patrick.net

corntrollio says

If Freddie or Fannie could buy it, it must meet Freddie and Fannie's rules, and is therefore government subsidized.

um, no, that does no equate to susidization. Glad we got that cleared up.

Bap33 says

So far, I have not made the connection that corn keeps hammering away onm, where my plain old conforming loan, made between me and some lender on their terms, was subsidized by tax-payers.(?) Not seeing it myself. If my loan was taxpayer supported, then that would mean ALL mortgages are, and that would need some explaination for me to understand.

corntrollio says

It sounds like some of you people don't understand the secondary mortgage market. You should read about it. You guys also don't understand the role of Freddie and Fannie, and don't really understand real estate finance.

umm, yea .. like no shit, that's why I made this post.

a href="/post/1147642#comment-777096">corntrollio says

Freddie and Fannie exist to make a profit.

If that is the case, then Barney Frank and his boyfriend Franklin, have some explaining to do.

Bap33 says

um, no, that does no equate to susidization. Glad we got that cleared up.

Yes, it does. You don't understand real estate finance and the secondary market if you think this. Why don't you read about it somewhere instead of asking unintelligent questions here when someone is trying to explain things to you?

Fannie and Freddie enable other lenders to provide lower rates to mortgagors. If they did not exist, you would pay a higher rate on your mortgage. This is a subsidy.

They were created by the federal government to lower people's lending costs and have what is considered an implicit guarantee by the federal government, even though they are corporations. That means people take on less risk when they buy a Freddie/Fannie bond, and mortgagors pay lower interest rates as a result.

Not all loans are government-subsidized. A loan that cannot be bought by Fannie or Freddie (such as an Alt-A loan made by a private bank during the boom) is not subsidized, nor is a non-conforming jumbo loan or any other non-conforming loan.

Conforming means that the loan meets the requirements of Fannie and Freddie to be bought by them and securitized by them. However, Fannie and Freddie may also buy bonds themselves, I believe, in some cases.

lexa says

Freddie and Fannie exists at pleasure of a White House who represents US taxpayers.

No, they don't. They have a charter and have a mission statement. Just because they are partially owned by taxpayers right now does not mean all that changed.

In order to be eligible for the re-fi program, the loan must already be owned by Freddie/Fannie, i.e. for purposes of making a profit.

corntrollio says

No, they don't. They have a charter and have a mission statement. Just because they are partially owned by taxpayers right now does not mean all that changed.

yes, they're. No charter would prevent them from going bankrupt, taxpayers keep them alive and WH controls it with a Presidential decree (as is the case with underwater re-fi). Thus, those GSE, despite of their charters serves at pleasure of WH, should they fail to do so, WH would cuts their financing (via their party in Congress) which would be end of them.

In order to be eligible for the re-fi program, the loan must already be owned by Freddie/Fannie, i.e. for purposes of making a profit.

i know.. why did you even brought it up? how does it change the fact that they're likely to lose money on this underwater re-fi program?

lexa says

i know.. why did you even brought it up? how does it change the fact that they're likely to lose money on this underwater re-fi program?

Without a re-fi, a larger number of loans would default. If the point is to securitize loans and sell off the bonds, I don't see how they'd make a ton less money through this program.

corntrollio says

Without a re-fi, a larger number of loans would default.

but with re-fi GSE make less in interest (so sell loans/securitized packages for less).

lexa says

but with re-fi GSE make less in interest (so sell loans/securitized packages for less).

It depends. If it already sold the securities, it will make more money from underwriting new ones as the old ones are paid back in full. If it's holding the loans itself, they will make slightly less on performing loans and the loans that were likely to fail may not. The securities that it does sell will be more likely to perform than the existing ones.

corntrollio says

Fannie and Freddie enable other lenders to provide lower rates to mortgagors. If they did not exist, you would pay a higher rate on your mortgage. This is a subsidy.

please explain the function by which F and F make money cheaper to lend for regular lenders. Thanks.

p.s., a wise person once said there was no such thing as a dumb question:
corntrollio says

Why don't you read about it somewhere instead of asking unintelligent questions here when someone is trying to explain things to you?

Bap33 says

p.s., a wise person once said there was no such thing as a dumb question

Yeah, well they weren't very wise then. You know those people who sat in the back of class and asked stupid questions that had either already been explained had you done the reading or the teacher/professor already explained it in the lecture? Yeah, dumb questions.

