Fannie Mae, Freddie Mac Senate Vote Delayed Amid Concerns

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Fannie Mae, Freddie Mac Senate Vote Delayed Amid Concerns

Fannie Mae

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The US Senate Bankine Committee indefinitely delayed a vote to dismantle Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) amid disagreements between Democrats over the measure and a mounting campaign to keep the mortgage buyers alive.

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A television advertising campaign, notably blasted commercials on cable channels such as CNBC touting the fact that, despite the 2008 financial crash, the corporations that purchase mortgages from banks repaid all the money the government lent and then some – all with a Madison Avenue glitz that welcomes the dawn of a new day on America.

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The Johnson-Crapo bill currently considered in Congress would replace Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) over five years with federal insurance for mortgage bonds that take effect only if private investors were wiped out, a Bloomberg report recently noted. Under the bill, current shareholders of Fannie Mae and Freddie Mac get in line behind the US government in getting any compensation from the unwinding.

Democrat Miller wonders if investors will “get mugged again?”

Democrat dissenters, however, see through the façade and point to the Wall Street lobby.  “There is a glaring problem with proposals to dismantle Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) and “bring private capital back” to the mortgage market: Investors got mugged once and are not likely to walk down the same alley again, former Democratic Congressman Brad Miller wrote recently in The Hill.  “From 2002 to 2006, Wall Street banks overtook Fannie and Freddie and issued the majority of mortgage-backed securities. The market for “private-label” mortgage-backed securities, the securities issued by Wall Street banks, collapsed in 2007 and remains comatose. In 2013, Fannie and Freddie issued 99 percent of new mortgage-backed securities.”

Democrats appear weary that Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) will be an easy dumping ground for Wall Street’s toxic garbage and will be left holding the bag once again.

“The bank that issued the securities hired the trustee, usually another bank, which hired the servicer, which was usually a subsidiary of the bank that hired the trustee. It was a cozy arrangement for everyone but investors,” Miller wrote, representing one voice on the issue that advocates changing the system to eliminate conflicts of interest. “Trustees, not investors, had the legal right to demand that Wall Street banks buy back mortgages that were not what the banks promised investors. More than a third of the mortgages that backed many securities were bad loans, which resulted in enormous losses to investors.”

The bill has bipartisan backing of six Democrats and six Republicans on the 22-member committee, and needs more support.

“While I do not relish the idea of a short delay, I am pleased that a number of senators believe that with just a short period of additional time to consider it, they will have the opportunity to productively join us,” the bill’s sponsor Crapo said at the hearing.

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Mark Melin is an alternative investment practitioner whose specialty is recognizing a trading program’s strategy and mapping it to a market environment and performance driver. He provides analysis of managed futures investment performance and commentary regarding related managed futures market environment. A portfolio and industry consultant, he was an adjunct instructor in managed futures at Northwestern University / Chicago and has written or edited three books, including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008). Mark was director of the managed futures division at Alaron Trading until they were acquired by Peregrine Financial Group in 2009, where he was a registered associated person (National Futures Association NFA ID#: 0348336). Mark has also worked as a Commodity Trading Advisor himself, trading a short volatility options portfolio across the yield curve, and was an independent consultant to various broker dealers and futures exchanges, including OneChicago, the single stock futures exchange, and the Chicago Board of Trade. He is also Editor, Opalesque Futures Intelligence and Editor, Opalesque Futures Strategies. - Contact: Mmelin(at)www.valuewalk.com
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2 COMMENTS

  1. Originating lenders, (i.e. banks), and congressional policy both compromised underwriting standards. Fannie and Freddie were not the cause of the sub prime crisis. This bill makes no sense. It’s like an unscrupulous mechanic fixing the only working part of a broke down car.

  2. Just to set the record straight I am not an affiliate to any political party, this has nothing to do with Democrats or Republicans. I am a common shareholder of Freddie Mac stock.

    I have done a ton of research on the two largest money making corporations in the world, Fannie May and Freddie Mac. The federal government owns 79.9% of both of these GSE’s (Fannie May & Freddie Mac) and has been collecting all of the profits since 2012, minus a very small capital cushion, for operating expenses.

    If certain politicians get there way these two once publicly held corporations by the people, will no longer exist. The federal government wants to replace them with one federally owned insurance company to insure trillions of dollars of mortgage loans. This will still leave you, the US taxpayer, on the hook to pay the bill on the next housing collapse of the future. They say the federal government would be separating itself from the mortgage industry, this is 100% lie. Instead we could make specific changes to these two GSE’s without upsetting the balance to the housing market, which is just starting to get back on track from our worst recession/depression ever.

    Face it folks, the US government will always have to be involved in the housing market one way or another, it’s just too BIG. That means you the taxpayer are also involved in the housing market. We are the people, of the US government. With that said, you the American citizen (poor, middle, and rich) should have every opportunity and privilege to purchase a home for your family and self.

    If you are reading this, you probably have a good idea of what has been going on with these GSE’s. If you haven’t there is plenty of info on the internet, pros and cons, statements and facts, truth and lies, take some time to research it. Fannie and Freddie have served us and our ancestor’s just fine for the last 70 years and these two companies are working just fine again today. I will say this, from my research and understanding if we lose Fannie and Freddie we will be right back to where we started in 2008 and we all know what that was like, a nightmare!

    So if you are connected to Fannie or Freddie either thru an investment a mortgage or you just know someone who is, you need to VOTE AGAINST every politician (Democrat or Republican) in the upcoming elections who want to dissolve Fannie and Freddie and bring this country into another economic disaster. We cannot overcome another 2008 crises. This especially means a NO vote for Johnson, Crapo, Capito and all the other politicians backing these individuals same agenda.

    People, this may not affect you personally right know but I will guarantee you all, that if we overhaul our housing system the way certain politicians (not all of them) and rich bankers want to, the poor and middle class will be out on the streets, literally.

    Thanks for reading this, please pass it on to someone else who cares about our country.

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