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Thread: Freddie Mac Betting Against Struggling Homeowners

  1. #1

    Freddie Mac Betting Against Struggling Homeowners


  2. #2
    Listened to this story this morning. The issue of Freddie Mac's investments is somewhat misleading, I don't find it surprising that Freddie Mac is invested in mortgage-backed securities, or that these MBS perform better when people stay in their existing mortgages rather than refinance to lower rates. What I do find surprising and disappointing is that Freddie is dragging its feet in implementing changes requested by both Congress and the Administration to start freeing up underwriting standards for refi's. There has got to be a reasonable middle ground between the no-interest, no-equity, no ID, no background check, no money down standards of 2006 and the 20% equity or no refinance standards of today. Whether it is a conflict of interest or simply a desire not to get burned by extending bad loans, I don't know, but Freddie Mac has got to start offering meaningful refinance options to people with good credit who own less than 20% of their home. (And that should include JUMBO mortgages too.)
    "The distinctive mark of the Christian, today more than ever, must be love for the poor, the weak, the suffering." Pope John Paul II


  3. #3
    I literally laughed out loud the other day when someone asked why we wouldn't do a stated income deal for his client.

  4. #4
    Quote Originally Posted by ChitownHusker View Post
    Whether it is a conflict of interest or simply a desire not to get burned by extending bad loans, I don't know, but Freddie Mac has got to start offering meaningful refinance options to people with good credit who own less than 20% of their home. (And that should include JUMBO mortgages too.)
    There was a program, I think part of TARP, that created refi options in the case when the home's decrease in value led the borrower's equity to fall below 20% (I know this because, fortunately/unfortunately, I was able to take advantage of it).

    But, that program may have stopped, or it might have other conditions that keep a lot of people out. Long-term, I don't think the US government should really be in the home loan business. But worse, if we're going to offer home loans, we can't only offer super-low rates to especially-well-qualified borrowers. That's a very regressive program (and fairly expensive -- worst of both worlds).

  5. #5
    I wish the article had said what the dollar amount of these bets was. Basically, Freddie Mac made a bet that homeowners wouldn't be able to re-finance. This is problematic because Freddie Mac essentially decides who gets to re-finance.

    The best way to predict the future is to invent it. And the easiest way to invent the future is to get the government to legislate the future for you. This is the single biggest argument against big government, to me. It creates distortions at all levels, from tiny local governments to multi-billion-dollar corporations. There's the local real estate speculator who profits when a town expands in a certain direction, and there's huge, bizarre "kind of for profit" entities like Freddie Mac who benefit from their own control of the home mortgage industry.

    But, how horrible this Freddie Mac thing is really depends on how large the bet was. It might be fairly harmless. I bet it was well-intentioned. I doubt these guys were so nefarious to have covert conversations like, "okay we're going to bet against these things so make sure you don't allow struggling home owners to refinance. And we all make money. Deal?" But the opportunity for abuse (intentional or not) when you put trillions of dollars of debt and a blank check from the US taxpayer in the hands of a small group of people is just too great to ignore.

  6. #6
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    I am one of those people that is underwater but has great credit no debt and can't refi. We have 5.6 right now so that is great but when I can get a 3.8 and can't for no good reason it is a little frustrating.


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    Quote Originally Posted by Huskermedic View Post
    I am one of those people that is underwater but has great credit no debt and can't refi. We have 5.6 right now so that is great but when I can get a 3.8 and can't for no good reason it is a little frustrating.
    Are you willing to put down a lot more money to make up for being underwater?

    Because otherwise you are asking someone to take on the risk of an unsecured default (essentially credit card loans) for an extremely low rate.
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  8. #8
    Quote Originally Posted by cm husker View Post
    Are you willing to put down a lot more money to make up for being underwater?

    Because otherwise you are asking someone to take on the risk of an unsecured default (essentially credit card loans) for an extremely low rate.
    False. Real estate in America appreciates at 6% a year, and never goes down.

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  9. #9
    Quote Originally Posted by Huskermedic View Post
    I am one of those people that is underwater but has great credit no debt and can't refi. We have 5.6 right now so that is great but when I can get a 3.8 and can't for no good reason it is a little frustrating.
    This is where government guarantees could be helpful, because cm is right, given what we have just been through, I understand why lenders are unwilling to take on unsecured debt liability.
    "The distinctive mark of the Christian, today more than ever, must be love for the poor, the weak, the suffering." Pope John Paul II


  10. #10
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    Quote Originally Posted by ChitownHusker View Post
    This is where government guarantees could be helpful, because cm is right, given what we have just been through, I understand why lenders are unwilling to take on unsecured debt liability.
    Banks have no incentive to lend as government backed/guaranteed is a joke. Talked to many bankers back in 2009 when as part of Stimulus XXIV, or what ever one was out then, called for the America Small Business Recovery ARC loan program and was told by every one of them that no matter what the government says, they can deny a defaulted loan claim by one of a hundred different clauses effectively handing the debt back onto the shoulders of the bank.

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  11. #11
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    Quote Originally Posted by ChitownHusker View Post
    False. Real estate in America appreciates at 6% a year, and never goes down.

    This message has been sponsored by, the year 2005.
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  12. #12
    Quote Originally Posted by CornfieldCounty View Post
    Banks have no incentive to lend as government backed/guaranteed is a joke. Talked to many bankers back in 2009 when as part of Stimulus XXIV, or what ever one was out then, called for the America Small Business Recovery ARC loan program and was told by every one of them that no matter what the government says, they can deny a defaulted loan claim by one of a hundred different clauses effectively handing the debt back onto the shoulders of the bank.
    Agree with what you say, but that doesn't mean that a government guarantee can't be done effectively. All it means is that it hasn't been done effectively. FDIC depositor insurance, by contrast, has been enormously effective in ensuring confidence in banking and preventing a run on the bank.
    "The distinctive mark of the Christian, today more than ever, must be love for the poor, the weak, the suffering." Pope John Paul II


  13. #13
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    Quote Originally Posted by ChitownHusker View Post
    Agree with what you say, but that doesn't mean that a government guarantee can't be done effectively. All it means is that it hasn't been done effectively. FDIC depositor insurance, by contrast, has been enormously effective in ensuring confidence in banking and preventing a run on the bank.
    100% Federally guaranteed and Federal Deposit Insurance Corporation are two completely different gorillas.. apples to oranges, imho.

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    Quote Originally Posted by Greatest Fan of All View Post
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