Obama says it is time to wind down Fannie and Freddie- let private investors have bigger role

[cali]

Almost five years after taxpayers bailed out mortgage giants Fannie Mae and Freddie Mac, President Obama said on Tuesday that it's time for private investors to take a bigger role in the mortgage market.

Fannie and Freddie collapsed in 2008 before being bailed out with almost $200 billion in taxpayer funds.

But with the nation's real estate market on the mend, Obama said in an address in Phoenix on home ownership that it is time to wind down the two companies and make clear that the days of a guaranteed government bailout are over.

"For too long, these companies were allowed to make big profits buying mortgages, knowing that if their bets went bad, taxpayers would be left holding the bag," Obama said. "It was heads we win, tails you lose. And it was wrong."


<snip>

"I believe that while our housing system must have a limited government role, private lending should be the backbone of the housing market, including community-based lenders who view their borrowers not as a number, but as a neighbor," Obama said.

<snip>

http://www.usatoday.com/story/news/politics/2013/08/06/obama-mortgage-reform-fannie-mae/2624767/

[leftstreet]

1. Privatizing used to be a GOP thing

Guess things have really changed

[LWolf]

38. Obama

expressed admiration for RR and his "transformative change," when we needed to reign in "the excesses of the 60s and 70s" way back in the '08 primaries.

What kind of Democrat doesn't recognize that "transformative change" as privatization, and "the excesses of the 60s and 70s" as progress toward social and economic justice? One that indulges in selective denial. A "centrist," DLCer, "New Democrat," "3rd Way" neo-liberal.

Of course things have changed. That's what happens when Democrats, who are supposed to oppose Republican efforts towards privatization, vote for neo-liberal Democrats who will create Ronald Reagan-style "transformational change" within the party and allow privatization to roll forward unimpeded across the nation.

[SharonAnn]

52. In this case, private lending took the profits and left government (taxpayers) with losses.

It was another example of the banking industry being reckless because they don't have to pay the consequences.

What Obama is saying is that if the banks are reckless, they should pay the consequences.

Fannie Mae and Freddie Mac were great ideas until the banking industry learned how to manipulate them to the banks benefits (and the taxpayers' loss).

Preventing banks from stealing our money is an ongoing challenge.

[Autumn]

2. How much did the banks get in their bailout?

[PowerToThePeople]

6. enough to continue gaming the market large

while the average citizen was losing their job and having their house value plummet.

[Autumn]

7. That's about it.

[Bunnahabhain]

3. NGOs are fraught with moral hazard

and other perils. However, my thought has always been we should examine the stated purpose we have these institutions. As we're trying to move the US more to the left, more to a Euro democratic socialist model, we probably need to rethink some of the sacred cows of US "rugged individualism" and one of those would be home ownership for the masses. Home ownership rates are much lower in many (but not all: Norway is higher than the US) of the Euro democratic socialist countries. It's also not one of those national obsessions like it is in the US with industries built around the dream of home ownership.

Just a thought maybe the whole ethos needs to change. Our sprawl is disgusting and fostering detached homes just encourages it. High density, rental housing would be much better in so many ways.

[GiaGiovanni]

4. So only the very rich should have private homes

and the rest of us should live crammed in tall buildings. Sort of like Hong Kong.

No thanks.

However, I do think that getting rid of Fannie and Freddie is a signal that home ownership is about to become a "for the rich only" thing.

[Bunnahabhain]

11. Is that what I said?

No, of course not. Is responding with the most extreme and unwarranted example your usual MO? And you should really research what you say. Home ownership is about 50% in Hong Kong and about 66% in the US.

Also, if your choice was a conservative US with high home ownership or democratic socialism with between 50-60%, which would you pick? I know which I would pick. Maybe you're on the wrong website?

[GiaGiovanni]

20. That seemed to be the implication if you follow the argument to its logical conclusion

However, I'll take your word for it.

[kelliekat44]

29. No, but it is the ultimate outcome. nt

[Bunnahabhain]

33. So you think

this is how things are in the Nordic Socialist countries? And if so you think US society is a better model than the Scandinavian ones? I'm truly puzzled.

