A Wolf in Sheep's Clothing : The Death of Fannie and Freddie

By
Education & Training with (retired) TN LIC# 290452

                                               wolf sheepwolf

Can't you see it coming? Somebody's pulling the wool over your eyes.

Could this attempted government buyout of Freddie Mac and Fannie Mae actually be an attempt by the government to end the privatization of the oversight of mortgage backed securities and merge the two private corporations into one government owned corporation that we call "Ginnie Mae", the Government National Mortgage Association", and thus take control of housing financing?

After all, Freddie and Fannie control over 5 trillion dollars worth of 12 trillion dollars of the total U.S. housing financing market. That buyout would give the government control of the industry, a lions share, and some stalwart control over your property and your investments.

And just what does Ginnie Mae do, you may ask?

Ginnie Mae basically does the same thing that Fannie Mae and Freddie Mac do, but under the watchful eye of the government and the United States Department of Housing and Urban Development, HUD.

GNMA, or Ginnie Mae, supposedly guarantees, backed by the pledges and money of the government, the full and on-time payments of all of the monthly pricipal and interest payments of mortgage backed securities to the registered holders of these investments.

Mortgage backed securities, or MBS as we call them, are issued through the oversight of private investment firms like savings and loans and mortgage bankers and marketed with the assistance of security brokers. These securtities are actually large pools of residential mortgages of a large variety, including fixed rate conventional and hybrid adjustable rate loans, that are guaranteed or insured by the Federal Housing Administration (the FHA), the Veterans Administration (the VA), and the Farmer's Home Administration (the FmHA) 

The pickings are ripe for investors looking for bargains just like the one Bank of America got with that first 2 billion dollar infusion, and just like the one JP Morgan-Chase got by setting a Bear trap.

"But Grandmother!  What big ears you have," said Little Red Riding Hood as she edged closer to the bed.

"The better to hear you with, my dear," replied the wolf.

"But Grandmother!  What big eyes you have," said Little Red Riding Hood.

"The better to see you with, my dear," replied the wolf.

"But Grandmother!  What big teeth you have," said Little Red Riding Hood her voice quivering slightly.

"The better to eat you with, my dear," roared the treasury secretary, Chairman Bernanke, HUD and the President.

And that's the story of how the U.S. government took control of all private property and Fannie Mae and Freddie Mac became Ginnie Mae. 

If this buyout is successful and approved by the Senate is it also intended to produce the gradual demise of the right to own private property in America?

Watch out for the wolf !!!

Posted by
Earth



David Saks


 


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Rainmaker
1,392,492
David Saks
(retired) - Memphis, TN
Memphis

Indeed, a curious factor, Lori. Interesting observation which demands further investigation. I wonder what the time table is for publishing default numbers? Many thanks for your comment. Hope your having a fine day.

Jul 16, 2008 05:33 PM #57
Rainmaker
1,392,492
David Saks
(retired) - Memphis, TN
Memphis

Thanks, Jeanean. Many are bewildered and struck dumb with wonder. Hope your having a fine week.

Jul 16, 2008 05:38 PM #58
Rainmaker
1,392,492
David Saks
(retired) - Memphis, TN
Memphis

Thank you, Diane. It's an arousing situation.

I'll modify the cursor script at some point when I have time.

Jul 16, 2008 05:45 PM #59
Rainmaker
1,392,492
David Saks
(retired) - Memphis, TN
Memphis

Relevant remark, Lane. Thanks for commenting. Nice to hear from you.

Jul 16, 2008 05:51 PM #60
Rainmaker
289,811
Kate Bourland
Marketing with Kate - Redding, CA
Onlilne Marketing Mobile Marketing

David, interesting post and perspective.  If this were a Democratic administration I might agree with you.  President Bush - don't think so.  I'm sure that most of us are following this situation closely.  My take on it is that the Feds are trying to prevent another liquidity crisis based on word of mouth hysteria.  The media isn't helping with their 30 second sound-bytes.  I think that it would be counter productive to have a single source backing mortgages.

Bernake is saying that both Freddie and Fannie are sound, but they won't be if liquidity dries up...that's why the government must step in in the short term.

