Fannie Mae (FNM)
Loading...
Symbols:
FNM Forum Topics
- All Comments on FNM
- General Discussion on FNM
- Paulson in a State of Panic [view article]
- Should I Buy Fannie or Freddie Stock Today? [view article]
- Can the Banking System Handle Huge New Write-Downs? [view article]
- The Greatest Short Sale in History [view article]
- It's All About Guaranteeing Counter-Party Risk [Housing Tracker] [view article]
- Combating Cascading Short Spirals [view article]
- How Should The Federal Government Help Homeowners? [Housing Tracker] [view article]
- Freddie Mac CEO: Home Price Drops Only 1/3 Done [view article]
- Fannie and Freddie Did Not Cause This Crisis [view article]
- 6+ Questions About the Government's Stake In Those Bailed-Out Companies [view article]
- Latest On Hedge Funds, Banks And Bailouts [Housing Tracker] [view article]
loading ...Recent FNM Articles
- Combating Cascading Short Spirals
- Can the Banking System Handle Huge New Write-Downs?
- It's All About Guaranteeing Counter-Party Risk [Housing Tracker]
- Paulson in a State of Panic
- First CDS Bullet Dodged, but Good Luck with Lehman on Friday
- Of October CDS Auctions and Helicopter Ben
- Foreclosure Relief Efforts: Update [Housing Tracker]
- Latest On Hedge Funds, Banks And Bailouts [Housing Tracker]
- Final Prices from Fannie/Freddie CDS Auctions
- Latest Mortgage Trends [Housing Tracker]
- Full List of Articles »
Trading Center
Hedge Fund Jobs
Job Seekers: Search jobs by category, get job alerts by email or live feed, apply online See full list of jobs »
Employers: See all recruitment options, get applications online or by email Post a job »
Fannie and Freddie Did Not Cause This Crisis [view article]
Here's how we get out of this:Plan B: The Mortgage Investment Bill
for Reviving the Economy
by Stan Muse
The Federal Reserve is out of Federal Funds rate options and now the Congress is about to pass legislation which will be the largest bailout bill in the history of the world. Fannie Mae and Freddie Mac are now penny stocks with perhaps over 1000 bank failures yet to come. The American taxpayer will be told that they and their children will be writing big checks to rescue the Wall Street crooks and congressmen that caused all the problems, while receiving nothing in return.
Anyone who has been following recent congressional hearings knows by now that this is unacceptable to Main Street, the voters who will be firing their congressmen for turning the USA into a socialist country. It is also widely believed that this bailout bill may not be embraced by Wall Street because of its onerous terms even if passed. Finally, it will not provide sufficient liquidity for improving the rest of the economy.
A much more effective and fairer way to end our economic crisis is easily attainable. To state it simply, all Congress has to do is to pass a Mortgage Investment bill which allows individuals a one-time option to use some of the funds in their IRAs to pay off their mortgage balance in full, without any penalty, interest, or taxes for doing so. In return, individuals choosing to exercise this option give up their mortgage interest tax deduction for life. This bill could be passed quickly and independently of any other economy-related legislation currently being debated, or included in the current bill. Individuals choosing this option would need sufficient IRA funds to pay mortgage balance in full. The actual payment to the individual’s mortgage company would be done by the IRA managing institution to avoid fraud.
As one senator recently stated, ‘for most people their home is their IRA’. For many others, their 401-K plans hold many trillions of dollars, much of which by now is parked in money market funds or T-bills as mine is. If these IRA funds could be released to pay off mortgages, we could possibly avert, or at least significantly shorten, the economic recession we now find ourselves in. In fact, no other bailout legislation may even be necessary, although more regulatory legislation is certainly needed.
I asked Allan Meltzer, Arthur Segel, and Ellen Zentner to review this proposal and received some positive responses. Ellen said it seemed to be fool-proof and better than a reverse mortgage. In fact, it is a no-brainer for the homeowner with a large 401-K balance, and for the government. The only people who might object, as Ellen stated, are the bankers who want to keep homeowners dependant on them, especially those in the upper-income group. But even the bankers can not want the government to own a large stake in their business for a multitude of reasons.