[MotherPetrie]

26. Is that the type of housing you live in?

[Bunnahabhain]

34. I live in the US

and live according to the current US paradigm. I am suggesting we change the paradigm we all live within. Now, if you think the fact I live within the current paradigm is somehow an argument against my point, well, I cannot help you.

It's like everyone here talks about a more progressive society but gets all bent out of shape when someone talks about changing US society to more closely match current models such as the Euro democratic socialist models.

[MotherPetrie]

36. ROFL. Didn't think so.

[Bunnahabhain]

37. ROFL. So this negates what I'm saying?

Of course not. Further, as noted, private home ownership still exists in the Euro social democracies and any straight thinking progressive in the US should want to emulate them, no? Universal health, far superior GINI, high happiness reports, higher pay, better working conditions, state sponsored higher education...this "only the ultra-rich will own homes" I've read here is obvious bull as evidenced by empirical data.

[MotherPetrie]

41. Your telling avoidance of the simple word "no" in response to my simple question amused me.

[Bunnahabhain]

42. Your dwelling on non-relevant to the conversation things amuses me

And if we all just gave binary answers without context or rationale here it would not be much of a conversation. Then again, the word "conversation" is probably mis-applied to most of the exchanges here.

[MotherPetrie]

45. Uh-huh.

[Bunnahabhain]

46. Yup

[liberal_at_heart]

5. ah, I was wonding what would be privatized next.

Last edited Tue Aug 6, 2013, 11:23 PM - Edit history (1)

[ProSense]

8. These are

"ah, I was wonding what would be privatized next?"

...already private entities.

FACT SHEET: A Better Bargain for the Middle Class: Housing
http://www.democraticunderground.com/10023418130

[tkmorris]

19. Sort of. And you know it

Obama himself is the one that suggested " it's time for private investors to take a bigger role in the mortgage market " , as an alternative to Fannie and Freddie. If Fannie and Freddie were completely private entities such a suggestion would be nonsensical.

[ProSense]

21. He was talking about in terms of what these private organizations already engage in.

Obama himself is the one that suggested " it's time for private investors to take a bigger role in the mortgage market " , as an alternative to Fannie and Freddie. If Fannie and Freddie were completely private entities such a suggestion would be nonsensical.

Again, he is moving the government-insured program to a public agency.

Fannie and Freddie are private organizations.

Fannie, Freddie execs score $100 million payday
http://money.cnn.com/2011/11/15/news/companies/fannie_freddie_executive_pay/

Here is the current CEO:

Timothy J. Mayopoulos is Fannie Mae's president and chief executive officer (CEO), and a member of the company's Board of Directors.

As President and CEO, Mr. Mayopoulos is focused on ensuring that the company continues to manage its legacy issues effectively, while driving the company’s contributions to creating a better housing finance system for the future. Under his leadership, Fannie Mae will continue to play an essential role in funding the market, assisting troubled homeowners, strengthening communities, and repaying taxpayers’ investment in the company.

Mr. Mayopoulos brings more than 25 years of experience to his leadership post. He joined Fannie Mae in April 2009 as executive vice president, general counsel, and corporate secretary and was appointed chief administrative officer in 2010. Prior to joining Fannie Mae, Mr. Mayopoulos was executive vice president and general counsel of Bank of America Corporation. Previously, he served in senior management roles at Deutsche Bank AG, Credit Suisse First Boston, and Donaldson, Lufkin & Jenrette, Inc. Earlier in his career, Mr. Mayopoulos was in private practice. He is a graduate of Cornell University and the New York University School of Law.

http://www.fanniemae.com/portal/about-us/company-overview/leadership/mayopoulos.html#

FACT SHEET: A Better Bargain for the Middle Class: Housing
http://www.democraticunderground.com/10023418130

[kentuck]

22. The President didn't say...

...that other big banks sold their "bad" mortgages to Fannie and Freddie, because they were guaranteed by the taxpayers, and that is why they got into such deep trouble. That is what happened.

[jberryhill]

27. They fucked Freddy in our Fannie

I think the point was that it would be better for private investors to have some skin in the game, and not a bottomless pit of risk absorption.

