Leaked Treasury Memo On Fannie Mae, Freddie Mac Shows Fraud Says Pagliara

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Leaked Treasury Memo On Fannie Mae, Freddie Mac Shows Fraud Says Pagliara

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Leaked Treasury Memo On Fannie Mae, Freddie Mac Shows Fraud Says Pagliara by Chad Truelove, CapWealth Advisors

Winding down Fannie Mae and Freddie Mac, says Goldstein in the memo, is a “bank-centric model” that “benefits larger institutions,” putting the system at risk with lenders too big to fail and raising costs for borrowers from smaller institutions. The memo goes on to state that ending Fannie Mae and Freddie Mac would imperil the 30-year, fixed-rate mortgage and “markets would be subject to greater swings in spreads and liquidity and credit pricing would be more pro-cyclical.” Furthermore, it contradicts Treasury’s public claims that the GSEs would need a capital ratio of 10% by saying the number is actually closer to 3-4%.

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In short, it’s a top official at Treasury making the exact same warnings and capitalization arguments that Tim Pagliara, Investors Unite, many of the nation’s legal and economic experts, and a host of GSE shareholders across the country have been making for years.

Says Tim in a HousingWire article published today (read it here):

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“I think part of what’s going on is that people have some explaining to do, because they need to explain how they said they had to have a 10% capital requirement and their own people said it’s 3%-4%,” Pagliara said. “This isn’t some one-off, it was signed off on by seven people in Treasury including the general counsel’s office. When the private sector is saying that you need 2.5%-5% capitalization and they ridicule and attack you, then you see the inconsistency when Treasury itself is saying 3%-4%.

“We have said all along that any of these plans to get rid of the GSEs put the 30-year mortgage in jeopardy, and they said it doesn’t,” Pagliara said.

The memo does state that under the option of winding down Fannie Mae and Freddie Mac, the downside would be that it would “reduce prevalence of 30yr fixed rate mortgages and predominance of 3yr and 5yr hybrids” among other problems.

“You have to explain to affordable housing people that even the Treasury finds that it would put 30-year mortgages and affordable housing in jeopardy,” Pagliara said.

But he said the memo’s most damning content is that, he believes, it shows a clear violation of federal law in two primary areas.

“One, they knew that FHFA has the ability to end conservatorship and was supposed to be an independent agency. These are smart people. They understood what they were doing,” Pagliara says. “And two, they violated it with full understanding of what HERA was and was intended to do – to preserve and protect the housing system and put it on sound footing.”

Pagliara says that with the money Treasury has already taken out of the GSEs, it could have fully recapitalized Fannie Mae and Freddie Mac at the 3%-4% level the Treasury memo states is needed.

“The GSEs are far more profitable than anyone thought. That’s why they paid $10.2 billion in income tax last year – making them (together) the fourth-largest taxpayer behind Apple, Chevron and ExxonMobil,” he said. “You don’t destroy a profitable taxpaying industry. Why is the Treasury doing this? They have a lot of explaining to do. This is fraud.”

Read the full, 8-page memo below.

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18 COMMENTS

  1. Agree. Also such a system, minus GSE and 30 yr loan, would depreciate home values. Another side effect of getting rid of GSEs and 30 year loan is home prices would fall. The new standards banks would have to adopt would cause a surplus in homes and a lack of qualified buyers that spurs the reduction. We would become a renters society in which the difference between the haves and the have not’s would be more defined. The middles class would lose equity and new buyers of the next generation would never meet the new standards. There is no alternative to GSEs that make any sense. Tweaking what we have maybe but GSEs are the market. Share holders in GSEs. FNMA FMCC, will be made whole when all this is over. They have to be in order to keep housing going.

  2. You’re making a few wild predictions which will prove to be false. Tax credit disappearing, home values depreciating upon sale… Yea, I don’t think you really understand how the economy works. Nice conversation though. Good luck to you.

  3. In the SF Bay Area lease options are on the upswing. The reason for this is because prices are fluctuating wildly. Car loans can go longer because cars are built better and have to provide longer warranties, this enhances the used car market. However, you don’t raise a family in your car and if push comes to shove you can sell or abandon your car without you and your family becoming homeless.
    The appreciation enjoyed by home ownership now is going to be offset when the Republicans do away with the tax credit. Buying a house will be like buying a car. As soon as you buy it the value will begin to depreciate. Unless you have big bucks for upgrades in the future the housing market looks bleak because salaries won’t rise fast enough to support the type of market that corresponded to the 30yr mortgage.

