First Words From New Fannie, Freddie Chiefs

In their first public comments since the seizure of Fannie Mae and Freddie Mac, the companies' government-appointed chief executives signaled today that they are initiating wide-ranging reviews of how the firms do business, with the main goal of helping homeowners avoid foreclosure.

The companies have already taken steps to reduce foreclosure and support the mortgage market, but "these actions clearly are not enough," said Herb Allison, the new Fannie Mae chief executive, testifying today before the House Financial Services committee.

"We are looking at every aspect of our business with the goal of improving our funding, pricing, trading, risk management and foreclosure prevention efforts," Allison said.

"New initiatives that take advantage of Fannie Mae's breadth and size may entail risks and costs in the short [term] but will have long-run benefits to the country and Fannie Mae by helping staunch the flow of foreclosures, encourage homeowners to ride out the cycle and help put a floor under home prices," he added.

Allison said Fannie Mae is reviewing underwriting and pricing standards, buying more mortgage-backed securities and developing new plans to support low-income housing.

David Moffett, the new chief executive of Freddie Mac, focused nearly all his prepared remarks on affordable housing.

Moffett said Freddie Mac is "actively engaged" in reducing foreclosures, modifying loans and offering financial incentives to pay lenders who help people avoid foreclosure.

He said 124,000 people with Freddie Mac-guaranteed loans are delinquent; about one-third of those have been worked out and another one-third should be worked out by the end of the year.

"Workouts are critically important but they will not help stabilize the market unless borrowers are able to sustain homeowners going forward," Moffett said. "As a general rule, we direct services to underwrite each modification based on the borrowers actual circumstances at the time."

-- Zachary A. Goldfarb

September 25, 2008; 4:42 PM ET  | Category:  business
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The major sticking point in all of this is that the Democrats insist that bankruptcy judges be able to modify mortgages of defaulted homeowners.

The banks simply can't handle this, as it gives broad latitude to low-level elected officials to punish banks on an ideological basis. It's clear that if people can vote into office a slough of judge candidates whose main qualification is a campaign promise to keep defaulted mortgage-holders in their homes, the entire judicial system and especially the financial judgement system will be in disarray and banks might as well kiss goodbye to every asset they have in real estate.

No, the Democrats know that the majority of people in foreclosure or at risk of foreclosure are ILLEGAL ALIENS and other people who should never have been given loans for mortgages.

Also, where are the legal penalties for all of the people who helped unqualified people fraudulently apply for loans for which they couldn't reasonably be believed to qualify?

The Democrats in general and some Republicans in particular have to understand the concept of "separable issues" in this bailout.

One issue is debt from bad mortgages that occurred from "easy credit" given through fraudulent or lax application processes. The taxpayer needs to have a holding company established and needs equity in that company, an Inalienable Stock that can't be begged, borrowed, stolen, adjudged, or otherwise transferred. That holding company will buy bad mortgage debt at slightly under a "reasonable real value". That probably amounts to 25-30 cents on the dollar, and this holding company will hold nothing but bad mortgage debt. In effect, the aggregate taxpayer becomes fee-simple owner of the aggregate of foreclosed/defaulted properties; the holding company administers for the aggregate at the lowest reasonable and as the assets are sold off, reinvests in the safest possible market instruments such as Treasury notes.

The other class of debt in the bailout isn't actually debt so much as it is credit extended, and that would be interbank lending credit, student loan credit, etc.

The whole success or failure of even trying to get a bill hinges on this issue of separability.

Call the non-mortgage side of the transaction "water" and call the mortgage and mortgage-derived/mortgaged-backed issues will be called "mud".

Do not let the waters get muddied. Handle the Toxic Debt mud in on agency and handle the other liquidity and solvency issues in another place. The non-toxic issues can be made to grow flowers in the desert, so to speak, and the toxic debt "mud" can be left out to dry where it can't hurt anything else.

This is the only way this can be done, separable issues with separable handlers and separate handling. And fundamental to all... the taxpayer gets equity in anything they fund.

Posted by: Thomas Hardman | September 25, 2008 5:29 PM

WOW Thomas.....everyone has their pet group to espouse hate towards. Usually Republicans pick Clinton, Democrats pick Bush, and people in the metro DC area love to blame illegal aliens for everything including their dog getting sick.

