This page was created following our post on October 18th entitled: “Keys to Victory: Simplify and Focus”. https://timhoward717.com/2014/10/18/keys-to-victory-simplify-and-focus/ and the comments accompanying it.
Essentially we decided that it was critical to provide an honest summary concerning Fannie Mae and Freddie mac. For the most part, the conversation involving Fannie and Freddie has been dominated by lies and misconceptions. Unfortunately, many of our elected leaders and once respected media outfits for a variety of motives have chosen to grossly distort the facts. Their reasons are simple; their ideological hatred towards Fannie and Freddie trumps the truth, to them the ends justify the means. This page will be ever evolving. We will begin by providing a short summary. This will be followed by a much more detailed accounting and a timeline feature. We have assembled an amazing team to assist us in this process to ensure that our summary is accurate. It is critical that America know the truth about what has transpired regarding these two great American Institutions.
Truth number one: Fannie and Freddie did not cause the financial crisis.
This is perhaps one of the most pervasive and widely told lies regarding Fannie and Freddie. It has been a brilliantly cunning rewrite of history by those who have been pushing for Fannie and Freddies demise. As we will very clearly demonstrate here it is simply not true.
The housing bubble that began in 01 and peaked in 04,05 and 06 was fueled by private capital sub-prime predatory style mortgage companies and many large banks. Fannie and Freddie played no role in this.
These charts show the truth.:
Note the subprime boom years of 2003-2006. I know this is in direct contradiction to what so many of our elected leaders profess but, unfortunately, for them once again the facts get in the way of their lies. Wall Street greed caused the financial crisis plain and simple. From 01-06, they unleashed a myriad of predatory mortgage related products on America. These products promised high rewards for Wall Street bankers at the expense of an unsuspecting American population. They preyed largely on low to moderate-income and minority families.In a fitting twist of fate, this diabolical scheme blew up in their faces. The unfortunate part was that they almost took our country out with them. What caused the crisis has become abundantly clear, and it was not Fannie and Freddie. This excerpt speaks volumes:
“ATTORNEY GENERAL ERIC HOLDER: Not only the conduct of JPMorgan, it was the conduct of other banks doing similar kinds of things that led directly to the collapse of our economy in 2008 and in 2009.”
Some classic commercials from the sub-prime villains to refresh your memory as well. http://m.theweek.com/article/index/249480/5-commercials-for-subprime-mortgage-loans-from-before-the-financial-crisis
Mark Zandi Chief Economist at Moody’s provides us with a critical fact that proves beyond a shadow of a doubt the true perpetrators of the crisis.Mark points out that to correctly determine who played the biggest role in creating the financial crisis one can simply examine the realized losses of the participants. Not the write-downs, not the anticipated losses that Treasury used when forcing Fannie and Freddie to take draw after draw to increase their debt and interest owed. So just what were the actual realized losses?
Of all the mortgages originated between 2006-2013 10% actually failed and produced 1 trillion dollars in losses. So based on a percentage of all the mortgages they underwrote in this period just how do the various players stack up?
Realized losses of all mortgages originated between 2006-2013
Fannie and Freddie- 3 Percent
Big Banks- 6 Percent
PLMBS/ Private mortgage co.s (Ameriquest etc.) 23 Percent
Truth number two: Recent bank settlements further exonerate Fannie and Freddie from blame.
In another stunning case of deceit we have recently witnessed massive settlements to the tune of $200 billion dollars made by numerous big banks concerning the toxic mortgages they fraudulently pawned off on Fannie and Freddie. It was a widely held belief that Fannie and Freddie knowingly chased the fools gold created by the private mortgage companies and big banks in the waning years of the crisis. This critical development has warranted hardly a whisper from those who wish to see Fannie and Freddies demise. We are not surprised as it seems any data that does not back up their false narrative is conveniently left out of the conversation. The details contained in the lawsuits show a chilling pattern
Truth number three: “Affordable housing mandates did not cause Fannie and Freddie’s problems.”
Many have also claimed that the affordable housing mandates played a role in the crisis. Elizabeth Warren set the record straight “Although Fannie and Freddie purchased securities backed by subprime loans, and some of those purchases helped fulfill their affordable housing goals, the St. Louis Fed economists found that the housing goals had no impact — no impact — on either the number of subprime loans originated or the price of those loans in the private-label market,” she said. “Affordable housing goals have been scapegoated by those who have been itching to get rid of the goals for a long time, but I think it’s time to drop that red herring.”
Truth number four: The elimination of Fannie Mae and Freddie Mac would have disastrous consequences for the U.S. economy.It will wipe out decades of progress that has been made to ensure that the dream of home ownership is accessible to all Americans.
The taxpayers rescued the banks and insurance companies, and they recovered and now are enjoying great prosperity. Millions of Americans have benefited greatly by the governments initiatives to keep interest rates low. One group has been left on the curb.In a cruel twist of irony the very Americans that were subject to the predatory lending practices that played such a big role in the financial collapse, have been forced to pay the price for the actions of those responsible. This most vulnerable group of Americans have been betrayed by congresses inability to enact housing reform. Minorities in particular have been hit especially hard since the crash of 08.Recent reports show that minority home ownership has hit a 14-year low. This is a direct result of Fannie and Freddie having their hands effectively tied through conservatorship.
