Senate's mortgage rescue backed by Fannie, Freddie

Breaking news from Reuters: "Key members of the U.S. Senate have reached a deal on a sweeping housing rescue plan that would see Fannie Mae and Freddie Mac backstop a government mortgage insurance fund, two industry sources said Thursday.

More: "Sen. Christopher Dodd, chairman of the banking committee, said that a deal had not been finalized. But the plan outlined by the sources says the two mortgage finance giants would offer the funds to cover the costs of a $300 billion mortgage rescue fund."

One member of the Senate who will probably not be voting in support is our old friend Jim Bunning of Kentucky. Highlights of his comments today in opposition to the bill: "A major part of this bill is a big bailout for irresponsible lenders and borrowers.... The whole idea of bailing out people who took a gamble and lost is an irresponsible way to spend the taxpayers' money. I do not think the people back in Kentucky sent me to Washington to bail out speculators, Wall Street executives, and people who drained the equity in their homes to buy flat-screen televisions and new cars."

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com.

Comments

[Laker]

I'm interested to know where is this money coming from?
I didn't know Fannie and Freddie have 300 Billion in capital sitting and doing nothing. As far as i remember they have something like $70 billion combined that back $10 trillion....

[tarbubble]

this is insane. my head may possibly explode. i don't want an economic disaster, i don't want us to slide into an economic depression, but... but... this ain't right.

[puckhead]

No surprise. After Bear Stearns went down it was obvious that the gov't in some form or another would backstop mortgage back securities. We can debate and bitch about it all we want, but it was inevitable

[brettdl]

I believe in the idea of a social safety net, but not this baloney. How do I explain to my kids that someday they will be taxed for the benefit of those who lived well beyond their means while we scrimped and saved all our lives?

[150 Multiple Choice Questions]

Raise your hand if you hope a large light falls on Senator Dodd!

Seriously, how do these absolute scumballs justify this? The sad thing is that 300 Billion isn't nearly enough and this bill will do the exact same thing as everything else these sheep-jackals have come up with... Make it worse. They screwed it all up on the front-side, now they're doing it on the back-side... and doing all the responsible Americans in the backside as well.

LET THE MARKET WORK!

[150 multiple choice questions]

VIVA JIM BUNNING!

[Digitalian]

...and this means that the last, best hope for responsible taxpayers to avoid being defecated upon once again is ... George Bush and his veto pen.

[gary]

once again the democrats have to fix the mess the republicans created. WIll we ever learn that when the democrates are in charge things get done, when the GOP is in charge we have greed and anarchy.

[ted]

for all of you complaining your kids will pay the price, too bad. My girlfriend and I who have no kids and have always made at least 30% above the normal incomes all our lives have been paying for your kids to go to school. Where is our tax relief for education or housing or feeding or providing medical care for all your kids? Be you rich or poor. Whether we like it or not we are all in it together regardless of our family size. We pay tons of money for all the above and never complain. But lately its become a total "what are you doing for me" mentality. If you dont agree then start doing what we do and we, for the past 10 years NEVER vote for incumbants. The only way to recycle the trash is by not keeping the same old garbage around.

[MyLessThanPrimeBeef]

What state is Dodd from?

What do people of that state have against free market capitalism?

[Cal]

http://tinyurl.com/5tflzg

FHA chief doesn't like it.
"As one colleague described it, it is "on steroids" because it throws sound underwriting out the window. It moves us toward a federalization of the mortgage market, forces taxpayers to pay for bad loans, and doubles FHA's portfolio, adding hundreds of thousands of risky loans in a Byzantine process that will take years to sort out and create a regulatory nightmare.

Of course, there is room for compromise. We share the same goals. But we need to make this bill more workable and fiscally sound. I think the president is right to veto the bill in its current form. But I also think that we, those of us in this room and others, can come up with helpful legislation if we can achieve a common vision about the solution, if there is a willingness to compromise, and if there is a willingness to direct efforts to help those who have tried to be responsible borrowers and not reward those who rolled the dice and lost.

We have to look past the current crisis to the future. We want to help people keep their homes. We also want to lay a foundation for a more stable housing market in the future, a market with proper incentives and a smoother housing cycle. We want to promote further, sustainable homeownership. Our future economic strength depends on how we act now in this crisis."

""I have no doubt we're all working to the same goal here; the question becomes, at what price? And our mind-set is going forward that taxpayers who had no part in any of this...shouldn't have a bill coming their way. We shouldn't have the U.S. taxpayers providing what would be a payoff to lenders. "

I don't like it either but I don't think it will make a huge difference. If was an agent I would hate it because it will just reduce sales volumes and keep the market stagnant.

[me]

Gary: "once again the democrats have to fix the mess the republicans created. WIll we ever learn that when the democrates are in charge things get done, when the GOP is in charge we have greed and anarchy."

