Fannie Mae: Leading Civil Rights Advocates Urge Obama To “Recap And Release,” While Stegman Stands Firm

Fannie Mae: Leading Civil Rights Advocates Urge Obama To “Recap And Release,” While Stegman Stands Firm

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Leading Civil Rights Advocates Urge Obama To “Recap And Release,” While Stegman Stands Firm by Amanda Maher

It’s becoming increasingly clear that housing finance reform isn’t going to happen any time soon. With the U.S. Treasury sweeping all of the Fannie Mae and Freddie Mac profits, investors are growing inpatient. With FHFA making piecemeal, and often unilateral, changes, housing advocates are growing inpatient.

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Last week, Obama advisor Michael Stegman told a group of mortgage bankers that the administration plans to keep GSEs under government conservatorship instead of releasing and recapitalizing as investors and housing advocates alike have urged.

“The Obama administration wants to transition to a better system, one that provides broad access to housing supported by a sound and robust mortgage market, without exposing taxpayers to another rescue,” wrote Antonio Wise, advisor to Treasury Secretary Jacob Lew, at the time.

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In response, the National Community Reinvestment Coalition (NCRC), National Association for the Advancement of Colored People (NAACP) and the League of United Latin American Citizens (LULAC) wrote a letter to President Obama on Thursday expressing their deep concern for the lack of reform to date, and urging, instead, for the “recap and release” of Fannie Mae and Freddie Mac.

“We all recognize that important issues remain with regard to their corporate governance structure, the federal guarantee and the size of returns at the Enterprises,” the letter stated. “However, we also see certain political realities in front of us: there is no consensus in Congress around comprehensive housing reform, and a new Administration with unknown housing policies is on the horizon.”

They continued: “Collectively, we have grown increasingly uneasy about the uncertainty that these political realities raise.”

Given these political realities, the group urged President Obama to reconsider the Administration’s positon on recap and release of the Enterprises—Enterprises that provide critical access to mortgage credit for working families and minority communities.

NCRC President and CEO John Taylor reiterated that these civil rights’ advocates do not agree with those who believe Fannie Mae and Freddie Mac should be dismembered altogether. Instead, “the most sensible path forward for the housing finance system is to recapitalize Fannie Mae and Freddie Mac , take them out of conservatorship, and to build on the reforms of strong supervision and oversight of the Enterprises started in 2008.”

Taylor did, however, lash out at Congress by pinpointing blame on legislators for not having established a clearer, more coherent plan for GSE reform.

Fannie Mae and Freddie Mac have been in FHFA conservatorship since September 2008, after receiving a taxpayer bailout to the tune of $187.5 billion, which has since been more than repaid. Under HERA, the Housing and Economic Recovery Act that initiated conservatorship, government control was intended only to be temporary. Seven years later, little progress has been made toward housing reform and there’s no obvious pathway forward. What that means, which advocates rightly fear, is that taxpayers would shoulder the cost if the GSEs were to need yet another bailout down the road.

Appearing dissuaded, Stegman reiterated Thursday afternoon that the Administration will not bend to “the increasingly noisy advocates of GSE release.” He states the release while the GSEs flawed charters were still intact would do taxpayers a disservice; instead, “We should pursue more comprehensive approaches to reform such as those that members of Congress have introduced over the past two years…or build on bipartisan agreements,” Stegman said.

The problem remains, however, that though Congress continues to introduce reform measures, all such measures remain gridlocked by legislators who are all but counting down the days before a new administration comes to the helm. And as the civil rights advocates noted, it’s anyone’s guess what the priorities of a new administration will be; it could be years before meaningful reform happens. In the meantime, taxpayers and investors are forced to stand by idly as FHFA chips away at changes that – absent of broader reform – continue to have little impact.

