Monday, January 4, 2010

A Very Green Christmas for Fannie and Freddie

A Very Green Christmas for Fannie and Freddie
Bruce Bialosky
Monday, January 04, 2010

The decorated tree adorns the living room, the stockings are stuffed with care, the milk and cookies are set out for Santa and the newly-cleaned chimney awaits his arrival. If Santa Claus did not make an appearance at your house, he certainly did at the home of Fannie Mae and Freddie Mac, the two quasi-governmental entities responsible for most of the home loans in America.

These two entities, which together own or guarantee over one half of home mortgages, and which had previously been injected with a $111 billion bailout, received an unexpected Christmas present from the Obama Administration: an executive order, issued in the dark of the night, when everyone was tucked into bed and dreaming of gingerbread and Playstations. The Treasury announced they were eliminating the $400 billion limit available to these two entities – in essence giving them license to fritter away as much money as they want while the American people (and their grandchildren) pick up the tab.

By announcing this while Americans were focused on an important holiday, the Obama Administration performed a marvelous sleight of hand by burying the story. It couldn’t be found in the New York Times, the Washington Post, or on CNBC. If you searched any of their websites, you might have found a link to the story on another website, but regular readers would have had no clue about this significant policy change, put into effect purely by Presidential fiat. The only major publication that mentioned it was the Los Angeles Times, which buried it with one sentence in a related article.

This announcement comes just as major banks are starting to repay $68 billion they received from the TARP program; in fact, over half of the TARP money has already been returned. The banks have been anxious to get out of the grasp of Treasury and the burdensome operating rules that accompanied TARP money.

The story gets even better. The top executives are in line to receive $6 million compensation packages for 2009. Apparently, the fact that Fannie Mae lost $56.9 billion and Freddie Mac has lost $14.1 billion in the first 9 months of 2009 did not stop the Obama Administration from approving these payments. The Treasury claims that the compensation meets the guidelines set out by Kenneth Feinberg, the Pay Czar; however, it appears that the minimum salaries of $900,000 far exceed the $500,000 limit that Feinberg had previously established.

Compensation of Fannie and Freddie executives has been suspicious for a long time. Typically, executives would be given huge pay packages, and then funnel some of the money back to their favorite politicians to impede the oversight process. Franklin Raines and James A. Johnson, two directors who received enormous sums of money, ran Fannie Mae into the ground only to be rewarded by the Obama Administration until political pressure forced them into private life.

Skepticism abounds as to why the Obama Administration would make such a move when we already have a $289 billion commitment for additional funding to underwrite losses from the twin entities. Treasury Secretary Geithner claimed that they just wanted to stabilize the mortgage market, but, if this was of such great importance and urgency, why was it done so secretively?

What seems to be missing is major reform of the lending practices. There’s no evidence that they’ve become more vigilant in their loan procedures, or more attentive to the credit-worthiness of the borrowers. In fact, it seems pretty clear that they have resumed their lending habits of old.

Proportional fault has never been placed on Fannie Mae and Freddie Mac for the subprime loan crisis.

Because these entities have been protected by Barney Frank in the House and Christopher Dodd in the Senate, the two lenders have escaped the kind of brutal public scrutiny visited upon banks and other lenders. While bankers have been on the hot seat and skewered by late night comedians, the people who run these behemoths have escaped unfazed. If the American people knew that close to $100 billion of our money will be lost by these two in 2009 alone, they might be assaulting their elected officials and calling for heads to roll.

Knowing these facts, it becomes clearer why Obama let this announcement be made by Santa Claus. Everyone was too busy waiting for their presents to realize the country may be taking another huge financial hit – again with very little adult ….

Dear Bank of America, I'd Like to Schedule a Default
Austin Hill
Sunday, January 03, 2010

Dear Bank of America;

Hi, it’s me, your customer Austin. I’m writing to schedule my mortgage default.

That’s right, I’m ready to schedule my mortgage default. Does that sound strange?

Well, believe me, Bank of America, I had hoped that our relationship wouldn’t come to this. But after months of trying to do business with you, I’ve decided that it’s probably in my best interest to just, you know - “walk away” from my mortgage.

How could it ever be in anyone’s best interest to default on a mortgage? And why would anyone ever want to default on a mortgage?

Well, here’s the deal: I have one of those now-famous “Option ARM” loans on my residence – the interest rate is adjustable, and the loan provides optional payment plans. And yes, Bank of America, you inherited my loan when Countrywide Lending went down the tubes in 2008, and you merged your company with theirs.

And here are some other details about me, Bank of America: I am fortunate to have a great job with a solid income, and I work under a long term employment contract. While my full time occupation is being a daily talk show host, I am also a writer and a public speaker, so I have multiple streams of income. I own real estate in multiple regions of the U.S., and I’m a big believer in real estate as a long term investment. And perhaps most interesting for you, Bank of America, I have a great credit score, and I’m current on all my debt payments.

During the recent real estate “boom,” I took some equity out of my home. Now, in the aftermath of the real estate “bust,” my house is slightly “under water” – not by much, but a little. And the interest rate on my loan won’t begin to move upward for another two years, so I’m not in any crisis right now.

The value of my property has actually begun to move upward a bit in the past few months, but it’s going to be a few years before the value reaches parity with my debt. And that’s why I was thrilled to get that little note you sent me in the mail last summer, Bank of America. Remember? You sent me that nice letter asking if I’d like to have my loan modified to a 30 year, fixed rate mortgage.

I responded quickly to that letter, Bank of America. And I’ve called repeatedly for over half a year. But here’s the sad truth that I’ve discovered about you: you’re not really interested in working with me, because I’m not behind on my payments.

With each and every call, Bank of America, I get the same treatment. Once your customer service representative checks the data base and realizes that I’m current on my payments, they “transfer my call” to “another department” – and from there, I’m left on hold. If another representative picks up, they want to transfer me again. And if I actually have a conversation with anybody, I’m treated to a person reading through a litany of “assessment questions” and surveys and evaluations. And then I’m transferred again.

After repeatedly being told that there is immediate help available to Bank of America customers who are delinquent, I finally started asking, “so will you talk to me about a loan modification if I stop making payments?” And to that question, I’ve repeatedly heard the same answer: “I could never advise you to not make your payments Mr. Hill” the representative will say, “I’m just telling you that if you become delinquent we have help available…”

I’m not the only person who has this disturbing kind of relationship with you, Bank of America. I discussed this on my talk show in Boise, Idaho, and was inundated with calls and email detailing the same sad story. I even addressed this over the holidays on a radio talk show where I was guest hosting in Phoenix, Arizona – one of the most tumultuous real estate markets in the country – and got the same response.

I’ve also talked with lots of personal friends about this, Bank of America. People from Los Angeles to Chicago to Washington, D.C., and from all walks of life. People with high school diplomas and M.D.’s and MBA’s and Ph.D’s and J.D.’s. We’re current on our payments, have great credit, and want to continue our relationships with you. But you’re not taking our calls.

It’s sad to realize that as you focus on your “troubled assets,” and ignore those of us with good credit, you’re likely creating more troubled assets in the process. But that’s the system you’ve put in place, Bank of America. It’s a system that rewards people’s bad behavior, while punishing other people’s good behavior.

So after spending half a year trying to take advantage of the offer you extended to me in the mail, I now understand what your actual system entails. And I’ve calculated the risks of working within the system you’ve put in place.

I’m ready to schedule my default. What would you like to do next?

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