Bap33 says

please explain the function by which F and F make money cheaper to lend for regular lenders. Thanks.

I'd recommend reading Wikipedia or other basic resources on this, e.g.:

http://en.wikipedia.org/wiki/Fannie_Mae#Business

For FNMA/FHLMC-eligible mortgages, the existence of Fannie and Freddie is a subsidy because those markets are more liquid and more efficient and generally have lower risk, so mortgagors get lower rates. Without them, the loans that are conforming or superconforming now would have higher rates.

This is really a basic question of how the GSEs function and what they do.

Bap33 says

please explain the function by which F and F make money cheaper to lend for regular lenders. Thanks.

F and F force money to become cheaper by offering mortages (underwriting, insuring) services at lower rates vs. competition.

when F & F takes losses they ask Uncle Sam to cover it and while leave (uninsured by them) private mortgage investors to take their losses.

thus, they facilitate wealth transfer from private investors to homeowners.

corntrollio says

It depends.

that's right,

there is a potential for a loss that other lenders are reluctant to take (right, 'cause they are just stupid, F&F are the smartest of the bunch that's why they got onto subprime game so late).

then why F&F are doing what other lenders would not? Not 'cause they serve the WH and the latter instructs them to risk losses to subsidies homeowners and prop up RE prices?

lexa says

when F & F takes losses they ask Uncle Sam to cover it and while leave (uninsured by them) private mortgage investors to take their losses.
thus, they facilitate wealth transfer from private investors to homeowners.

Oversimplification that's not really true.

Fannie and Freddie worked fine for many years before the current financial crisis caused by wacky private lending. They don't ordinarily take massive losses like this. And last I checked, TBTF banksters got bailed out by the federal government too, so trying to hold them to a different standard is silly.

lexa says

then why F&F are doing what other lenders would not? Not 'cause they serve the WH and the latter instructs them to risk losses to subsidies homeowners and prop up RE prices?

Someone has to compensate those lenders. If Congress does not authorize it, the federal government cannot pay those lenders to do this. Fannie and Freddie do not serve the White House, but they are under conservatorship of FHFA, so they can be directed to do certain things. The government happens to be the majority shareholder, so like it would be for any other corporation, the majority shareholder can dictate what happens to some extent. What Fannie and Freddie are doing will still earn profits, whether it's a lower profit or a higher profit. It will not increase their liability in terms of guarantees.

lexa says

there is a potential for a loss that other lenders are reluctant to take (right, 'cause they are just stupid, F&F are the smartest of the bunch that's why they got onto subprime game so late).

Don't really understand what you mean here. Fannie and Freddie didn't really get into the types of loans that are defaulting at the highest rates too heavily.

So, if I understand correctly, every home mortgage in exisitance is being propped up by tax-payers? That sure is a bad idea. When and by what Gov action did this become the way things are? (corn, if you know, then just answer, I am not looking for an AHH HAA to throw at you, I'm just learning)

Are all loans, like car loans and other loans part of the same deal? I mean, most banks lend lots of money in other ways, so, by proxy, if any loans they make are tax-payer supported, then the entire company and all of it's functions are kinda supported the same way too ... man, it would seem that there is something wrong with this picture.

Thanks for the replys thus far.

corntrollio says

Fannie and Freddie enable other lenders to provide lower rates to mortgagors. If they did not exist, you would pay a higher rate on your mortgage. This is a subsidy.

lexa says

F and F force money to become cheaper by offering mortages (underwriting, insuring) services at lower rates vs. competition.

I think there you both are talking about different things here. Corn is suggesting (it seems) that F&F are covering the banks on the loss side to allow them to gamble with less concern, while Lexa seems to be suggesting that the over-all process is made cheaper by F&F offering reduced costs of doing business.
Please continue, thanks.

"every home mortgage in exisitance is being propped up by tax-payers? That sure is a bad idea. When and by what Gov action did this become the way things are?"

home owners vote, renters do not.

http://www.vdare.com/articles/karl-rove-architect-of-the-minority-mortgage-meltdown

Barney Frank and the urban black Dem caucus is guilty of this interference just as much.

The very existence of the mortgage interest deduction is also evidence of this desire to interfere with housing.

"Are all loans, like car loans and other loans part of the same deal?"

No, because cars do not have the same financial footprint as houses in our economy.