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I have a Masters from Northeastern University and a BA from Boston University. I am currently the Senior Economic Development Specialist for the City of Somerville. Prior to that I was the Senior Analyst for the Initiative for a Competitive Inner City, and a Real Estate Paralegal. I am a licensed Real Estate Salesperson from the Commonwealth of Massachusetts.
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  1. I do agree that they lobbied beyond what was right in the past but those guys are long gone and the culture changed. They have enemies from those days. They also have enemies from the other side of policies forced on them even though that part was unavoidable. I am a student of corporate law and investigating the GSEs.

  2. Even if they didn’t need a bailout, which I disagree with, they were treated, and operated as if they had the guarantee. In fact, they went out of their way to remind everyone of their relationship with the federal government. It’s like if you went for a job at the teamsters union hall and told the boss that sure your uncle was Fat Tony the notorious mobster, but you insist that they treat you like just one of the guys.

    How was the bailout political based? You think they had enemies in the government?

    Listen, I don’t have a dog in this fight, or own stock. I’m completely independent, I’m just describing the situation as it stands. Why are you such a big GSE (Government Sponsored Enterprise) supporter? It sounds like you owned stock and you feel like your property has been taken.

  3. Show me a government guarantee. It does not exist. If you are talking about a bailout then look at the forensic accounting. They did not need a bailout unlike the private banks. The bailout was a political based transfer that will be corrected by the courts. Most of the bailouts were private banking so what is your point about this guarantee? So far you have not provided anything but rhetoric. The charters will prove to be in good standing soon enough. We shall see. Freddie would not have a loss if the Treasury was not stealing all the profits. Also it is just a book loss since they hedged against the stealing of profits. If UST were not stealing the profits Freddie would not have had to hedge and would have 2.3bln profit. Freddie did what they had to do to protect from UST. Nice try, but your rhetoric does not work with me.

  4. The banks have to compete with each other, it’s only the GSE’s with tax payer backing that have no competition. As part of the government they can never go bankrupt!

  5. Anything backed by the government guarantee isn’t free market. It doesn’t matter what the charter said, its what everyone presumed, and as it turned out, presumed correctly, that the government would bail them out. Freddie was created as competition for another crony capitalist creation, Fannie. That expectation you mention that the US will protect bond buyers allows the to borrow at rates unavailable to real businesses and so they can always beat any real business. It’s like a cow competing for food with a deer, the big fat slow cow has the farmer protecting him. I don’t know what you mean by saying that the bond buyers will expect that any new system will be just like the old one- risk-less. I suppose it’s a nice wish, but it’s not reality, I wish I has a guaranteed job, I with I could live forever, people have a lot of unreasonable wishes that ultimately collide with reality. There is always a market for bonds, it just depends on the prices. China will suffer the same problems if they follow our mistakes in residential housing, in fact, you could argue they’re already suffering from the policies they’ve put in effect. Our senators are mostly corrupted by the money from the real estate industry and don’t advocate for the long term economic well being of the country. Now we have a small number of them that are standing up against crony capitalism like getting rid of the GSEs and the export-import bank, and all those old constituencies that benefited from that corporate welfare are wondering what happened to their world.

    By the way , Freddie is already losing money, 2015 3rd quarter loss and will need money FROM the tax payers.

  6. The GSEs are free market. That is why and how they were originally set up. Check their charters if you don’t believe that. Also the taxpayer government guarantee is just rhetoric. The guarantee was removed more than 20 years ago and Freddie Mac was formed for the purpose of free market competition. Check the accounting and you will find nothing for funding or any word of this guarantee. There is no guarantee but there is the expectation from bond buyers that the US will protect the bonds. They will expect that in any reformed market system and that is another huge reason to keep the system. If you do not back the bonds there is not enough of a market for them. China knows the US might mess up and they are jumping at the chance forming their own copy of the GSE system. China only needs to clean up corruption to gain bond buyer comfort which they are doing now. Xi is trying hard to take the bond market from the US. He will succeed with ease if the US kills the GSEs. Our senators are only people and really do not fully understand the system. They are just following politics instead of protecting national interest.