Jul 16, 2008 07:51 PM #61
Anonymous
Anonymous
Anonymous

Good post David. I'm still new to this business and learning a lot. Reading through the other comments was informational as well.

Michael Carter, Realtor

421 SE Main Street, Suite 201

Simpsonville, SC 29681

www.beachboyrealestate.com

Jul 16, 2008 08:39 PM #62
Rainmaker
1,392,492
David Saks
(retired) - Memphis, TN
Memphis

Political affinity is not mandatory for agreement in this forum, Kate. Neither am I soliciting dollars for RPAC to be distrubuted amongst a partisan venue.

When I consider liquidity two things come into play.

First, it's the ability of a person or a company to retain the ability to convert their assets, their property, their holdings into cash without the inauspicious characterisitic of having endured any loss. Having this type of liquidity usually equates to a good credit rating.

Second, I believe liquidity may be considered some significant feature of a stock holding, some article of commerce, or some formal declaration that serves as a written account of ownership or obligation and is a fact of relevance to finance and investment. The holder has a right to receive interest or dividends from the possession of that investment. Mortgage backed securities will serve for this purpose. Since Ginnie Mae does not trade publicly, and the government has no liability towards the dispensation of dividends to investors, it's inconceivable that publicly traded secondary mortgage entities which engage in the activity of providing goods and services involving the financial aspects of investment strategy would be assimilated. Therein the distinctions reside and the line is drawn.

With the numbers in mind, stocks and market funds are more liquid than real estate because they're easier to move.

I don't tremble convulsively or say 'never again' like some salespeople and brokers do when I'm confronted with negative media reporting. I take the time to investigate and feel vigilant because such reporting is available. When brokers are telling their salespeople at their salesmeetings to ignore the media they're also telling them to ignore the nation and it's concerns about housing.

I'm not a cheerleader for the industry with phony enthusiasm and I love the truth. Some tragically divert it as though it were a challenging mind game. I smile and say "way to go" when fraud is uncovered after the fraud examiners have done their job and the perp shipped away to the slammer, and the victims compensated for their misery and injury, if possible. Many have lost, and are still losing, everything because of despicable and contemptible greed-driven lowlife in the mortgage business working alongside real estate agents, phony buyers with false documentation, bogus appraisals and seedy investors.

I'm doing everything I can to restore confidence in my community, and elsewhere. I say to all real estate professionals "tell the truth", whether or not it's alarming truth representing some dismaying and horryfying fraud perpetrated by industry professionals, or irrefutable positivistic truth substantiating compatibility in opinion and action. 

More than anything else, trust was lost in our industry, and it's the most important and valuable investment of all.

Jul 16, 2008 10:05 PM #63
Rainmaker
1,392,492
David Saks
(retired) - Memphis, TN
Memphis

Thank you, Michael, for your nice comment. Hope your having a fine week, and I wish you much success in the days to come.

Jul 16, 2008 10:11 PM #64
Rainmaker
139,442
Gary Miljour
Starboard Financial - Tempe, AZ
Mortgage Lending for Arizona and California

Real Estate Blog or Conspiracy Theory?

 

Jul 17, 2008 12:37 AM #65
Rainmaker
1,392,492
David Saks
(retired) - Memphis, TN
Memphis

Both.

Jul 17, 2008 12:42 AM #66
Ambassador
1,576,223
Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 800-610-7253 DRE01267479 - Costa M

Scary stuff. It is going to be an interesting time to watch what happens.  Only a bit of nail biting every now and then.

 

BTW, I loved the animation in your picture.  How does that work?

Jul 17, 2008 01:24 AM #67
Rainmaker
1,392,492
David Saks
(retired) - Memphis, TN
Memphis

Thanks, Christine. It's getting weird on the hill. Thanks for the compliment on the cursor. It works when you log onto my blog :-)

Jul 17, 2008 01:29 AM #68
Rainmaker
545,754
Christine OShea
NATIONS - Naples, FL
Helping Buyers & Sellers in Naples and all of SWFL

Great insight and dialog.  The floating head...I thought my laptop was whacking out.