Red line is household mortgage debt, blue line is household non-mortgage debt:

http://research.stlouisfed.org/fred2/graph/?g=3iu

thanks

Bap33 says

So, if I understand correctly, every home mortgage in exisitance is being propped up by tax-payers?

No, read above:

corntrollio says

Not all loans are government-subsidized. A loan that cannot be bought by Fannie or Freddie (such as an Alt-A loan made by a private bank during the boom) is not subsidized, nor is a non-conforming jumbo loan or any other non-conforming loan.

Bap33 says

Corn is suggesting (it seems) that F&F are covering the banks on the loss side to allow them to gamble with less concern

No, that's not what I'm saying at all -- I have no idea where you go that. Do you know what securitization is? There are YouTube videos that can explain the basic stuff to you. I'm not going to repeat all that here. Do some reading on securitization and the secondary mortgage market before asking more questions -- you're not understanding this. I'm not trying to be mean, but a little bit of basic knowledge would be useful if you're going to ask questions like this.

Bap33 says

Are all loans, like car loans and other loans part of the same deal?

Car loans and other loans (like credit cars) can be securitized, but it's done by the lenders, not the GSEs.

Bap33 says

while Lexa seems to be suggesting that the over-all process is made cheaper by F&F offering reduced costs of doing business.

nope, their cost were not reduced but rather dumping since they did not prevent them from being insolvent.

this practice is illegal under US laws and as recently as within a month a couple of companies (one if them Chinese) were sanctioned for this.

but F&F are above the US law.

corntrollio says

Someone has to compensate those lenders.

nonsense.

corntrollio says

Fannie and Freddie do not serve the White House, but they are under conservatorship of FHFA, so they can be directed to do certain things. The government happens to by other corporation, the majority shareholder can dictate what happens to some extent.

do you really understand that you just proved me point? Except, not "to some extend", but "as much as they want". majority shareholder keep a tap on CEO balls

corntrollio says

Don't really understand what you mean here. Fannie and Freddie didn't really get into the types of loans that are defaulting at the highest rates too heavily.

then ask yourself why other lenders do not re-fi so deeply underwater loans and read my reply again.

and yes, F&F became deeply involved into subprime lending, just took a later start and high losses.

corntrollio says

Fannie and Freddie worked fine for many years before the current financial crisis caused by wacky private lending. They don't ordinarily take massive losses like this.

And last I checked, TBTF banksters got bailed out by the federal government too, so trying to hold them to a different standard is silly.

some were, other were not, hopefully you're intelligent enough to name them.

Who got bailed out ?

The people and entities that were bailed out were not the banks but the bank accountholders, ordinary citizens and organizations who had checking and their savings with the banks. You, me, your employer, small business, your church, schools, and everyone else who had funds that were lent out to deadbeat home buyers who stupidly over paid for their shack.

Without the Govt stepping in, are you sure your bank was going have your demand deposits for withdraw ?

You should be cursing the home buyers who overpaid not the banks.

but, Thomas, there can be no purchase, or refi, of an over-priced shack without first there being a loan creator willing to write the note. Right?

lexa says

do you really understand that you just proved me point? Except, not "to some extend", but "as much as they want". majority shareholder keep a tap on CEO balls

You misquoted me, but that is absolutely not true. Unless the government owns 100% of the corporation, it cannot oppress minority shareholders any more than any other majority shareholder can.

thomas.wong1986 says

The people and entities that were bailed out were not the banks but the bank accountholders, ordinary citizens and organizations who had checking and their savings with the banks. You, me, your employer, small business, your church, schools, and everyone else who had funds that were lent out to deadbeat home buyers who stupidly over paid for their shack.

Not true. Depositors are covered by FDIC. It's silly to say that depositors got bailed out. Shareholders, incompetent management, and bondholders got bailed out, as did counterparties and things like that.

Bap33 says

but, Thomas, there can be no purchase, or refi, of an over-priced shack without first there being a loan creator willing to write the note. Right?

When prices fall, the risks will be low based on old term lending standards and you will find a lender easily. Lending today, is still risky based on inflated prices. We are not there yet for the SFBA.

thomas.wong1986 says

The people and entities that were bailed out were not the banks but the bank accountholders, ordinary citizens and organizations who had checking and their savings with the banks.

Wrong. The bank owners got bailed out. Ordinary citizens are covered by FDIC.