It makes sense to allow people to use their IRA money, which they earned, to invest in the best and safest investment they could ever make, their home. Presumably they will need a place to live in retirement on a fixed income. It makes no sense for someone with more than enough IRA funds to cover their mortgage balance to loose their home because they lost their job and can not pay their mortgage. It also makes sense because it is not some form of government bailout which rewards the bad behavior of mortgage companies and unqualified borrowers. Instead, it rewards the good behavior of those who have saved and invested in the economy
If only 5 million people chose this option, for an average of only $200,000 each, the result would be $1 Trillion in paid-off mortgages, providing liquidity to the mortgage industry. By executing the option, an individual’s annual mortgage payment would become disposable income to put back into the economy or back into IRA accounts. To the individual, the effect is the same as lowering taxes. If only 5 Million people were able to put back $20,000 per year into the economy, the result would be a $100 Billion per year stimulus package for many years to come.
In my case, with $800K in IRAs and a secure pension, I would increase disposable income by $1600 per month while reducing the IRA balance by only $160K, but saving over $120K in future interest payments. I could retire, which I can not afford to now, and leave my six figure job to someone else. I could also quickly replenish the IRA money used to pay off my mortgage with the extra income.
Adding a further provision to delay receiving Social Security payments for a year in order to exercise the option would be a baby step towards privatization of Social Security. Anyone financially able to exercise the option should be able to delay the payments. For every 5 million people choosing the option, approximately $100 Billion would remain in the Social Security fund. This could fix our problems with Social Security for good.
Some of the benefits of this plan would be to:
• Immediately increase an individual’s or married couple’s disposable income by tens of thousands of dollars each year while enabling them to become debt free, helping families to stay together
• Save homeowners hundreds of thousands of dollars in mortgage interest payments
• Encourage individual IRA savings by many who have never saved
• Allow many people to retire earlier than they otherwise could
• Create demand for housing, reducing inventory, and stopping the decline in home prices
• Stimulate the overall economy, creating and saving jobs
• Not cost the government anything, and actually Increase federal, state, and local tax revenues by eliminating individual mortgage interest tax deductions, without raising tax rates
• Force the banks to sell their good loan assets to cover their bad loan losses, instead of forcing the taxpayer to buy their worst loans, and increase liquidity for new loans to those who need them
• Allow the free market economy to work through the crisis rather than resorting to socialism
• Not increase the national debt nor the money supply as a bailout would do and contribute to inflation
• Allow the individual home owner to the freedom to become their own banker with the money they earn, reducing America’s dependence on bankers, and changing America from renters and borrowers to homeowners and savers
The merits of this simple plan, the Mortgage Investment bill, for saving the economy, instead of trillions of dollars for a Wall Street bailout which will socialize the finance industry, are obvious and would benefit everyone involved. The individual gets more disposable income and a chance to live debt free, the capital markets get needed liquidity, the government collects more taxes and collects them sooner at the expense of the bankers, the housing market gets more demand, and the general economy gets a much needed boost for the next few years.
Democrats should like this plan because they can claim that it lets the wealthy pay for this mess. Republicans should like it because it increases disposable income, which has the same effect the same lowering taxes. The average voter should like it because it addresses all segments of the economy with a huge economic stimulus package, not just Wall Street, and costs nothing while helping to pay off the national debt and potentially fixing Social Security.
Reply
Fannie and Freddie Did Not Cause This Crisis [view article]
Socialism forced on capitalism caused most of the problems. Managing the business quarter to quarter caused the rest. ReplyFannie and Freddie Did Not Cause This Crisis [view article]
Hmmm ! ... and that match had nothing to do with that fire. Nothing. ReplyGRINGO
General Discussion on FNM
YOU HAVE TO BE NUTS TO BUY AFTER FNM DIVIDENDS ELIMINATED ReplyFannie and Freddie Did Not Cause This Crisis [view article]
The question posed - what is the true cause of the financial crisis and how to stop it from happening again. Lots of info in this blog, here’s a try at connecting the dots.The agency’s were not the core cause; instead they were arguably reluctant participants. In the slash and burn capitalism practiced and perfected by bankers here in the US; the cheap money created by the Fed presented the opportunity and the vendors/bundlers of the CDOs were the perpetrators.
