Public Opposition Could Save Fannie Mae, Freddie Mac: Bove

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Public Opposition Could Save Fannie Mae, Freddie Mac: Bove

Fannie Mae

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As is usually the case in politics, there have been two running debates over Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) reform – what should be done and what is most likely to actually happen. Whether the future US mortgage market is regulated by a powerful Federal Mortgage Insurance Corporation, becomes a free market without government regulation (and without 30 year mortgages, most likely), or something in between, it has seemed like a safe bet that Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) won’t be part of the picture.

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There are cases winding through the courts that could certainly win compensation for Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) shareholders, but it’s hard to imagine the courts would try to force Congress to keep the GSEs open for business, and no one in Congress is interested in spending political capital defending institutions whose reputations were so damaged during the crisis.

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Fannie Mae and Freddie Mac reform could become an election issue

But Rafferty Capital Markets VP of Equity Research Richard Bove, who has been in favor of keeping and reforming Fannie Mae and Freddie Mac for some time now, thinks that shareholders have a real chance of changing the debate by turning Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) reform into an election issue.

“[There are] organizations being created that are targeting legislators who are backing these bills,” he writes. “It is being made clear to them that they will lose financial support when they run for re-election and that their actions in writing these bills will be an election issue. It is quite probable that if the threats being formulated are compelling enough, the Congressional bills may be dramatically changed.”

Investors Unite launches this week to pressure Congress

As a follow-up to the Shareholders Respect round table held in February, CapWealth Advisor CEO Tim Pagliara has formed a new group called Investors Unite that will meet with consumer advocate Ralph Nader and other Fannie Mae and Freddie Mac shareholders in Washington DC later this week. So far the Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) debate hasn’t been able to capture the public’s imagination, but if declining home sales start putting pressure on prices over the next few months, it could force a re-evaluation of US housing policy and focus people’s attention on the details of Johnson-Crapo and other Congressional proposals.

Crapo-Johnson, with fairly high capital requirements and a basis point fee to pay for mortgage re-insurance, would permanently add tens of basis points to home loans, and the government’s withdrawal from the housing market would likely mean the return to balloon mortgages, neither of which seems like it would be popular if they became a bigger part of the upcoming elections.

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Michael has a Bachelor's Degree in mathematics and physics from Boston University and Master's Degree in physics from University of California, San Diego. He has worked as an editor and writer for several magazines. Prior to his career in journalism, Michael Worked in the Peace Corps teaching math and science in South Africa.
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5 COMMENTS

  1. It is necessary get out and tell the people that their mortgages will go up at least $1,000 per year for an
    average 200k loan. That is 30,000 in 30 years. The american people doesnt know what is going on because they dont have a clue what Fannie Mae is.

  2. Why did the TBTF banks commit FRAUD on FANNIE and FREDDIE for over 300 billion dollars? Why are the TBTF banks not being pillaged by the GOVT like pirates? The USA GOVT has become corrupt and the courts need to set THIS STRAIGHT! CONSTITUTION is not TOILET PAPER for our govt!! we are not NORTH KOREA!!

  3. Simple fact is FnF are on the mend and making money
    Loans have been tightened up
    And quality of the new loans are now hitting the bottom line.
    If FnF were good for us ( THE AMERICAN HOME BUYER) for the last 45 years , I believe they will be for the next 45 !

  4. If FnF are so bad, Why are all the Too Big To Fail Banks Paying Fines?
    And why is GM still operating? Which GM still owes Me as a Taxpayer!
    And AIG….Etc..Etc…Get real the American Dream Depends On A 30 Year!
    Ps im not rich or too big to fail.

  5. FnF is the best model available. They work well for many years to meet the mortgage needs of millions US households and are working well again now. They ensures liquidity and low mortgage rate. Bad mortgages were dumped to FnF by banks under the conflicting government policy to encourage mortgage support to all (including the unaffordable ?) and to ensure a healthy mortgage market.

    So, (1) can we trust the banks can do a better job ? And, (2), the insurance company will imply a 1-1.5% higher mortgage rate. Is it fair to the new households with good credit standing ?

    Let’s better focus on some regular government reviews to ensure the mortgage market is healthy. IMO.

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