We've been over this several times. Do you not know the difference between the bank owners and bank customers?

corntrollio says

You misquoted me, but that is absolutely not true. Unless the government owns 100% of the corporation, it cannot oppress minority shareholders any more than any other majority shareholder can.

what do you mean under "misquoted me"? I pressed "quote" button and as far as I can see your quote is correct.

major shareholder can direct CEO what to do and how to do it...if CEO fails act as told, it picks another person, direct him just the same and make him new CEO.

if you realize that, then then you support my argument and F&F serve at pleasure of WH, at least till they're solvent again.

corntrollio says

Not true. Depositors are covered by FDIC. It's silly to say that depositors got bailed out. Shareholders, incompetent management, and bondholders got bailed out, as did counterparties and things like that.

hear, hear...

it is really silly to write or think otherwise. If case of a bank failure FDIC would cover only depositors (with Fed printing press as lender of last resort), but here we have many more classes bailed out, including those who had direct or indirect control over a bank actions that lead to a failure (management, stock- and bond-holders).

lexa says

what do you mean under "misquoted me"? I pressed "quote" button and as far as I can see your quote is correct.
major shareholder can direct CEO what to do and how to do it...if CEO fails act as told, it picks another person, direct him just the same and make him new CEO.
if you realize that, then then you support my argument and F&F serve at pleasure of WH, at least till they're solvent again.

You now fixed the quoting. Before you had omitted a line of my post, so it sounded nonsensical. Why are you being disingenuous about this? You can't even act in good faith about a typo!

They don't serve at the pleasure of the White House simply because the White House appoints the CEO. The Board of Directors and the CEO must still act in the interest of the corporation if there are 21.1% minority shareholders. Minority shareholders could sue for oppression if the majority shareholder is unfairly benefited or if the minority is unfairly hurt. This is a matter of corporate law.

What is weird about Fannie and Freddie is that they are federally chartered corporations (as opposed to, say incorporated under Delaware law). Under most states' corporate law (which would likely influence the law applied to Fannie/Freddie), if the CEO or Board did something that wasn't in the interest of the corporation, they could still be sued for breach of fiduciary duty. The CEO and Board cannot just do what the White House says -- they cannot do something that's not in the interest of the corporation.

In addition, Fannie and Freddie are limited by what Congress says they can do.

tatupu70 says

Wrong. The bank owners got bailed out. Ordinary citizens are covered by FDIC.

You mean "Account Holders" are covered up to the limit of 250K. What does that say about individuals with over the limit or the many companies that keep their cash and checking accounts to pay employees and vendors. What happens to vendors that dont get paid ? Where do you think employers like GE, HP or many others keep their checking ?

FDIC already hit bottom from the financial disaster.. Trying to pay out the top Fortune 500 company like GE, HP, Exxon, etc etc bank balances which is in the BILLIONS-TRILLIONS would wipe out FDIC several times over. The whole global economy would have come to a halt. The "deep abyss" we heard about.

"Any person or entity can have FDIC insurance coverage in an insured bank. A person does not have to be a U.S. citizen or resident to have his or her deposits insured by the FDIC."

p>hear, hear...

I will repeat...

Where do you think employers like GE, HP or many others keep their checking ?

Why do you think the stock market with all the industries tanked in late 2008 ? Except for keeping their cash in the bank they had very little to do with the Banks.

opps .. sorry GE we really dont have your demand checking account available to pay your employees and vendors. NSF.

thomas.wong1986 says

You mean "Account Holders" are covered up to the limit of 250K. What does that say about individuals with over the limit or the many companies that keep their cash and checking accounts to pay employees and vendors

Yes, of course. I can think of a few terms for people who store more than $250K in a savings account at one bank. Same for companies that store that much in a checking acct. You're closer to it than I, but I would assume the finance guys are smart enough to transfer only as much as needed to checking accts to pay the bills. No need to keep >$250K in there for no reason...

thomas.wong1986 says

Why do you think the stock market with all the industries tanked in late 2008 ? Except for keeping their cash in the bank they had very little to do with the Banks.

It wasn't the fear that they wouldn't get their savings or checking accts. It was that they wouldn't have access to their short term loans used to pay employees and bills. The revolving credit market dried up.

You should really know this Thomas.

Apple computers...

$ 3 billion divided by 90 days ( one quarter )

$33 MILLION A DAY to pay employees and vendors, like so many others IBM, Exxon, etc etc etc. !

tatupu70 says

It was that they wouldn't have access to their short term loans used to pay employees and bills.