Jul 17, 2008 10:42 AM #69
Rainmaker
1,392,492
David Saks
(retired) - Memphis, TN
Memphis

Thank you, Christine. Nice to hear from you.

Jul 17, 2008 11:47 AM #71
Rainer
1,092,162
Matt Heaton
Timu Corp - CEO, ActiveRain - Co-founder - Bothell, WA

Well I'm not sure there is much of another choice right now.  The GSE's have enjoyed a wierd semi private/semi government status since their creation back in 1930.  The problem is like so many of the other participants in the mortgage market they got greedy levered up, and now are facing the largest corporate failure in US history, which would take down the remaining housing market. 

They've been run more like hedge funds than responsible corporate entities the past 5 years, leveraging themselves up a combined 70x.  Actually that leverage makes any hedge fund or investment bank look pretty sane, and their now sitting on several hundred billion in losses over the next couple years against a regulatory capital base of well under a hundred billion.  And they've been able to do it due to the perceived government guarantee for their debt (implicit not explicit)


What's the options, for two companies that are almost the poster child for corporate irresponsibility and greed, who's failure would demolish the remaining housing market?

Jul 17, 2008 11:56 AM #72
Rainmaker
1,392,492
David Saks
(retired) - Memphis, TN
Memphis

Great to hear from you, Matt !

Fannie Mae managers were responsible for a bucketload of fraud over a six year period and doctored earnings so their execs could pirate millions of dollars in bonuses. That was just two years ago.

Most people have already forgotten the 400 million dollars in penalties that were levied by the Securities and Exchange Commission regulators just a few months ago.

They didn't exercise proper control. CEO Franklin Raines and Chief Financial Officer J. Timothy Howard, were busted and kicked out.

Ginnie Mae's been dancing with Fannie for some time now.

Freddie has always considered three areas of underwriting, whether traditional or automated, and that includes collateral, credit reputation and the ability to pay back the loan. The automated program Loan Prospector may not have come under the scrutiny of watchful human eyes like it should have. Credit reputation and credit scores weren't concomitant when the underwriters were reviewing loans in many cases over the last few years. Now the fiddler's playing a mournful tune. I agree with you, Matt. Greed was the motive behind the reprehensible acquisitiveness and insatiable desire for wealth. 
 
It was also alleged that two transactions with Goldman Sachs screwed up 100 million bucks and that the books were cooked to hide it.

The companies earnings were misstated by nearly 11 Billion Bucks between 1998 and 2004, and paid out nearly 53 million bucks in bonuses during the same period according to the OFHEO allegations.

Maybe they've been run more like hedgehog funds, Matt ! :-) hedgehog

Any strategy used to offset investment risk never eliminated the possibility of future losses for their investors. Although Ginnie's support of the Tandem Plan gave Fannie a lot of confidence with high-risk, low-yield loans. Quite a cushion. One company controlled by HUD and the other issuing common stock as a quasi-government agency. 

They've always been kissing cousins :-)

Hope your having a great week. Wish I could be with you and all the guys in San Francisco next week. I'd have to find someone to feed Max, my piano playing cat. Hope all is well, Matt !

Jul 17, 2008 02:39 PM #73
Rainmaker
1,392,492
David Saks
(retired) - Memphis, TN
Memphis

...correction...53 million in bonuses.

Jul 17, 2008 02:42 PM #74
Rainer
29,614
Andy Laughlin
ConnectRealty.com - Bellingham, WA

Nice picture...haha. Thanks for sharing the insight.

Andy Laughlin

Connect Realty

Jul 22, 2008 12:19 AM #75
Rainmaker
1,392,492
David Saks
(retired) - Memphis, TN
Memphis

Glad you got a nice chuckle from that goofy looking wolf, Andy. Good to hear from you.

Jul 22, 2008 02:43 AM #76
Rainmaker
1,392,492
David Saks
(retired) - Memphis, TN
Memphis

...btw...not a gerbil

Aug 24, 2008 02:11 PM #77
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Rainmaker
1,392,492

David Saks

Memphis
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