Thursday, November 03, 2011

Freddie Mac CEO to Step Down -

Freddie Mac CEO to Step Down -
Freddie and its larger sibling Fannie Mae face growing scrutiny as the government's cost of the 2008 takeovers mounts and the housing market faces prolonged weakness. The FHFA's inspector general, along with several lawmakers, have criticized several key decisions made by Freddie, Fannie and their regulator. Current and former employees have said that has led to a difficult work environment, where decision-making is often frustrated by second guessing. Last month, for example, the inspector general alleged that Freddie Mac had left money on the table when it agreed to a $1.3 billion settlement with Bank of America Corp. over faulty mortgages. It also issued a report criticizing the FHFA's decision to award multi-million-dollar pay packages to senior executives...Freddie Mac has taken nearly $52 billion in government aid to stay afloat, though for the past four quarters it has returned more money to the Treasury than it has taken. Fannie has cost taxpayers $89 billion. The firms own or guarantee nearly half of all U.S. home loans outstanding.
Fannie and Freddie have received over $140 billion from the taxpayers since they were placed in conservatorship. That was done, you will recall, after the debacle that ensued while they were privatized, when their CEO's tried to compete with a private mortgage securitization market that was in the process, we know know, of committing suicide. But the problems with the GSE's conduct these days are different. They are coddling the big banks and playing the hardest of hardball with struggling homeowners. Read Maureen Tkacik's two part series on this. See Jennifer Dixon's three-part series on how Fannie and Freddie are encouraging foreclosure in Detroit.

As part of Obama's pre-election shift to the ever-so-slightly left of center, he is trying to address criticisms that his housing policies have been a flop. Changes of leadership at the top might be part of that. But Tkakic thinks Ed DeMarco, the conservator of the GSE's, may be fired for his own sudden shift toward holding banks accountable. The putback litigation by the GSEs and a host of private investors in mortgage-backed securities could be a huge blow to Bank of America and perhaps other huge banks. B of A bought Countrywide, a company that engaged in horrifically shoddy securitization practices, and under the pooling and securitization agreements the remedy for their transgressions is forced buyback of the (now largely worthless) loans. The exposure is potentially in the hundreds of billions of dollars.

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