  7. It’s freaking un-American to have the tax payer backing up a “private” company. Crony capitalism at its worst. How does my answer support why they should be able to go do what they did again, only this time with an even more explicit tax payer backing? Nothing in the Constitution says the government should subsidize the home loan, building, and selling industries. Consumers don’t benefit because it creates inflation in prices that offset the whatever benefit from cheaper rates.

  8. Other advanced countries live without this level of involvement of the government in housing finance. The 30 year mortgage will persist, I’ll give you one, but you have to pay the REAL cost, not just pass it off on the tax payers whenever there’s a bust.

  9. If you would research just a little bit of what the others are showing, you could not rightfully argue your point. The GSEs never needed a bailout. It was forced on them just like all the other political motivated funding. If you think that a private company (which is what the GSEs are) would not have been subjected to politics, then just look at the reason reform bills are failing. Congress wants any private company to support those programs. Then look at Those programs and you will find they did not cause the crisis anyway. It was the private banking practices which caused the crisis. Those loops have already been closed and reform complete. Now time to release the GSEs.

  10. You must be corker. Nobody else could be so misinformed. I guess you are just out to raise steam. Funny how your own answer is exactly why Fannie and Freddie should be released.

  11. Thanks for the long thought out response. Yes, those companies which wouldn’t have existed today without their bailout should unfortunately be phased out and shut down. That would leave the better run concerns (Ford, etc.) to the bounty they rightfully deserved by being more careful in their actions during the years leading up to the bust. To do otherwise is to reward the fool hardy and punish the prudent.

    The GSE’s are just another subsidy that benefits mostly its owners and management and not home buyers because the degree to which they reduce the cost of credit, they increase the price of those houses since all buyers receive the subsidy and bring their bid to the marketplace. There are various studies that posit such.

    The GSE’s used their substantial political influence to resist efforts of regulators to reign in their risk taking. They participated in subprime lending buy purchasing those MBS for their controversial “retained portfolios”. Their own cheap and easy credit contributed to the expansion of the bubble.

    The rating agencies were certified by the government as the only ones that could legally rate these MBS that were subsequently put into people’s retirement funds as AAA.

    They’re too dangerous now. They’re like a wild animal that’s tasted human blood, there is nothing left to do but to put them down.

  12. Why has the government put a muzzle on Fannie & Freddie? And thrown a massive wet blanket over discovery and depositions in the court cases? And denied NY Times access to any of the evidence? Putin shot a few journalists and took over the press in Russia to eliminate any investigative journalism. Our press has been muzzled as well – as Gretchen Morgenson of NY Times said, access journalism is denied to those who question the US government too closely.

  13. There are many views on this, but check the summary of the FCIC inquiry which investigated the causes of the crisis in exhaustive detail:

    The GSE’s were not one of the root causes. But the TBTF banks who covet the mortgage business without competition were one of the leading causes.

  14. Austrian, respectfully disagree. If so, every one of the TBTF’s, Chrysler, GM, and AIG all need to be phased down and shut. Because they all received explicit government backing in a time of extreme crisis. The big banks and the banking system cannot exist without government backing.

    The GSE’s perform a critical role in housing finance and make 30 year affordable mortgages, and thus home ownership, possible for tens of millions of Americans.

    The GSE’s did not need taxpayer bailout in 2008, but Paulson and the Wall Street Treasury needed to use the GSE’s to help clear the balance sheets of the TBTF’s who held crushing amounts of poor quality “non-conforming” loans.

    The US does not nationalize public companies, and the GSE’s had been sold off to private shareholders in the 1970’s to clear their debt off the government balance sheet. Then in 2008 Paulson nationalized them, and in 2012 Geithner made a unilateral contract between Treasury and FHFA to expropriate all after-tax profits into Treasury.

    Extensive interviews and evidence and the conclusions of the FCIC inquiry show the GSE’s were not a leading cause of the recession, but that the Big Banks made ill-advised loans, the bank regulators did a poor job of oversight, and the rating agencies did a poor job of rating the poor quality loans.

