Congress is back from its Summer recess this week and not only will we be hearing a lot on “the stimulus” but there will be several hearings on the beleaguered GSEs. I’ve been covering the unraveling of Fannie and Freddie for years as Sr. Talent Producer at CNBC and the conundrum Congress is facing is monumental.
Fannie Mae (FNMA ) and Freddie Mac (FMCC) make up the majority of the residential mortgage market. We all know housing is still in the beginning stages of recovery so the markets and investors anxiously await to see how Congress will fix the problem real estate twins since if it wasn’t for them, the mortgage market would be dead.
Fannie and Freddie were of course one of the biggest problems and facilitators of the go-go days of credit. I think my cat Bambino at one point probably could have gotten approved for a loan! The government thought every American was entitled to a home. But you know what? Its called an “American Dream” for a reason. Not everyone deserves a home. You have to work hard and save. Right now the fury between responsible homeowners who purchased homes they could afford and the homeowners who knowingly bit off more than they can chew continues. I know because my neighbors tell me. And I go by the mantra, if you or someone you know is thinking or feels something, 9 out of 10 people also feel or think the same.
What I found extremely interesting about Fannie and Freddie came out in a preinterview I had with Richard LeFrak, President of The LeFrak organization last Thursday. Richard told me Fannie and Freddie’s commercial mortgage side is solid. He told me the lending standards for commercial customers did not waver. Little defaults. Now why the heck didn’t the residential side do the same? Greed and stupidity. Two flaws when combined -create disastrous results. And apparently the stupidity continues.
The execs at the GSEs are literally giving mortgages away with essentially NO MONEY DOWN! The plan is called Affordable Advantage. First-time home buyers in four states (Massachusetts, Minnesota, Idaho and Wisconsin) are approved for essentially no-money-down loans that are then sold to Fannie Mae. Buyers only need to put down $1000.00 down. SIGH!!!!
I wonder what Congress will have to say this week when the hearings start up. This Wednesday the Financial Services Capital Markets Subcommittee chaired by frequent Squawk Box guest co-host Rep. Paul Kanjorski (D- PA) will be taking up Fannie and Freddie. Ranking Member of the Financial Services Committee, Representative Spencer Bachus (R-AL) (also a great Squawk guest) will be participating in the hearings and I asked him what he thought about the challenges Congress’ faces as they try to figure out how to fix the GSEs. He told me, “Hearings and conferences are not enough. Putting aside the human costs of 10 percent unemployment and 30 percent home price depreciation, the bailouts of Fannie Mae and Freddie Mac have cost taxpayers more than $150 billion to date. And it looks like hundreds of billions of dollars in additional losses are coming.
“The Administration and Congressional Democrats have done nothing. In
fact, they blocked and resisted every effort by Republicans to fix Fannie Mae and Freddie Mac and end their bailouts. It is inexcusable that Dodd-Frank, the Democrats’ ‘landmark financial reform,’ did nothing to address the failures of the mortgage finance system.
“Instead of continuing their strategy of ‘planning to plan,’ the Democrats must take real action to end these bailouts. The time for questions is over. We need to get legislation approved that fundamentally reforms Fannie Mae and Freddie Mac and gets them off the backs of taxpayers.”
To be fair, I did try to get a comment from Kanjorski’s office but could not get a comment because of timing.
The big hearing the Street and investors will be watching is the one on September 29th where Financial Services Chairman Barney Frank will reside. I’m already speaking to contacts like Jim Lockhart, former Director (CEO) and Chairman of the Oversight Board of the Federal Housing Finance Agency (FHFA), to get his expectations ahead and after the hearings.
In the end, I don’t expect much but lots of talk and little action. Congress would love to “unwind” them but in reality they can’t. The mortgage market needs them too much. They created these monsters and now they are trying to figure out how to train them. I’ll be curious to see what they come up with.