As far as your holding company is concerned not a bad idea, but I'd vote to say pay down our damn deficit instead of reinvest. We've got to get our interest payments to a manageable amount so we can run in the black again. 20-30 cents on the dollar is sadly a better deal than Congress is working up and that bodes poorly for us working taxpayers. :(

Posted by: Mike | September 25, 2008 5:44 PM

I vote we let them do their reviews. In Guantanamo.

Posted by: satownmc | September 25, 2008 6:01 PM


Who has been in charge for the last 8 YEARS?!!!! - Brain dead Republicans should have their savings evaporate and their homes owned by foreign banks.

Keep voting REPUBLICAN and you will see how a global financial depression looks like.

Posted by: Brain Dead Republican | September 25, 2008 6:06 PM


Who has been in charge for the last 8 YEARS?!!!! - Brain dead Republicans should have their savings evaporate and their homes owned by foreign banks.

Keep voting REPUBLICAN and you will see how a global financial depression looks like.

Posted by: Brain Dead Republicans | September 25, 2008 6:06 PM

And what about the FBI investigations?

"FBI probing bailout firms - Investigators start search for fraud at Fannie Mae, Freddie Mac, Lehman Brothers and AIG, sources say."

Posted by: CB_Brooklyn | September 25, 2008 6:36 PM

Republican Democrat who really cares? Just at least we find someone who can fix his mess
doesn't seem like either party is going to do much any time soon so we have to move past the two main parties and start considering third parties that can actually fix this mess and isn't a Democrat or Republican. But ask Yourself this question who will help us Obama? no!!!! Mccain? no!!!!! Those 2 candidates probably wont help us they most likely will do what is best for them and move this going to help us no so instead of criticizing who's been president ask yourself what really is causing all these problems Bush or Iraq? Answer is Iraq and many other spendings that make our dollar practicly worthless. If we didnt go to iraq we would have been bombed but then on the other hand we did and now we have people dying. Theres to sids to this none better then the other.
Instead of taking sides and criticizing people we (USA) could be figuring out the perfect solution to this crisis. So instead of protesting against Bush Obama or Mccain
Start thinking a fourth way how you yourself can make a difference. This also means in 2012 if your eligible and have the perfect plan run for president. Theres always people out there that will agree with you and help you run your Campaighn and sponsor you with millions :)Start making The perfect plan NOT the perfect crticism. Thanks for reading this long but important article. Start thinking about what your plan will be you have 4 years to think

Posted by: .... | September 25, 2008 6:50 PM

The Congress does not have the power to transfer this much power to the Executive Branch, without amending the Constitution. This bailout of Wall Street robber barons is a massive restructuring or our government and financial systems that should not be made without modifying the Constitution.

This move will change the entire power relationship between the Congress and the Executive Branch, as well as the power relationship between American citizens and our government. To give governmental powers and obligations to financial institutions over our populace is clearly outside of the realm of the Constitution.

There is no sunset provision on many of the main powers granted by this legislation and thus these powers will become a permanent change to our government.

Let's face the truth and respond accordingly. The same political sellouts in Washington, DC who have been giving big business and liberal social agendas anything they want have been doing the same behind the scenes by removing most of the laws and regulation management on that level as well.

Over the last ten years they have removed or ignored most of the regulations that were put in place to assure another great depression never happened again.

They are desperate for more power and money to delay the inevitable and to assure that your average American citizen takes on most of the burden! Including bailing out foreign banks that are in the U.S.!

So, we have a President with approval ratings in the low 20 percentiles rushing out to ask a Congress with a 9% approval rating to give them unprecedented powers, amnesty from oversight and court prosecutions, and another 700 Billion+ dollars guaranteed by the taxpayers and the full force of the American government to extract that money and interest from us all. They have made slaves of us!

They say the power and funds must be delivered within days to avoid a global economic meltdown that will have dire consequences for us all.

It's a shame to think that there are many Americans left in our nation who believe a word of what comes out of the mouths of any of these traitors in the Bush administration. Politicians in Washington, DC are fearful of losing their jobs if the true economic consequences manifest BEFORE election day, instead of after, and thus the politicians give the appearance of doing something huge.

First, there is no assurance or even likelihood that this unprecedented bailout and amnesty for Wall Street traders will work. They have already thrown hundreds of billions of dollars of your money into bailouts for Barons, Fannie Mack, Fanny May, and AIG. The 700B+ more they claim they need this week is probably what they estimate is needed to prevent the collapse till after Nov 4, 2008 which is election day.