  4. The 30 year loan will disappear because banks can not afford to make them without GSEs to take them off their hands. As it works now the banks make the 30 year deals and then in order to get more money to make more loans they bundle the loans into MBS, Mortgage backed securities, and sell them to FNMA and FMCC which in turn get the money to buy them off banks through low interest rate loans from the Govt. If GSEs leave the market the banks will have to hold 30 year loans and will run out of money to make more loans. Banks who make 30 year loans have to buy the home in order to finance it. That is not cheap and if they had to hold those properties for 30 years they would run out of money to buy the homes to make the loans. If the GSEs leave banks will have to raise interest rates, raise credit standards, increase down payments, and make shorter loans to make enough money to make more loans. Most people don’t realize their mortgages where sold to FNMA and FMCC because they still pay the bank who made the loan. If you have a 30 year loan it is almost certainly backed by GSEs.

  5. I don’t have FB, but I think we might agree in part if I can assume what that article is about, which I would agree with. The GSE’s gave the ability for the 30 yr mortgage to exist. But this wasn’t a good thing really because it also allowed home prices to balloon beyond what they’re worth. Just like how insurance systems allow for medical practitioners and pharmaceutical companies to charge ungodly amounts of money for their services and products.
    So, instead of people paying attention to cost of home, including interest, they looked at if they could afford monthly payments. Income is $3K a month, home is $1K a month=yes, I can afford. But over 30 years, you pay double and triple the amount of the home.
    So the 30 yr mortgage allowed lenders to make trillions out of thin air since they don’t even physically HAVE the money they’re loaning out. It’s highway robbery, esp since they take your home if you don’t pay them money they didn’t technically give you in the first place.

    That being said, the system is so deep rooted, there’s NO WAY it will change unless home prices drop by 75% which isn’t going to happen. You said so yourself, people need to refinance multiple times. This is what banks want… to keep you making payments. That’s how they make money. You think that’s going away? Not a chance. Our entire economy is built around credit. If anything, a 35-40 yr mortgage is going to be the next step. They’re already doing it with cars. You can now get a 6-7 year car loan which wasn’t possible several years ago. So the opposite will happen of what you’re saying.

  6. We are no longer living in the “American dream” society. Unions no longer prevail. I retired 10yrs ago with one of the last retirement annuity plans offered in America. I retired under the old postal retirement system before they started making people invest in Wall St. Those who shifted to 401k’s and money market accounts got burned.
    When homes are sold SC, the mortgage of the person selling the property doesn’t go along with the transaction. Going forward the only way a person will get to keep the same home for 30yrs, without refinancing it numerous times, will be to pay cash for it.
    Read my Facebook page, “Real Estate Crisis or Government Sanctioned Racketeering?”

  7. Your theory is true for a very small percentage of people. Most people are employed until they’re 60+, whether in one job or multiple jobs and stay local. And if someone buys a home and moves, they sell the home to someone else. It’s been happening for decades and will continue like it has been. And anyone who knows they’re going to live somewhere temporary (i.e. military) they rent.

    Usually when someone buys a home it includes plans of staying put.

  8. Actually my logic is that banks aren’t going to give a 30yr mortgage to a person who they know may not be employed for 30yrs. In addition when people change jobs now the usually have to move to another state. How do you maintain a house on today’s salaries, if you live out of state?

  9. I wonder what current CEO of F&F think about this document?? Need some insider doing whistle lower how level corruption went as bad as the bone!

  10. So your logic is that people aren’t going to stay in a home for 30 years because they’re going to change jobs more often? You really didn’t think that through very much did you?

  11. This is corruption gov and continue coward to protect those breaking the law! Yes they can and because they think they are above the law and no one in congress dare to challenge them!

  12. The 30yr mortgage is in jeopardy because the 30yr career is obsolete. People don’t stay on one job for 10yrs any more, let alone 30yrs.
    A new form of home ownership will have to evolve to keep the real estate market affordable for the average person or going forward the majority of the middle class will be renting. Read, “Real Estate Crisis or Government Sanctioned Racketeering?”

  13. Why do they pay income tax… they have no profit. It is all swept into the treasury. Maybe they need to hire some of GE’s tax accountants.

  14. Our whole banking system is a fraud. How else could a Government drive its economy TRILLIONS of dollars into debt in less than 20 years, when there is not enough Gold in the world to back up our ‘debt’? And who do we owe? … Why, private bankers, of course. We are being sold out to the IMF.

    F&F are but a mere blemish when you look at the BIG picture. Our financial woes, and the crash of the housing market were intentional. So are are problems with illegal immigration. We are fighting no-win wars without hope of ever bringing our troops home, since America has bestowed upon herself the appointment of World Police. Where does all of the money come from to pay for all of the BS the government saddles the American people with? A full audit of the Federal Reserve should would be an eye opening sight to see, of that I have no doubt.

    The government needs to get our of private business (like the housing market) and take the power of the purse our of the hands of the private bankers (The Federal Reserve) They work bass ackwards, it appears.

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