Truth number five: Mel Watt has put many key reforms in place at Fannie Mae and Freddie Mac to ensure a safe release
Under Mel Watts leadership, a number of key reforms have been put in place to ensure that Fannie and Freddie never get in the position they found themselves in 2008. Stricter underwriting, shared-risk MBS, Increased capital requirements on PMI providers. The only one left is to greatly increase their capital requirements from what they were in 2008.If capital requirements are increased to the correct level, the taxpayers will be at no risk in a future crash.On the contrary, right now because all GSE profits are being swept to the treasury the taxpayers are at an extraordinary risk. Ending the conservatorship and recapitalizing Fannie and Freddie will protect the taxpayers.
Truth number six: The reform/release of Fannie and Freddie will provide a huge financial windfall to the tax payers. (Over 200 billion dollars!)
The GSEs have already paid back 32 billion dollars above the 187 billion dollars that they owed.If Fannie and Freddie were released today, the taxpayers profit would balloon to well over 200 billion dollars because the taxpayers could exercise warrants to purchase 79.9% of Fannie and Freddie.These simple facts have been so misreported just a few weeks ago Senator Crapo wrote in an editorial “The bailout of Fannie and Freddie have cost the taxpayers 200 billion dollars” he made no mention of the fact that it has all been paid back with a huge profit. It will be impossible for our opponents to claim that an over 100% profit is a bad thing. They will likely try but they will only reveal themselves to be the fools they truly are.
Truth number seven: Who are the current investors in Fannie and Freddie
First I want to clarify that unlike what you have heard over and over in the media it is not just greedy billionaires who are suing the government over Fannie and Freddie. Many Americans took the government at its word when they stated the conservatorships was a temporary thing. They very clearly stated that the purpose of the conservatorship was to ” preserve and conserve capital, restore the entities to a safe and solvent condition at which point they would be released. Many Americans also have been holding their shares in Fannie and Freddie since before the crash again relying that the U.S. government was truthful about the nature of the conservatorships. Below is a letter sent fro Nick Isbell a current investor in Fannie and Freddie. I have also received letters from many other individuals like Nick as well as Unions, Pension Funds and small community banks who understandably feel betrayed by their government and the media.
Letter from Concerned Parent and Patriot re Third Amendment Sweep-3
Truth number eight: What are the shareholder lawsuits all about?
When Fannie and Freddie were placed into conservatorship, the government claimed it was a temporary status. They were forced to borrow money every quarter from the 3rd quarter 2008 till the 4th quarter 2011 treasury to pay the 10% dividend that was demanded by treasury per the bailout terms. Beginning in the 1st quarter 2012 they did not need to borrow money to pay the dividend as the housing market began experiencing a massive turn around. Just as it was growing clear that Fannie and Freddie were not only going to be able to pay the dividend but also start repaying the principal the Treasury conspired with the FHFA to alter the terms of the bailout arrangement. In August 2012, they cancelled the 10% quarterly dividend and agreed to sweep all of Fannie and Freddies profits every quarter to the treasury.This is known as the 3rd amendment. They claimed they did this because they feared that if Fannie and Freddie had to keep borrowing additional money to pay the quarterly dividend it could spook the markets. If the there was any truth to this why didn’t they simply reverse it once Fannie and Freddie continued to send billions in excess of the 10% dividend to treasury? Take a look at the following chart, and you will see the absurdity of their claim.
This year secret treasury memo from 2010 was leaked and offers a glimpse at the true reason for the 2012 amendment.
treasury memo (smoking gun) 2
It was made clear that the government did not want existing shareholders ever to receive a penny.Folks actions like this may be common in Russia and Venezuela but never in the United States of America.
Needless to say, the investors who had been waiting four years for Fannie and Freddie to turn around only to have the rug pulled out from under them were both shocked and disgusted. The more you dig into this, the more you see it reads like a sloppy Bernie Madoff scam. We are both appalled and sickened that our government would even attempt such a bizarre scheme. Since the lawsuits began we have watched our government not even attempt to defend their actions but rather use every procedural trick in the book to stall,delay and withhold evidence. They are making a mockery of the rule of law with their endless river of lies.
I have attached the FHFAs questions and answers on conservatorship for reference.
FHFA questions and answers on conservatorship 2
For more background please read our post from July 1st : https://timhoward717.com//?s=in+their+own+words&search=Go
Truth number 9: Fannie and Freddie are the gold standard of the secondary mortgage market
Historically Fannie and Freddie have performed far better than Banks/private capital in the secondary mortgage market.When you compare the default rates, you see that the GSEs are the virtual gold standard. Their decades of experience and superior underwriting are untouchable. David Fiderer makes this point clearly in his article “GSE critics ignore loan performance”. He states, “And yet, critics demanding GSE reform ignore the topic altogether. Search through any book or article promoting the thesis that the GSEs helped cause the mortgage crisis for a passage comparing GSE loan performance with the rest of the market. Almost certainly, you will come up empty-handed. There is no data anywhere to cast doubt on the vastly superior loan performance of the GSEs. Year after year, decade after decade, before, during and after the housing crash, GSE loan performance has consistently been two-to-six times better than that of any other segment of the market. The numbers are irrefutable, and they show that the entire case against GSE underwriting standards and their role in the financial crisis is based on social stereotyping, smoke and mirrors, and little else.” The numbers don’t lie. http://www.americanbanker.com/bankthink/gse-critics-ignore-loan-performance-1059187-1.html
Truth number 10
Remember these are the short summaries, we will be adding a much more detailed accounting of the truths. This will include plenty of reference material to enable you to defend us against our opposition. Let me assure you the reform/release plan is an issue that you will destroy your opponents on. We will provide you with the truth that you can use to dominate this debate.