The requested bailout bill would establish unprecedented powers for the Executive Branch to keep borrowing large sums, many analysts believe that the true costs could range between 1 to 5.5 Trillion dollars of your money!

They want the power to designate private financial companies and banks "as financial agents of the Government, and they shall perform all such reasonable duties related to this Act as financial agents of the Government as may be required of them" (Sect. 2-B-3).

Upon passage of this legislation, going to the bank will be similar to going to the DMV, tax offices, or any government agency. The banks will be more under the control of the Executive Branch and inversely your bankers will be your government. MORE FREEDOM TAKEN AND BIG BROTHER WATCHING!!

The secretary will be allowed to buy and sell mortgage securities and then use the funds from any sales to pay for administrative costs and other measures in this program, instead of returning the funds to the taxpayers.

The real kicker is found in Section 8, where it reads "Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency."

No more power and money in exchange for their failures!

Let the financial chips fall where they may and let the market corrections occur and if the consequences for the American public are dire, let us shift through the ashes and rubble of their greed and the excess created to determine how and why this happened. Let Congress use their investigatory power to launch inquiries to determine who should have their assets seized and who is going to prison for this treachery.

This monopoly game is over. It is time to enforce the rules and start over. It is time for many of those in high places to go to jail!

Posted by: AJAX | September 25, 2008 11:28 PM

To answer one of the Posts. Who has been in charge?
Well, the people (the electorate) and the vast majority of them do not even participate in government by voting. They are sheep that do not think for themselves and only wants good government when something goes wrong. Otherwise they are selfish and want what they want like a two year old. Well, my fellow Americans, it is time to grow up and start acting like adults. Stop believing what pundits and news agencies tell you and research issues yourself. If you think that the government will do it for you, guess what? You were wrong. Our education is key to a good electorate but teachers unions seem to not care but for themselves. Our countries educational standard have gone down the drain and we are at the bottom of the list. Our schools are producing mindless drones that believe what they are told by authority figures. I shouldn't be complaining because sheep act as a heard and are predictable. That predictability has made others lots of money, myself included. But our country needs a smart and hard working electorate, not sheep. Remember a core belief. The only rights one has is the rights that they can defend. Wake up and stop thinking about yourselves and start thinking about you kids and grandchildren. Wake up America. Lets get back to the basics.

Posted by: William Buchanan | September 26, 2008 12:58 AM

1. Democrats have absolutely NOT been the sticking point in the 700 Billion Paulsen plan. They completely dropped their proposal for modification of mortgage terms.

2. When you see somebody, anybody, writing long winded diatribes like the guy at the top of these posts, your "Demagogue Lie Alert" antennae should perk right up. The Republican lie machine, especially, has many amateur followers who post utterly incorrect (lies) to all the comment pages on the Internet, just like this guy Thomas Hardman

3. Both the Dems and Repubs have taken, and continue to take, tens of millions of dollars from Wall Street...especially the 2 Dems and the 2 Repubs in charge of the Senate and House banking committees, who have taken, between them, over 10 million dollars from Wall Street. Info at about
Christopher Dodd (D)
Richard Shelby (R)
Barney Frank (D)
Spencer Bachus (R)

4. I despise Bush/Cheney and the last 8 years of the Republican greed machine, but I actually support the actions of the small group of Republicans (which does NOT include McCain) who are proposing a non-bailout solution: Simply offer the banks insurance against the failure of their loan portfolio, and set the premiums very high, commensurate with the Risk they have absorbed (and massively profited from ) over the last 6 years. They pay their premiums to the Treasury, and the Treasury sets aside $$$ to cover the potential loan failures.

5. This has the advantage of forcing Wall Street to work out these loans, and to refinance rather than evict. It also prevents the Wall Street firms from massively profiting via stock bounce because it doesn't remove their risk in one stroke of a pen. It *also* assuages the markets that they *can* buy/sell the paper, because it is backed by real guarantees (The Fed). It *also* eliminates the Credit Debt Swap market, because the Fed will be the only org with the finances to actually back a failed bond issue.

Think, people, think....and get the facts.

Those are my facts, and my opinion.