    Regardless, it is time to end the “temporary” conservatorship after 7.25 years and release & recap Fannie and Freddie so they can build a healthy balance sheet once again.

  15. Thanks, but I knew the easy answer. It’s the underlying answer I’m looking for. In the past, Foreclosures were brought to a halt in Florida for legal reasons… auto signing etc. The old Real Estate rule still applies… If you pay you stay… If you don’t you won’t. Do you think maybe no one is not paying? Me either.

  16. Easy answer- politics. They’ve always been part of the government and there is no reason we should expect them NOT to be used for political purpose.

  17. They were one of the root causes. They got caught with their hand in the cookie jar. Now we need to finish them off for the good of the country.

  18. Paul, they are too dangerous to be released now that they have been proved to have explicit backing of the taxpayers. They need to be phased out and shut down.

  19. Does anyone know why Fannie has stopped foreclosing in Florida? In Bay county there has been very few foreclosures this year and last month …NONE. That’s just not normal.

  20. Paul, I agree that FNMA and FHLMC must be released, however now is not the time, the Obama administration has not demonstrated success on economic issues and the next administration is more likely to be a better option. Additionally, FNMA and FHLMC alond with banks through CRA wee coerced too aggressively to expand homeownership in “underserved” communities, when it is now proven, too many of those borrowers were undeserved instead. The freemarket, even if it missteps, is better than government attempting to pick winners and losers in housing finance by policy decisions.

  21. Irresponsible stonewalling by Stegman. Fannie and Freddie were the foundations of American homeownership for 80 years until they were dragged into a hostile takeover in 2008 and used as a backdoor bailout of TBTF banks who held hundreds of billions in ill-advised mortgages. TBTF loans defaulted at 3x the rate of FnF loans, yet Stegman continues to paint FnF as the villians. Untrue Mr. Stegman.

    Fannie and Freddie helped tens of millions of Americans own homes and build equity. Now you are calling to take that away? The noisy chorus from the peanut gallery should be silenced because you find the truth inconvenient? No sir.

    The largest seizure and forfeiture in American corporate history cannot be allowed to stand. The taking of all after-tax profits and draining of all capital cannot be allowed to continue. It is far past time to release and recap Fannie and Freddie.

  22. It is illegal taking of private property and unconstitutional. Do you really think this should be allowed ? And, think about those people holding Fannie and Freddie shares at $80 in 2008. Should they be punished ?

    Clearly, Fannie and Freddie are not the root cause to the housing crisis. They are the victims. Bad mortgages were dumped to them. And, the current model has been proven for many years to ensure liquidity and low mortgage rates for millions US households. According to some latest analysis, they cooked the book to put Fannie and Freddie into Conservator-ship. A better alternative is that Treasury executes the 79.9% warrants to raise $200B to form a Housing Reserve Fund to protect against next housing crisis.

  23. The Government has found an excellent source of revenues. Why should the Government give it up? If they give it up, they would have to find another source to finance their excesses. There are not that many shareholders in Fannie and Freddie. Best to ignore them even if their claims are valid. It’s always possible for the Government to change the law to disadvantage them shareholders if they complain too much.

  24. It amazes me that the administration doesn’t use this as a reason to do the right thing here rather than be killed in discovery. The fact is that the GSE’s never needed a bailout but all the TBTF banks did and admitted that they knowingly misrepresented and sold their bad debt to Fannie and Frddie. Potus made the GSE’s take loans they never needed to buy all this bad debt or the banks would have been stuck with it. What POTUS didn’t anticipate is that they would pay back the monies and live to tell the tale. In their ultimate greed they decided to keep all their profits by the sweep. Potus and the FHFA make the MOB look like compassionate lenders by comparison to the way they have dealt with the GSE’s.

  25. Exactly… banks will have us back to 15% for home loans with Freddie and Fannie gone Mr President! Put some simple rules in place and make freedie and fannie good again and sell the 80% you stole from them…

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