[Egalitarian Thug]

9. What a shock. Another bad republican idea being sold by a nominal Democrat. n/t

[Tierra_y_Libertad]

10. Our "limited government role" appears to be to bail out the Capitalists after they screw us.

[Rex]

25. Yes and reward them for the great screw job with great

jobs working in D.C. right next to the POTUS on his cabinet! Then again, we don't really have a capitalist system. That would imply some kind of fairness. Businesses fail and new 'leaner and meaner' companies take their place. Nope. Not anymore. Not in this plutocracy.

The big fish really is the winner. And they STILL practice 'trickle down' economics like it was written in the Bible somewhere.

[senseandsensibility]

12. I heard Jared Bernstein,a spokesperson for the administration I believe,

say on Martin Bashir's show that he thinks Freddy Mac should be given a bigger role to help low income borrowers. Everybody's not on the same page on this one? As far as I'm concerned, privatization is bad, and of course, I'm far from shocked if Obama is advocating it.

[Trekologer]

13. Fannie and Freddie certainly contributed to the mortgage crisis

By backing the loans that mortgage brokers were writing, they introduced moral hazard to lending. That is, the disincentive to writing bad loans (the potential for loss due to the borrower defaulting) wasn't there anymore because someone else (Fannie/Freddie) guaranteed them.

When it comes to mortgages, the writer of the loan should have more responsibility for it should it turn out to be bad--no more declared income ("no doc&quot loans or "creative financing". That should help prevent the repeat of a 2008-like meltdown.

[Bunnahabhain]

14. Actually, they created the moral hazard

The definition of moral hazard is that the decision maker is immune to downside consequences.

[Trekologer]

15. Whoops, you're right

Thanks for pointing that out.

Fanny/Freddie introduced moral hazard to mortgage lending.

[Bunnahabhain]

17. Cheers, mate!

Been preaching this and so few people either a) want to understand what "moral hazard" is or b) admit it was the NGOs that brought this on.

[kentuck]

23. Right on!

Thanks!

[millennialmax]

16. He just wants to remove the guarantee of a federal bailout if investors fuck up again.

Mr. Obama on Tuesday endorsed the thrust of bipartisan legislation from a Senate group that would “end Fannie and Freddie as we know them.” The so-called government-sponsored enterprises for decades bought and sold mortgages from financial institutions to provide money for the banks to keep lending to home buyers.

Under Mr. Obama’s principles, which he said were reflected in the Senate bill taking shape, Fannie Mae and Freddie Mac would further shrink their portfolios and lose the implicit guarantee of a federal government bailout. Instead, private investors would be most at risk, with the government a secondary guarantor.

“First, private capital should take a bigger role in the mortgage markets. I know that sounds confusing to folks who call me a socialist,” Mr. Obama said, drawing laughs and applause. “I believe that our housing system should operate where there’s a limited government role,” he added, “and private lending should be the backbone of the housing market.”

The president said that any measure he signed into law “should preserve access to safe and simple mortgage products like the 30-year, fixed-rate mortgage.”

http://www.nytimes.com/2013/08/07/us/politics/obama-fannie-mae-freddie-mac.html?_r=0

[rhett o rick]

24. The conservatives must be partying tonight. nm

[Safetykitten]

18. " limited government role" until they need cash. The President gave us a gift on his birthday.

[PoliticAverse]

28. Obama's speech on home ownership (Tues, Aug 6, 2013)

Text:
http://www.whitehouse.gov/the-press-office/2013/08/06/remarks-president-responsible-homeownership

Video:

[DiverDave]

30. like THATS going to help

Thanks just privatize everything, thats what your masters want.

Yeah, go ahead and alert, I care not

[Trekologer]

31. Fannie and Freddie are already private

They're private companies: Federal National Mortgage Association (Fannie May) and Federal Home Loan Mortgage Corporation (Freddie Mac). Both are publicly traded companies so you could buy shares in either of them, if you so desired.

Both have important roles in the economy. They buy mortgages from banks and other mortgage lenders then sell them as investment instruments. The funds that go back to the original lenders allow them to write more mortgages. This cycle of funds is a good thing; it means that funds are available to qualified borrowers.