Posted by: Get the facts | September 26, 2008 10:31 AM

The facts remain that without provisions mandating loan workouts and loan modifications, increased regulation on mortgage servicers, servicer accountability and without complete 100% control of these mortgages, themselves, this bailout plan WILL NOT work.

Well, at least for the people on Main Street losing their homes.

The proposed $700 bailout proposed by U.S. Treasury Secretary Henry Paulson, in its current form, will do absolutely NOTHING to help you, your family or your neighbors on Main Street. This bill’s costs will be gargantuan, yet it is suffering from famine in the substance department.

Meaning there is no meat and potatoes for Main Street. Only more gravy for Wall Street.

The way this bailout bill is written, our government and the Treasury would have very limited ability to gain “complete” control of troubled mortgages. What the Treasury has planned is to buy troubled assets from the various banks and investment banking institutions consisting of mostly residential and commercial mortgage-backed securities.

To put this is layman’s terms for my readers. The US Treasury, oops I mean us, the American people are going to buy up Wall Street’s bad and toxic investments in an effort to try stabilize Wall Street for a just a “little” bit longer.

Paulson has claimed that after the Treasury buys these bad assets, the purchase will have benefits that will trickle down to Main Street in the form of restored liquidity and credit for making mortgages and other credit to consumers available.

Why the plan will not help homeowners.

Every single Hope Now, FHA Secure, plan, bill and initative has made it “only voluntary” for mortgage servicers to comply and participate in these proposed solutions to our mortgage and housing crisis. Meaning they do not have to do anything they do not want to do and all of this Hope Now talk and puffing of foreclosure prevention chests has been nothing more than botoxed lip service and media propaganda.

This is all about the Benjamin’s (money) people. Please, never think, for a mili-second that this is about what is morally and ethically right. It’s business and servicers are in the business of collecting, demanding and making money off of homeowners.

They are definitely NOT in the home saving business!

Mortgage servicers have absolutely no or little financial incentive to help struggling homeowners. They are severely inundated and bottle necked with calls, faxes, pleas, cries, delinquent mortgages, short sales, loan modifications, foreclosure sale dates, disgruntled and under paid employees. They do not have enough space, staff and phone lines to properly assist the people who are seeking it.

Couple that with the facts that they actually make money when you’re delinquent on your mortgage and they also fear possible liability in the form of lawsuits from disgruntled investors.

The Mortgage Servicing Industry Has Failed! It’s broke and in need of immediate repair, cash and help. They know it, the banks know it, our Secretary Treasury and our government knows it.

Yet, nothing is being done to fix it.

Americans on Main Street need to demand that this bill provides relief to struggling homeowners:

Ø Open home preservation centers that are operated by third parties such as non-profits and legal aid agencies to insure consumer protection and safety.

Ø The bill must mandate all servicers to perform some type of loan workouts (whether it be a loan modification, repayment plan, short sale or deed in lieu, judicial or non-judicial).

Ø Foreclosure moratoriums on primary residences

Ø New mortgage servicing regulation

Ø Loan workout accountability and tracking system

Ø Prosecute and fine lawless mortgage servicers

Ø Give us all a do over like Wall Street gets!

Please write your state Senator who is supposed to represent you, the people, and tell them what you think and want. A silent voice will never be heard!

Moe Bedard
Founder and President

Posted by: Moe Bedard | September 27, 2008 1:42 PM

I want my America back!

Forget the "Million Man March". The time has come for a Three Hundred Million Man March" on Washington, every state capital and every bank headquarters.

What if we all just stopped paying our bills and only bought what we had to. If that didn't work we could just go on strike. If that didn't work why couldn't we have a "Three Hundred Million Man March" on Washington. I don't mean an armed revolution We just all quit what we have been doing for the last century and demand our country back. People could organize in towns across America to help feed the March.

Give every citizen debt amnesty or no gets it, period

I want my America back!

Posted by: Don Parker | September 28, 2008 5:04 AM

Ironic how so many of these comments contain the same kind of baseless, unsubstantiated, undocumented claims that the government and media have used to lead us down this path to destruction. Wake up people. Get your facts together before you open you mouths or place your vote for that matter. We've let ignorance, hypocrisy, and hatred overshadow our minds for far too long.

Posted by: ignorancerules | September 28, 2008 7:08 AM

how can the goverment run all this when its what got us here in the first place isnt it like leaving a kid in a candy store

Posted by: wtobias | September 28, 2008 6:05 PM

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