Bye bye Frannie, Bye bye Freddie

Is a little reason actually coming from the administration?  This would indicate it may be.  Maybe some of the adults are giving advice nowadays.  The Washington Post has these articles.  Guess I should go check out what the New York Times is saying about it.

Obama report on Fannie, Freddie plan may boost mortgage rates
By Zachary A. Goldfarb and Brady Dennis

The Obama administration wants to raise fees for borrowers and require larger down payments for home loans as part of a long-term effort to restructure the nation's housing market. But it warned that these measures could boost mortgage rates and make it harder for home buyers to secure the 30-year fixed-rate mortgage, a mainstay of American home buying for decades. 


In a long-awaited white paper, the administration said it intends to wind down the federal mortgage giants Fannie Mae and Freddie Mac and curtail the Federal Housing Administration to help reduce the government's outsized role in mortgage funding.

The housing finance system, which has ensured that Americans can get home loans, came crashing down in the financial crisis, helping fuel millions of foreclosures and the recession.

Obama administration proposals to reduce federal role in housing market
By Dina ElBoghdady

The future of Fannie and Freddie
The White House is going to propose a range of options to reform Fannie Mae, Freddie Mac and the mortgage market, which could cause changes to the face of American housing.

The Obama administration is pressing to scale back the federal government's role in the mortgage market. On Friday, it presented Congress with several proposals that would raise the costs of federally backed loans, a move designed to help the private sector better compete with Fannie Mae, Freddie Mac and the Federal Housing Administration. Here are some highlights from the administration's report:

FEES

-NOW: Fannie Mae and Freddie Mac negotiate "guarantee fees" with lenders. Those fees are usually included in the interest rates paid by borrowers. When borrowers fall behind or default on their mortgages, Fannie and Freddie use these fees to pay their mortgage bond holders. As for the Federal Housing Administration, it charges borrowers an annual premium that is used to compensate lenders for loans gone bad.

- LATER: The administration proposes raising guarantee fees over the next several years, which would boost interest rates on loans backed by Fannie and Freddie. Starting April 18, the FHA will raise its annual premium by a quarter-percentage point. For the vast majority of loans, the premium will rise from 0.9 percent to 1.15 percent. That means that a borrower who takes out a $170,000 mortgage (the average FHA loan size) would pay an extra $34 a month.

There is much more explanation, read it here.

Here is the startling part:(Didn't they start this mess?)

It's all about Dodd-Frank
By Ezra Klein

Fannie Mae and Freddie Mac will be wound down. The government will continue to use taxpayer money to make it cheaper and safer for Americans to take out mortgages on home purchases. The administration is offering a range of options for how that commitment will be structured in the future, as they don't want to commit to any one path only to see the Republicans tear them apart for it. Those, I think, are the headlines out of the Treasury Department's new report on the future of housing finance. But I'd add one more: The implementation of Dodd-Frank really, really matters.

More here.

This from a Federal Reserve Member:

Federal Reserve board member: U.S. investigation into mortgage servicing has found 'widespread weakness'
By Ariana Eunjung Cha

The preliminary results of a multi-agency federal review of the mortgage industry has found "widespread weaknesses" that impair the function of the housing market and hurt consumers, according to Federal Reserve board of governors member Sarah Bloom Raskin.

"We have reached the point where this sign of failure is hindering our economy's ability to rebound," Bloom Raskin said in remarks prepared for delivery to mortgage finance executives at a conference in Utah Friday evening.

Bloom Raskin said that she has seen "little to no evidence of improvement" until now despite the government scrutiny and that things remain similar to when the crisis began in 2007.

Bloom Raskin offered what she called her "initial thoughts on how to rebuild an important but currently dysfunctional sector of the housing market."


One of the major problems, she said, is that mortgage servicing operates on a "flawed business model that creates misaligned incentives."

For instance, she said servicers are paid on an annual fee basis by loan originators but that means that they are being paid too much when the loans are current but perhaps not enough when the loans are delinquent because there are additional costs associated with managing troubled loans.

"The current model also rests on the expectation that, in good times, servicers are using some of the residual income to build out systems and procedures to handle the pressures that come with worse times," she added. "Unfortunately, as we have seen, this has not happened."

Bloom Raskin also suggested that the pooling and servicing agreements that govern securitized mortgages should be more detailed about what a servicer can or cannot do: "They should explicitly allow for loan modifications and other non-foreclosure workout actions when they are determined to lead to a smaller loss to the investor than would a foreclosure."

Bloom Raskin called on "relevant private sector actors need to think beyond their bottom line and focus on how their firms' actions are or are not contributing to the economic recovery."

While Bloom Raskin said in her speech that she did not want to dwell on how the industry came to such a crisis and instead focus on solutions, she did take some time to issue a harsh reprimand to mortgage brokers, loan originators, loan securitizers, sub-prime lenders, Wall Street investors and ratings agencies whose "selfish free-for-all," she said, "ultimately led to an economic slide the effects of which are still visible in the boarded-up houses and sheriffs' foreclosure notices posted all over America.

It's interesting to see there is some logical reasoning going on.  But nowhere have I see it said on the Washington Post that the government wishing to "spread the wealth" and create more homeowners caused the problem.  Somehow maybe they have gotten the message that people who cannot afford homes should not buy them.