Nov262013

Mel Watt soon to loot the GSEs for political gain

I recently asked What would Watt do as the new head of the GSEs? His public statements support the view he would institute a widespread principal reduction program to loot the GSEs for political gain. Such a policy would be a tremendous boon to loanowners and his colleagues on the political left. His predecessor, Edward DeMarco, fervently resisted such policies because he recognized the moral hazards, and he wasn’t motivated to help politicians buy votes. By contrast, Mel Watt is a political hack who would like to dole out taxpayer funds to buy more votes for his party.

Senate Rule Change Could Ease Housing Regulator’s Confirmation

By Nick Timiraos — November 21, 2013, 4:30 PM

Thursday’s Senate vote to eliminate the use of the filibuster to block certain presidential nominees paves the way for the Senate to confirm Rep. Mel Watt (D., N.C.) to head the agency that controls mortgage giants Fannie Mae and Freddie Mac.

The installation of Mr. Watt is part of a broader effort to redirect an impending overhaul of Fannie and Freddie, which have been in a government conservatorship since being rescued by taxpayers in 2008.

Last month, Senate Republicans took the rare step of blocking a sitting member of Congress to an executive post when they voted against bringing Mr. Watt’s nomination to head the Federal Housing Finance Agency up for a vote. Mr. Watt needed three more Republican votes to reach 60, the number needed to overcome a filibuster. Only two Republicans, Sens. Richard Burr of North Carolina and Rob Portman of Ohio, backed Mr. Watt.

With Thursday’s rule change, which was triggered by Senate Republican opposition to three key judicial nominees, that filibuster hurdle likely has been removed for Mr. Watt.

The end of the filibuster on judicial nominations frightens partisans of both parties. Some partisans celebrate its removal and want to see the filibuster eliminated entirely, but these desires to see their agenda enacted are short sighted. For all its flaws, the filibuster stabilized American politics for almost 200 years. The threat of filibuster prevents a tyranny of the majority by making laws difficult to enact or overturn. If the filibuster were entirely removed, the Congress that removed it would enact its entire legislative agenda, and partisans would rejoice. However, the moment control flipped back to the other party, the entire agenda of the previous Congress would be thrown out and a new agenda enacted. The turmoil would destabilize our entire political and legal system.

The above being true, it’s also true that application of the filibuster has been less restrained in recent years. Robert Bork’s Supreme Court nomination filibuster in the 1980s marks the first time a filibuster was used against a Presidential nomination. Only recently filibusters against political appointments became popular. The overreach by the minority party was destined to cause a backlash.

The move is a major adjustment to the Senate rules, however. One question that remains: does the filibuster-fix chill legislative work in the Senate, particularly the efforts between Republicans and Democrats to agree on a bipartisan overhaul of Fannie, Freddie, and the nation’s $10 trillion mortgage market? Those discussions have heated up in earnest after Sens. Bob Corker (R., Tenn.) and Mark Warner (D., Va.) introduced their own bipartisan bill this past summer. …

This appointment matters because whoever heads the FHFA over the next several years will play a large role in shaping and implementing whatever reform takes place. The last thing we need is a partisan hack who will plunder the pork barrel for political gain.

But some administration officials have raised concerns that in recent months, Mr. DeMarco has signaled a greater willingness to liquidate Fannie and Freddie without clear evidence that private capital is ready to pick up the slack. Mr. DeMarco, for example, has directed the companies to reduce their purchases of multifamily mortgages by 10%.

The tension underscores a fundamental challenge for the government as it tries to draw private investors back to the mortgage market five years after the financial crisis. One school of thought, seen in Mr. DeMarco’s approach, is that private capital will be unlikely to return so long as it has to compete with the government.

Private capital shies away from mortgage lending because it can’t compete with the government. The GSEs have the backing of the US government, so investors will purchase mortgage-backed securities from the GSEs at lower interest rates than they would from a private insurer. Further, investors will loan money to the GSEs directly in the form of bond purchases at lower rates as well also due to taxpayer backing. For private institutions to take over either of those functions of the GSEs, mortgage interest rates would have to rise.

