Government Officials Weigh New Refi Program, Carrie Bay, DSNEWS.com


Word on the street is that the Obama administration is sizing up a new program to shore up and stimulate the housing market by providing millions of homeowners with new, lower interest, lower payment mortgage loans.  According to multiple media outlets, the initiative would allow borrowers with mortgages backed by Fannie Mae and Freddie Macto refinance at today’s near record-low interest rates, close to the 4 percent mark, even if they are in negative equity or have bad marks on their credit.

The plan, first reported by the New York Times, may not be seen as a win-win by everyone. The Times says it could face stiff opposition from the GSEs’ regulator, the Federal Housing Finance Agency (FHFA), as well as private investors who hold bonds made up of loans backed by the two mortgage giants.

The paper says refinancing could save homeowners $85 billion a year. It would also reach some homeowners who are struggling with underwater mortgages, which can disqualify a borrower from a traditional refinance, and those who fail to meet all the credit criteria for a refinance as a result of tough times brought on by the economic downturn.

Administration officials have not confirmed that a new refi program is in the works, but have said they are weighing several proposals to provide support to the still-ailing housing market and reach a greater number of distressed homeowners.

According to information sourced by Bloomberg, Fannie and Freddie guarantee nearly $2.4 trillion in mortgages that carry interest rates above the 4 percent threshold.

The details that have been reported on the make-up of the refi proposal mirror recommendations put forth by two Columbia business professors, Chris Mayer and R. Glenn Hubbard.

They’ve outlined the same type of policy-driven refi boom in a whitepaper that calls for Fannie- and Freddie-owned mortgages to be refinanced with an interest rate of around 4 percent.

They say not only would it provide mortgage relief to some 30 million homeowners – to the tune of an average reduction in monthly payments of $350 — but it would yield about $118 billion in extra cash being pumped into the economy.

Other ideas for housing stimulus are also being considered. One involving a public-private collaboration to get distressed properties off the market and turn them into rental homes has progressed to the point that officials issued a formal notice earlier this month requesting recommendations from private investors, industry stakeholders, and community organizations on how best to manage the disposition of government-owned REOs.

Treasury is also reviewing a proposal from American Home Mortgage Servicing that would provide for a short sale of mortgage notes from mortgage-backed securities (MBS) trusts to new investors as a means of facilitating principal reduction modifications.

There’s speculation that President Obama will make a big housing-related announcement in the weeks ahead as part of a larger economic plan.

Christopher Whalen: Freddie and Fannie Helped to Create Epidemic of Mortgage Fraud, by Zerohedge.com


Chris Whalen (co-founder of Institutional Risk Analytics [1]) knows a thing or two about banking and mortgages. Whalen has been hailed by Nouriel Roubini as one of the leading independent analysts of the U.S. banking system, and there are few people who know more about mortgage fraud.

Whalen points out [2] in a must-read article that Fannie and Freddie helped create the epidemic of mortgage fraud:

By summer of 2007 most of the bulk GSE pools underwritten by the MIs [mortgage insurers] started to experience extremely high levels of delinquencies. But rather than curtail MI operations and shore up underwriting, the MIs made a big push and increased subpirme production insuring large amounts of subprime product (lots of 220s) all the way into first quarter 2008.

The MIs tripled down and did so in hopes of making enough fee income to (1) meet plan and (2) shore up capital that had started to bleed. This push, which was not always reported honestly to share and bond holders, signed the respective death warrants for Fannie and Freddie. But the zombie dance party rocks on.

So today the MIs are still operating, though they are not providing insurance because they can’t. Observers in the operational trenches tell The IRA that virtually no MI claims are being paid – even if the claim is legitimate. The MIs are very undercapitalized and still bleeding heavily. But they get continued business because the GSEs demand MI on high LTV loans. Lenders are forced to use the MIs and consumers are made to pay the premium. Thus the auditors of the GSE continue to respect the cover from the MIs, even though the entire industry is arguably insolvent.

Thus we go back to the low-income borrower, who is forced by the GSEs to pay for private mortgage insurance that will never pay out. The relationship between the GSEs and the MIs is identical to the “side letter” insurance transactions between AIG andGen Re, and come to think of it, the AIG credit default swaps trades with Goldman Sachs (GS) and various other Wall Street dealers. In each case the substance of the transaction is to falsify the financial statements of the participants. And in each case, the acts are arguably criminal fraud.

Whalen blasts the cowards in Washington for failing to unwind the mortgage fraud:

The invidious cowards who inhabit Washington are unwilling to restructure the largest banks and GSEs. The reluctance comes partly from what truths restructuring will reveal. As a result, these same large zombie banks and the U.S. economy will continue to shrink under the weight of bad debt, public and private. Remember that the Dodd-Frank legislation was not so much about financial reform as protecting the housing GSEs.

Because President Barack Obama and the leaders of both political parties are unwilling to address the housing crisis and the wasting effects on the largest banks, there will be no growth and no net job creation in the U.S. for the next several years. And because the Obama White House is content to ignore the crisis facing millions of American homeowners, who are deep underwater and will eventually default on their loans, the efforts by the Fed to reflate the U.S. economy and particularly consumer spending will be futile. As Alan Meltzer noted to Tom Keene on Bloomberg Radio earlier this year: “This is not a monetary problem.”

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The policy of the Fed and Treasury with respect to the large banks is state socialism writ large, without even the pretense of a greater public good.

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The fraud and obfuscation now underway in Washinton to protect the TBTF banks and GSEs totals into the trillions of dollars and rises to the level of treason.

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And in the case of the zombie banks, the GSEs and the MIs, the fraud is being actively concealed by Congress, the White House and agencies of the U.S. government led by the Federal Reserve Board. Is this not tyranny?