The CDO bundler/vendor knew that many subprime loans would default, as did the mortgage brokers. The kool-aid these two sold the unqualified home buyer (aka sucker) was that house prices would keep going up indefinitely, while full-well knowing this to be impossible. Mortgage brokers went gang-busters originating loans they then sold to the CDO bundlers/vendors. That’s the supply side. Mortgage brokers got rich while it lasted.
Now for the sell side. To make the scam work, the CDO bundler/vendor needed a market and a bullet proof story for the buers of these CDOs. Their story to the buy-side suckers was that by creating mortgage-backed securities with various tranches the securities were AAA. The rating agencies complicity was key. Just as the CDO bundler/vendor had the complicity of the mortgage brokers on the front-end or buy-side; on the back-end or sell-side the rating agencies vetted the CDO/vendor’s story. The CDO bundler/vendor raked it in while the naive buyer (aka sucker) bought triple A rate garbage.
As the scam grew additional markets for these CDO’s needed to be found. These Wall Street guys really are greedy. One of these additional markets ended up being the agencies, who jumped on the bandwagon and started buying, bundling and selling these toxic securities. Another market was the hedge funds and the investment banks. Yes, the wise guys who were running the CDO scam started selling the toxic waste to their own institutions.
Of course the smart money didn’t rely on just the rating agencies opinion, they also covered themselves by buying insurance in the form of credit default swaps. This is really where the whole scam broke down, shaking the world economy to its bones. I’m guessing they were all so punch drunk from all the money they were making, but the smartest of the smart forgot about counter-party risk and got caught in their own scam.
The smart aklecs on wall street thought they had a sure thing; making fees bundling and selling CDOs then making money owning these CDOs while protected themselves with default swaps.
How do we prevent such things from happening again? In my opinion this was a scam perpetrated by criminals who should be treated as such.This wasn't all an innocent mistake, we've all been victimized by these scoundrels. We have to realize we are dealing with criminal enterprise and take appropriate preventive measures to protect ourselves in the future.
Reply
Latest Mortgage Trends [Housing Tracker] [view article]
Quick...Snap up real estate in Las Vegas. Reply
Fannie and Freddie Did Not Cause This Crisis [view article]
There were a lot of players in this failures and nobody wanted it to stop.Not the borrowers
Not the lenders and their agents
Not Wall Street
Not the home builders
Not the local governments
Not the state governments
Not the fed government
(because of all those tax $)
But the primary responsibility for all of this imo are our federal
legislators who pushed for easier lending, took lots of campaign money
from most of the above list, and failed to enable proper regulation
of all those more than stupid financial instruments.
There are reasons why Congress is held in such low esteem.
Please remember that when you vote in November. Reply
Fannie and Freddie Did Not Cause This Crisis [view article]
My understanding is that Freddie and Fannie were 100% government agencies until Lyndon Johnson sold them off in order to help pay for the Great Society/Vietnam War. ReplyFannie and Freddie Did Not Cause This Crisis [view article]
User 174242 apparently does not remember the years of Republican domination in Congress, domination made possible thru majority vote. The notion that the Republicans were filled with terror and trembling by the fearsome Barney Frank is more than a little disingenuous. ReplyFannie and Freddie Did Not Cause This Crisis [view article]
October 6, 2008Mark, thank you for your commentary. If you read these comments, would you please clarify, if Freddie Mac (FDMC) and Fanny Mae (FNMA) at their inception (1933) were 100% government agencies, or were they always quasi-government agencies? If the former, what Bill (Law) converted them to Quasi-Government agencies, and when was it passed? Was this part of the deregulation of the Financial Industry? Danka. AFN Reply
Fannie and Freddie Did Not Cause This Crisis [view article]
I notice many comments are totally out of touch with reallity.The problem of Fannie was not that they lend to people who could not afford a mortgage.
The real problem is that Fannie borrowed very large sums of money on which it promised good returns but now cannot perform because Housing prices are collapsing.
Such borrowing was done by everyone in Mortgage business and all of them are in trouble now.
The most important question to ask is who arranged all this billion dollar funding. The answer is clearly the Federal Reserve, Treasury and its afflated Banks which continued to take in large Foreign money from various countries and the corrupted leaders of those countries.
It is very clear that the above instiutions needed to keep this money away from the respective Foreign Governments ($300 Billion from Russia, $1.5 Trillion from China, $600 Billion from Arab etc).