The only method of bringing private capital back to the market while the GSEs exist is to increase the guarantee fees, which effectively raises interest rates, or tighten lending standards (See: Tightening government lending standards would bring back private lending). By making access to capital more expensive and more restrictive, private money can find opportunities on the margins. This is the current strategy Edward DeMarco is employing to slowly bring private capital back to the market. It’s also the most sensible approach to winding down the GSEs.

But some industry and administration officials have taken the view that other factors, including the low interest rate environment, may be keeping private capital on the sidelines, regardless of the government’s role. Raising the cost or limiting the reach of government-backed capital, they worry, might simply contract mortgage credit altogether. …

Mortgage credit will contract, at least temporarily, but contraction is a necessary precursor to private equity entering the market. Private lenders will only enter where a bona fide need exists, and they can make a profit.

“You can’t have a wind-down strategy … that doesn’t connect up to that long-term system that we have to build for the American people,” said Michael Stegman, a senior Treasury Department adviser, at an industry conference last month.

Gene Sperling, the director of the White House National Economic Council, said Wednesday that putting in place a confirmed director would provide greater certainty to markets over the future of housing policy and to the fledgling agency, which was created when two smaller regulatory agencies merged in 2008.

Putting Mel Watt in charge probably would provide greater certainty to the future of housing policy. It’s certain he will work to loot the GSEs for political gain at the expense of taxpayers. Beyond that, what he will do is a complete mystery. Perhaps he will surprise all of us and do the right thing like Edward DeMarco. I’m not holding my breath.

Last payment in 2008

Today’s featured property has been non-performing since late 2008. The last payment anyone made to live in this property was five years ago.

Despite this lack of income, the lender demonstrated no alacrity to process the foreclosure or sell the REO. The first NOD on the property was issued in April of 2009. The foreclosure occurred in October of 2012. One year later the lender finally lists this property. Why the delay? Perhaps the 22% increase in price gave them pause. The lender stands to profit from appreciation despite the years of non-performance on the loan.

Can-kicking works.

[idx-listing mlsnumber=”OC13232645″]

9 PETERSBURG Irvine, CA 92620

$749,900 …….. Asking Price
$600,000 ………. Purchase Price
3/29/2005 ………. Purchase Date

$149,900 ………. Gross Gain (Loss)
($59,992) ………… Commissions and Costs at 8%
============================================
$89,908 ………. Net Gain (Loss)
============================================
25.0% ………. Gross Percent Change
15.0% ………. Net Percent Change
2.6% ………… Annual Appreciation

Cost of Home Ownership
——————————————————————————
$749,900 …….. Asking Price
$149,980 ………… 20% Down Conventional
4.37% …………. Mortgage Interest Rate
30 ……………… Number of Years
$599,920 …….. Mortgage
$149,601 ………. Income Requirement

$2,994 ………… Monthly Mortgage Payment
$650 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$156 ………… Homeowners Insurance at 0.25%
$0 ………… Private Mortgage Insurance
$65 ………… Homeowners Association Fees
============================================
$3,865 ………. Monthly Cash Outlays

($713) ………. Tax Savings
($809) ………. Principal Amortization
$239 ………….. Opportunity Cost of Down Payment
$114 ………….. Maintenance and Replacement Reserves
============================================
$2,696 ………. Monthly Cost of Ownership

Cash Acquisition Demands
——————————————————————————
$8,999 ………… Furnishing and Move-In Costs at 1% + $1,500
$8,999 ………… Closing Costs at 1% + $1,500
$5,999 ………… Interest Points at 1%
$149,980 ………… Down Payment
============================================
$173,977 ………. Total Cash Costs
$41,300 ………. Emergency Cash Reserves
============================================
$215,277 ………. Total Savings Needed
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