which their mortgage holdings could grow.
Conservative critics in particular accuse them of fueling the housing bubble at the heart of the 2008 financial collapse by securitizing loans made to people who could not afford them.
Gingrich, a Republican former House Speaker, came under fire this week for being paid about $1.6 million to $1.8 million as a consultant to Freddie Mac from 1999 until 2008. A person with an understanding of the arrangement confirmed the figure, which was first reported by Bloomberg Wednesday.
The two government-controlled firms have been a favorite target of this year's Republican presidential contenders, including Gingrich.
Gingrich even said the top Democrat on the House Financial Services Committee, Barney Frank, should be thrown in jail because Gingrich claimed he had close ties to lobbyists at Freddie Mac.
While both Republicans and Democrats eventually want to see the firms wound down, an overhaul of the mortgage system is expected to take years. The companies, which back about half of the U.S. residential mortgage market, currently benefit from an unlimited line of credit with the Treasury.
(Editing by Alistair Bell and Eric Walsh)
California attorney general subpoenas Fannie, Freddie: report (Reuters)
(Reuters) – The California attorney general's office has sent subpoenas to Fannie Ma (FNMA.OB)e and Freddie Mac in a wide-reaching probe into the government-backed mortgage giants' lending and foreclosure practices, the Los Angeles Times reported Thursday.
The subpoenas are seeking information about how Fannie and Freddie are handling thousands of foreclosed properties, as well as details about their mortgage-servicing and home-repossession practices, the LA Times reported, citing sources families with the matter.
California regulators are also investigating how Fannie and Freddie bought and sponsored securities holding toxic mortgages, and how their activities might have contributed to the wave of foreclosures in California, the sources told the LA Times.
A spokesman for California Attorney General Kamla Harris, Shum Preston, said he could neither confirm nor deny the report. Representatives for Fannie and Freddie were not immediately available for comment.
Recently, Harris has called on Fannie and Freddie to cut mortgage debt on the loans they own, in an attempt to help beleaguered California homeowners keep their homes. Fannie and Freddie have long resisted such a move.
"It has become clear to me that the only way to keep distressed California homeowners in their homes is through meaningful principal reduction," attorney general Kamala Harris said in a statement on November 3.
The two companies have been propped up with about $145 billion in taxpayer support since they were seized by the government and placed into conservatorship in September 2008.
California has faced some of the worst default rates in the country in the wake of the foreclosure crisis, with two million residents who owe more on their mortgage than their home is worth.
(Reporting by Jessica Dye, editing by Bernard Orr)
Wednesday, November 9, 2011
Fannie Mae loss widens, asks taxpayers for $7.8B (AP)
WASHINGTON – Mortgage giant Fannie Mae is asking the federal government for $7.8 billion in aid to cover its losses in the July-September quarter.
The government-controlled company said Tuesday that it lost $7.6 billion in the third quarter. Low mortgage rates reduced profits and declining home prices caused more defaults on loans it had guaranteed.
The government rescued Fannie Mae and sibling company Freddie Mac in September 2008 to cover their losses on soured mortgage loans. Since then, a federal regulator has controlled their financial decisions.
Taxpayers have spent about $169 billion to rescue Fannie and Freddie, the most expensive bailout of the 2008 financial crisis. The government estimates that figure could reach up $220 billion to support the companies through 2014 after subtracting dividend payments.
Fannie has received $112.6 billion so far from the Treasury Department, the most expensive bailout of a single company.
Michael Williams, Fannie's president and CEO, said Fannie's losses are increasing for two reasons: Some homeowners are paying less interest after refinancing at historically low mortgage rates; others are defaulting on their mortgages.
"Despite these challenges, we are making solid progress," he said. For example, Fannie's rate of homeowners who are late on their monthly mortgage payments by 90 days or more has decreased each quarter since the beginning of 2010, he said.
When property values drop, homeowners default, either because they are unable to afford the payments or because they owe more than the property is worth. Because of the guarantees, Fannie and Freddie must pay for the losses.
Fannie said lower mortgage rates contributed to $4.5 billion in quarterly losses. While those losses are large, they are temporary and should ease in future earnings reports, said Mahesh Swaminathan, mortgage strategist at Credit Suisse.
"They are accounting losses on their books rather than economic losses," he said.
Fannie's July-September loss attributable to common shareholders works out to $1.32 per share. It takes into account $2.5 billion in dividend payments to the government. That compares with a loss of $3.5 billion, or 61 cents per share, in the third quarter of 2010.
Last week, Freddie requested $6 billion in extra aid — the largest request since April 2010 — after it reported losing $6 billion in the third quarter.
Washington-based Fannie and McLean, Va.-based Freddie own or guarantee about half of all mortgages in the U.S., or nearly 31 million home loans. Along with other federal agencies, they backed nearly 90 percent of new mortgages over the past year.
Fannie and Freddie buy home loans from banks and other lenders, package them with bonds with a guarantee against default and sell them to investors around the world. The companies nearly folded three years ago because of big losses on risky mortgages they purchased.
The Obama administration unveiled a plan earlier this year to slowly dissolve the two mortgage giants. The aim is to shrink the government's role in the mortgage system, remaking decades of federal policy aimed at getting Americans to buy homes. It would also probably make home loans more expensive.
Exactly how far the government's role in mortgage lending would be reduced was left to Congress to decide. But all three options the administration presented would create a housing finance system that relies far more on private money.