[HoneychildMooseMoss]

44. Fannie Mae, at least, isn't a "private" company in the strictest sense

From Fannie Mae's website:

"We have been under conservatorship, with the Federal Housing Finance Agency acting as conservator, since Sept. 6, 2008. We also have entered into a senior preferred stock purchase agreement with the U.S. Department of the Treasury pursuant to which Treasury has committed to provide funding to us under specified circumstances. "

http://www.fanniemae.com/portal/about-us/investor-relations/index.html

[Trekologer]

56. That's because the government had to bail them out

Prior to then, they were both mostly private. I say mostly because they always had the federal government backing them.

The larger point is that restructuring the way Fannie and Freddie operate (which I think is a good thing which should have been done long before) isn't privatization.

[LondonReign2]

32. Excellent, another Republican approved plan Obama is jumping on board with

Master Negotiator again stakes his initial position far to the right, looks for additional opportunities to compromise from there.

[Harmony Blue]

35. The Obama Adminstration has gone off the rails

[Safetykitten]

48. As if they ever had rails.

[woo me with science]

39. There's a new one every day.

[ProSense]

40. Is that a Trojan Horse? n/t

[darkangel218]

54. No, its a trojan bunny.

[Nye Bevan]

43. Good. Fannie and Freddie's risks are borne by the taxpayer,

they benefit from an implicit taxpayer subsidy, but they are private entities so all of their profits go to private investors. Countries like the UK manage perfectly well without Fannies or Freddies.

[cali]

49. Not good. they are not strictly private and the UK is a terrible example to use

http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/9856095/Home-ownership-falls-to-lowest-level-since-1987.html

http://en.wikipedia.org/wiki/Freddie_Mac

[ProSense]

50. It's private. Government entities do not trade on the stock market. n/t

[cali]

51. not wholly private. sorry

GSEs are not the same thing as private corporations. It's a public/private hybrid. No matter how you try and twist things, that's just a fact.



http://www.cbo.gov/publication/21992

http://en.wikipedia.org/wiki/Freddie_Mac

http://home.howstuffworks.com/real-estate/mortgage16.htm

[ProSense]

53. The first link is about the bailout arrangement.

The entity is private and was taken into receivership, which is exactly what happened with AIG.

From the link:

Four decades ago, Congressional charters set up Fannie Mae and Freddie Mac as government-sponsored enterprises (GSEs)--privately owned financial institutions established by the government to fulfill a public mission. The two GSEs were created to provide a stable source of funding for residential mortgages across the country, including loans on housing for low- and moderate-income families. Fannie Mae and Freddie Mac carry out that mission through their operations in the secondary mortgage market. They purchase mortgages that meet certain standards from banks and other originators, pool those loans into mortgage-backed securities that they guarantee against losses from defaults on the underlying mortgages, and sell the securities to investors--a process referred to as securitization. In addition, they buy mortgages and MBSs (both each other’s and those issued by private companies) to hold in their portfolios. They fund those portfolio holdings by issuing debt obligations, known as agency securities, which are sold to investors.

The government involvement was regulatory. They are privately-owned.

From the article posted here (http://www.democraticunderground.com/10023422421)

Both Freddie Mac and Fannie Mae are required to pay everything above $3 billion to the Treasury in return for taxpayer aid under existing bailout terms.

The two companies have paid nearly $132 billion in dividend payments. Freddie expects to pay the Treasury the $4.4 billion dividend payment by September, bringing Freddie's total to roughly $41 billion as the amount of dividends it will have paid to the Treasury. The company has drawn $71 billion in federal aid, which leaves taxpayers on the hook for about $30 billion.

Prior to receivership status, these companies were failing just like the banks that they were linked to.

[Nye Bevan]

55. "U.S. Homeownership Rate Falls to Lowest Since 1995"

The share of Americans who own their homes was 65 percent in the first quarter, down from 65.4 percent a year earlier and the lowest level since the third quarter of 1995, the Census Bureau reported today. The vacancy rate for rented homes dropped to 8.6 percent from 8.8 percent a year earlier, while vacancies for owner-occupied houses fell to 2.1 percent from 2.2 percent.

http://www.bloomberg.com/news/2013-04-30/u-s-home-vacancies-fell-in-first-quarter-from-prior-year.html

And "private-public hybrid" essentially means that the private shareholders reap the rewards while the taxpayers bear the risks and stand ready to bail them out.

[L0oniX]

47. Oh FFS. Maybe I need to burn my Dem registration card cause what I got for my vote isn't a Dem.