That Geo-political requirement needed America to have some place to invest in. But the growth in foreign economy was so fast that American Industries could not take on more investments. that was the reason for creating suddenly assistance for poor Americans to purchase Homes. Democratic fools were simply used by these American Financial elite. That is also the reason why they cannot afford to have people like the Maverick McCain become President and MAYBE default on Fannie or Freddie.
The most important question is, So why not let Fannie collapse and make all these foreign depositors go Bankrupt.
Why Paulson added word in the Bailout Bill to also guarantee foreign Banks who purchased Fannie's mortgages?
Why no media or political parties bring out this question?
The answer to these questions will show you the real reason for Fannie's problems.
But the answer will also expose America's economic tricks and strategies and also its weaknesses.
A HINT : That foreign money is actually equal to American "Investment" in all those countries. The American Financial wizards need China and Russia to release their currency to be floated on money markets. But they failed to achieve that. The American Financial crisis is the result.
GAME OVER.
Reply
Fannie and Freddie Did Not Cause This Crisis [view article]
Bryan B...I voted for Bush 2x... but I explicitly remember him touting "record homeowner ship" countless times during his tenure.
It goes both ways, if he claims it, I give it to him...
As for Obama, he is up in the polls because the average American is an uniformed, dumb and lazy too busy looking for a hand out.
Fret not, I have a prescription for the above problem for us Americans... it will be here soon. We NEED some hard times to check ourselves, get off our butts and arm the people with knowledge.
With the financial meltdown en route, its time for an attitude adjustment
Reply
Fannie and Freddie Did Not Cause This Crisis [view article]
BryanB says:In a speech on the senate floor May 25, 2006, John McCain said:
"For years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac...and the sheer magnitude of these companies and the role they play in the housing market...the GSEs need to be reformed without delay."
May 25, 2006? Sorry, the damage had already been done; as usual, too little too late.
If McCain had been so concerned for so many years, why didn't he raise the red flag during his campaign in 2000? Since he's been in the Senate for 26 years and if he felt so strongly about the GSE's, he certainly has had many opportunities to bring up the importance of reform.
McCain, like Obama, is just another self serving opportunist who will say anything to further his ambitions.
Reply
Fannie and Freddie Did Not Cause This Crisis [view article]
Very interesting points that should be considered and integrated into any future solutions. BUT the first step in a recovery is to get past denial: The economic situation was not the fault of any single or limited number of people, corporations, agencies, institutions, structures, albeit some may be more "at fault" than others. In the final analysis, the boom and the bust we are now entering resulted from cultural phenomenon when the news media, the businesses in the financial services industry, salespeople of homes or cars or refrigerators and large flat screen TVs, and buyers of football teams for near billion dollar price tags ... all of that and more ... created an environment where today's immediate gratification could be realized without a second thought about the future consequences and obligations. We all lived in a culture that encouraged seizing opportunities for the short-term and disregarding the mid- and long-term challenges. From the start, just like any other cycle, it was just a matter of time until that culture would confront the reality that cycles (down as well as up cycles, fortunately) do not go on forever. So, OK -- we played through this cycle, and now we are starting to ride it down. And then it will find a bottom. And then it will begin to move north again. The questions then become how steep will the decline be? How long will the economy bounce along bottom? Then, when the markets recover, we will be able to make some new mistakes plus some of the mistakes we made in the past, figure out "work-arounds&quo... to deal with the obstacles that current political forces will put in place under some misguided sense that politicians will be able to enact legislation and regulations that prohibit the human's desire to take part in an opportunity to enrich themselves even if only for the short-term, and then these forces will converge to push the market north again. So, what else is new? ReplyFannie and Freddie Did Not Cause This Crisis [view article]
Um... securitization didn't fail to distribute risk across the financial system. It was all too successful in distributing it. Globally. And that's why we're in the *it that we are in. Had it failed, it'd be a few bad apples that went bust (perhaps a few big apples, but a few nevertheless), and we'd move on. Instead we have .... banks in Vietnam writing-off billions of dollars because Joe Redneck can't make his four hundred dollar mortgage payment.There ought to be a law against this sort of thing. Spreading the risk. Reply