Fannie Mae taps $7.8 billion from Treasury, loss widens (Reuters)
WASHINGTON (Reuters) – Fannie Mae, the biggest source of money for U.S. home loans, on Tuesday said it needed a further $7.8 billion in federal aid to stay afloat as a shaky housing market widened its third-quarter loss to $5.1 billion.
The government-controlled firm also attributed the deeper cash drain to losses on derivatives used to hedge its exposure to interest-rate swings and on expenses related to home loans made prior to the 2008 financial collapse. In the year-earlier quarter it had a loss of a $1.3 billion.
Fannie Mae has now drawn $112.6 billion in bailout funds from the Treasury Department since being seized by the government in 2008 as mortgage losses mounted, and it has returned $17.2 billion to taxpayers in the form of dividends.
"There is certainly a lot of pre-2009 loans that we need to work through and that is certainly driving the credit losses you saw in this quarter and over the last several years," Fannie Mae Chief Financial Officer Susan McFarland told Reuters.
She said the company was "working to reduce losses" on those legacy loans and "limit taxpayer exposure."
The mortgage finance company and its smaller rival Freddie Mac were taken over during the financial crisis as losses on subprime mortgages threatened insolvency.
Given the crucial role the two play in U.S. housing finance, owning or guaranteeing about half of all mortgages, the government has pledged unlimited funds to keep the firms afloat through the end of 2012. Combined, they have cost taxpayers around $169 billion.
The plan to put them into a government conservatorship was meant to be temporary, although it is likely to be years before a long-term replacement structure takes shape. Both the Obama administration and Congress want to eventually wind them down.
Their regulator estimates that the bailout could reach about $193 billion through 2014, with dividend payments taken into account.
Fannie Mae said credit losses, which include expenses related to the foreclosed properties it holds on its books as well as on its derivatives, increased in the third quarter to $4.5 billion from $3.9 billion in the second quarter.
Freddie Mac, the second-largest source of U.S. mortgage finance, said last week it lost $4.4 billion in the third quarter and needed to borrow an extra $6 billion from the federal government.
Fannie Mae has now reported losses in 16 of the last 17 quarters. It reported a profit of $73 million in the fourth quarter of last year, but that was largely attributed to a one-time payment from Bank of America.
Fannie Mae and Freddie Mac were created by Congress to encourage homeownership. They buy mortgages from lenders and repackage them as securities for investors, with a guarantee, to ensure a steady source of home loan funds.
The two firms, along with the Federal Housing Administration, now back about nine out of 10 new home loans.
(Reporting by Margaret Chadbourn; editing by Bob Burgdorfer)
Wednesday, October 5, 2011
Gov't report: Fannie knew of 'robo-signing' in '03 (AP)
WASHINGTON – Mortgage giant Fannie Mae knew about allegations of improper foreclosure practices by law firms in 2003 but did not act to stop them, a government watchdog says.
Similar allegations are the subject of a probe by state attorneys general into how lenders and law firms ignored proper procedures to handle a crush of foreclosure paperwork.
An unnamed shareholder warned Fannie Mae of alleged foreclosure abuses in 2003, Steve Linick, the inspector general for the agency that regulates Fannie, said in a report released Tuesday.
Fannie Mae responded by hiring a law firm to investigate the claims in 2005. The law firm reported in 2006 that it had found foreclosure attorneys in Florida "routinely filing false pleadings and affidavits."
Fannie officials said they told a government official about the law firm's findings in 2006. That unnamed official, who now works for Fannie's regulator, the Federal Housing Finance Agency, said he couldn't recall the conversation, the report said.
On Tuesday, Fannie Mae declined to respond to specific allegations in the inspector general's report. But spokesman Andrew Wilson said Fannie had "immediately addressed" issues raised about law firms back in 2006.
Rep. Elijah E. Cummings (D-Md.), who had requested the inspector general's report in February, said the most troubling findings were that Fannie continued to use law firms even after hearing allegations that linked the firms to foreclosure abuses.
The report shows that "an untold number of borrowers with loans owned or guaranteed by Fannie Mae may have suffered abuses that violated their legal rights," Cummings wrote in a letter to Edward J. DeMarco, FHFA's acting director.
Fannie began using a network of attorneys in 1997 to help handle foreclosures, evictions and bankruptcies. In 2008, the network grew to 140 law firms. And the number of foreclosures in Fannie's portfolio reached historic highs. Foreclosures more than doubled from 2007 to 2008. They grew 50 percent in 2009.
In June 2010, FHFA officials traveled to Florida to study the foreclosure crisis. They found that the mortgage industry was overwhelmed by foreclosures; that the average foreclosure processing time had grown from 150 days to more than 400 days; that lenders were beset by flawed documentation; and that law firms weren't devoting enough time to cases.
The worst practices, known collectively as "robo-signing," led some lenders to suspend foreclosures last fall. And it led to an ongoing investigation by all 50 state attorneys general.
Several states, including California, Delaware and New York, oppose a proposed settlement with the lenders. They complain that the lenders would receive unfair immunity from civil litigation under the deal.
Fannie and its sister company, Freddie Mac, own or guarantee about half of U.S. mortgages. That equals nearly 31 million loans worth more than $5 trillion. And they account for nearly all new mortgages.
The Bush administration seized control of the mortgage giants in September 2008, hoping to stabilize the housing industry.
The inspector general's report says FHFA plans to change its oversight policies by the end of 2012. The report is among several government inquiries into the aftermath of the housing crisis.
A broader report into missteps by Fannie and Freddie is expected this fall.
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