Since who in hell uses short term loans to pay employees and vendors ?

WOW! your anti corporate BS is just beyond any reason.
That is the most insane thing you have stated to date.

corntrollio says

You now fixed the quoting. Before you had omitted a line of my post, so it sounded nonsensical. Why are you being disingenuous about this? You can't even act in good faith about a typo!

i did no such thing, all posts have timestampts, when one edits it, timestamp updates...

now, which post do you accuse me of editing and when?

Zlxr says

If the Banks would go back to boring and...

Sure it would equally be great if buyers went back to being rational consumers instead of overbidding and inflating home prices, double digit well above inflation and incomes. year over year.

But they dug themself a deep grave and took everyone else with them.

Zlxr says

Thomas - according to Catherine Austin Fitts at www.solari.com - $8 trillion would have paid off all the mortgages in this country. But we gave/loaned the Banks $12 trillion.

Yours, mine and everyone elses $8T. Lets pass the buck to someone else who didnt participate and knew better.

thomas.wong1986 says

Since who in hell uses short term loans to pay employees and vendors ?

Uh, almost all companies? Here's a link for you Thomas:

http://2008financialcrisis.umwblogs.org/analysis/the-credit-crisis/

"Since bills come due at different times than revenues are received, credit is critical for the functioning of nearly every business, from Mom and Pop grocery stores, to Fortune 500 corporations. As a consequence, businesses need “working capital,” sometimes savings but more often credit"

thanks for the input all.

Now, a new issue:
I got a call from the tax assessors office to see if I had completed the addition that I pulled a permit for. I have, of course, but he was just making sure.

So, he explained that he was having to reassess my house since I bought it.
I paid 134.5K.
After all repairs and the addition I had a lender appraisal for a refi come in at 238K.
The tax assessors paper came yesterday and it has me assessed at 265K.

Now, what do I do? I am pretty sure my inpound account will not cover an assessment of that amount. ANd with my loan being bounced around, I am worried that my impound might get F-ed up (any reason for concern here?).

Any how, should I share the lender appraisal with the County and use that to challenge the tax assessment, or is that a wasted effort? ANy advice or input would be great. Thanks.

All construction contractors I know of, personally, use a revolving credit line to cover weekly exspenses too. It is becasue they go into debt against the completed job as they go, and payment always comes well after the job is complete. And those lines of credit were cut, or froze and called due, as the crap hit the fan, and that took out many many contractors and they went BR. A snowball effect as generals went bad against subs and subs went bad against suppliers and suppliers went bad against wholesalers and wholesalers went bad against whoever they go bad against.

It is a great day today. I called the controller tax person, found out that my assessment is based on sales price of 134.5K, and the 260 was the old amount from before the forclosure. So, the world is a much better place today, birds are chirping, and the lamb lays with the lion. lol

Thanks.

lexa says

i did no such thing, all posts have timestampts, when one edits it, timestamp updates...

No, it doesn't update the timestamp. You know what you edited and could have just been honest about it. :)

It previously said:

corntrollio says

Fannie and Freddie do not serve the White House, but they are under conservatorship of FHFA, so they can by other corporation, the majority shareholder can dictate what happens to some extent.

you cut out a line -- but you now fixed it to what I actually said.

thomas.wong1986 says

You mean "Account Holders" are covered up to the limit of 250K. What does that say about individuals with over the limit

Who are these stupid people who are sophisticated enough to have this amount of cash in an account but too unsophisticated to figure out how to make sure all their money is FDIC insured? :) Banks make this easy for you.

thomas.wong1986 says

Trying to pay out the top Fortune 500 company like GE, HP, Exxon, etc etc bank balances which is in the BILLIONS-TRILLIONS would wipe out FDIC several times over. The whole global economy would have come to a halt. The "deep abyss" we heard about.

GE can negotiate terms with its banks and negotiate insurance too. This wouldn't be FDIC-covered anyway.

thomas.wong1986 says

Why do you think the stock market with all the industries tanked in late 2008 ? Except for keeping their cash in the bank they had very little to do with the Banks.
opps .. sorry GE we really dont have your demand checking account available to pay your employees and vendors. NSF.

As tatupu said, this had nothing to do with what you're talking about. This had to do with credit (including commercial paper, which is why money market funds got hit), not funds availability. This is well-documented, so it's a strange and uninformed argument for you to make.