- The Rescue of Fannie Mae and Freddie Mac, by W. Scott Frame, Andreas Fuster, Joseph H. Tracy & James I. Vickery, FRB Atlanta Working Paper No. 2015-2.
- Architectural Exclusion: Discrimination and Segregation Through Physical Design of the Built Environment, by Sarah Schindler, 124 Yale Law Journal 1934 (2015).
- Assessing Financial Security of Low Income Households in the United States, by Jae Min Lee & KyoungTae Kim, Journal of Poverty, Forthcoming.
Tag Archives: Freddie Mac
Monday’s Adjudication Roundup
- Quicken Loans Inc. filed a complaint against the Justice Department and the U.S. Department of Housing and Urban Development claiming that they tried to get Quicken to make false admissions during a settlement. The Government in turn sued Quicken under the False Claims Act for improper underwriting of mortgages and benefitting under the Federal Housing Administration insurance payouts.
- The United States Supreme Court denied cert to the U.S. Department of Housing and Urban Development, which argued that using contracts rather than grants to fund Section 8 public housing projects would impair the program.
- The Second Circuit Court of Appeals revived suit against Citigroup. The claims, which alleged that Citigroup tricked a Korean bank into taking $25 million in toxic collateralized debt obligations, were dismissed in the New York District Court in March 2013.
- Federal court requires RBS Securities to hand over which specific loans it is going to re-underwrite to National Credit Union Administration after allegedly causing the failure of at least two credit unions by misleading investors over hundreds of millions of dollars in mortgage-backed securities.
- Bank of America asks Second Circuit to vacate a $1.3 billion fine after jury found BofA had defrauded Fannie Mae and Freddie Mac using its “High-Speed Swim Lane” program.
Friday’s Government Reports Roundup
- The Federal Housing Finance Agency (FHFA) released its results to the Fannie Mae and Freddie Mac Guarantee Fee Review. Following the release, the FHFA announced that the fees would remain the same with modest adjustments.
- HUD released the 2009-2011 National Rental Dynamics Reports, which tracks changes in rental housing affordability.
Tuesday’s Regulatory & Legislative Round-Up
- Enterprise Community Partners made comments to the Senate Finance Committee’s Community Development and Infrastructure Tax Reform Working Group, as part of a New Market Tax Credit Coalition, which is calling for preservation of the credit as it has been critical to the development of affordable housing.
- Federal Housing Finance Agency finds, after studying the matter, “no compelling economic reason” to change the guarantee fees charged by Fannie May and Freddie Mac. FHFA’s review focused on reaching an appropriate balance between FHFA’s statutory obligations to: 1) ensure the safety and soundness of the Enterprises, and 2) foster a liquid national housing finance market.
Monday’s Adjudication Roundup
- Former Freddie Mac executives, who were accused of lying about Freddie’s exposure to subprime mortgages before the financial crisis, settled with the SEC.
- Citibank shareholders slam the Bank’s motion to dismiss a case over mortgage-backed securities worth more than $17 billion as NY federal courts have rejected similar arguments to dismiss similar cases.
- The Second Circuit dismisses a class action against Royal Bank of Scotland PLC finding that the bank did not lie about its exposure to residential mortgage-backed securities.
- DC federal judge certified a class action of evicted homeowners, with a lead representative who lost his home over a $134 unpaid tax bill. The court will decide whether district law creates a property interest in equity, if its tax-sale statutes effect a taking of the property and if class members were properly compensated.
Friday’s Government Reports Roundup
- The Office of the Comptroller of the Currency released a report on mortgage performance.
- CFPB releases its Consumer Response Annual Report analyzing the complaints it received in 2014 and its fourth annual Fair Debt Collection Practices Act
- FHFA releases its 2014 fourth quarter Foreclosure Prevention Report stating the foreclosure prevention actions by Fannie Mae and Freddie Mac.
- HUD releases report in which it evaluates the Neighborhood Stabilization Program.
The Rescue of Fannie and Freddie
Federal Reserve researchers, W. Scott Frame, Andreas Fuster, Joseph Tracy and James Vickery, have posted a staff report, The Rescue of Fannie Mae and Freddie Mac. The abstract reads,
We describe and evaluate the measures taken by the U.S. government to rescue Fannie Mae and Freddie Mac in September 2008. We begin by outlining the business model of these two firms and their role in the U.S. housing finance system. Our focus then turns to the sources of financial distress that the firms experienced and the events that ultimately led the government to take action in an effort to stabilize housing and financial markets. We describe the various resolution options available to policymakers at the time and evaluate the success of the choice of conservatorship, and other actions taken, in terms of five objectives that we argue an optimal intervention would have fulfilled. We conclude that the decision to take the firms into conservatorship and invest public funds achieved its short-run goals of stabilizing mortgage markets and promoting financial stability during a period of extreme stress. However, conservatorship led to tensions between maximizing the firms’ value and achieving broader macroeconomic objectives, and, most importantly, it has so far failed to produce reform of the U.S. housing finance system.
This staff report provides a nice overview of the two companies since the financial crisis. I was particularly interested by a couple of sections. First, I found the discussion of receivership versus conservatorship helpful. Second, I liked how it outlined the five objectives for an optimal intervention:
(i) Fannie Mae and Freddie Mac would be enabled to continue their core securitization and guarantee functions as going concerns, thereby maintaining conforming mortgage credit supply.
(ii) The two firms would continue to honor their agency debt and mortgage-backed securities obligations, given the amount and widely held nature of these securities, especially in leveraged financial institutions, and the potential for financial instability in case of default on these obligations.
(iii) The value of the common and preferred equity in the two firms would be extinguished, reflecting their insolvent financial position.
(iv) The two firms would be managed in a way that would provide flexibility to take into account macroeconomic objectives, rather than just maximizing the private value of their assets.
(v) The structure of the rescue would prompt long-term reform and set in motion the transition to a better system within a reasonable period of time. (14-15)
You’ll have to read the paper to see how they evaluate the five objectives in greater detail.