I AGREE WITH you Gary, but now if you cant stop them join them. IF THAT GOES THROUGH, I AM GOING TO ABANDON MY MORTGAGE. HELL, Im not going to play martyr.

[Vernon]

The Administration and the Banks are running game. The Banks were paid for these loans by Wall Street Investors. They say the problem is they don't want to be sued for interferring with a contract. But if the banks take the property back the investors get screwd and the bank get the property to resale. Hmmmmmmmm!!! Whats up with that????

[Joseph...The Real Estate Guy]

Amen Senator Bunning!

Gary,

Don't be so stupid. This mess was started by the Clinton Administration.

Do a google search and read a couple of reports by the Liberal Newspaper called
"The New York Times".

I am not an apologist for the Bush administration. I hate Partisan Politics.

[Fred]

The worst part of it all is that this won't stop the bleeding. It will only prolong it and substantially weaken the U.S. economy and the dollar in the process (more borrowing).

[Robert in Palm Springs]

Our government doesn't seem to realize that they have no money and cannot insure everyone's debt without risking the worth of their own debt on the world markets (see Treasuries). The drop in the dollar is a drop in confidence in our country. Ultimately, the demise of our economy will force us to end the war in Iraq. Wars are lost when they are not profitable.

Fannie and Freddie are already losing money. Their losses will both increase in velocity and size (also see SNOWBALL) as time goes on. This is simply trying to do the same old thing the same old way--insure debt with more debt. Besides, the government just lowered their reserve requirements so they can make more loans just when they should be increasing their reserves because they know more losses are coming. Just as the bond insurers Ambac and MBIA are finding out, they do not have enough capital reserves on hand in case of massive claims which are starting to come in. This is another scheme that will fail.

We know the volume and speed of bad debt getting exposed and coming due is increasing because of the actions of the Fed and the Bank of England. First it was $50 billion/month, then $100 billion/month and now it has just been raised to $150 billion/month. All loans in secret and the standards of acceptable collateral lowered in exchange for US Treasuries. Even mortgage banks can borrow, which was not previously allowed. The Bank of England is even more secretive now that their RE market is collapsing saying they will never tell to whom they lent money during this liquidity crisis even after 30 years.

The current debt implosion is the ultimate chamber of horrors for the financial markets, our government and many consumers. Everyone is finding out that they cannot do what they used to do. Those days are over.
The money simply isn't there because it has been spent and/or lost through the excessive leveraging that it took to build the financial pyramid that is now collapsing and engulfing us all to some extent or another. Unfortunately the uber rich will always look after their own and will do anything to cling to their power and money regardless of the consequences for the country at large. Free markets, HAH!

In 2005, the late Austrian economist Dr. Kurt Richebaecher said the current American economy is the sickest in history by going into excessive debt to fund consumption. THIS HAS BEEN THE BIGGEST BORROWING AND SPENDING BINGE OF ALL TIME! Such excess is ALWAYS followed by a downturn of equal or greater proportions.

The real estate market set a trap. Rising prices expanded the value of the entire housing market to outrageous levels with only a few transactions taking place. With falling prices, this wealth is being devastated with the same speed and leverage, again based on only a few transactions.

People borrowed not only against future income, but against nonexistent perceived wealth (aka home equity), With the decline in home prices, Greenspan's virtuous circle has come to an end. There is no more fuel for the fire today, tomorrow or next week. With 30x to 50x leveraging for bonds, hedge funds and so forth, you can see the scale is even too large for the government to control, much less guarantee. A very large contraction is inevitable.

This is very early in the game yet. Fortunately, people who did not ensnare themselves in the tar pit of debt will be in a position to thrive while many of their colleagues sink into oblivion.

[Look, Ma, I'm published]

Clearly something, anything, has to be done.

It's an election year.

But I think we need to wait to see what the stimulus checks are going to do for the economy.

Wheeeeeeeeee

[Jaque Strap]

Republicans, Democrats, they are all corrupt. Anyone who thinks either party is more pure than the other when it comes to greed and corruption is either dishonest or just plain dumb. The sad truth is that it is almost certain that even a lame duck veto of this legislation by the moron in chief would get overridden by the clueless, bi-partisan congress. The one saving grace is that this thing is likley to be a spectacular failure that only excaerbates existing problems and creates opportunites for those of us who have cash ready to take advantage .

[Uncle Billy Climbs Mont Pelerin]

Robert, whatever do you mean: "Our government doesn't seem to realize that they have no money"?

All the fed needs to do is press a couple of buttons on their big greasy keyboard and presto, trillions in new repurchase agreements. Instacash. It just seems to me that the more they do this the less the dollar is worth. No? Cash green money supply has been ticking slowly upward for years. Magical digital money has been going vertical. Just don't know how this works -- we'll have to ask Friedman, Greenspan, and Bernanke again.

[Valley Observer]

My understanding of the legislation is that to participate, a lender must accept major haircuts, which means they not FHA absorb the loss, which makes sense because they overlent considerably as a result of not properly valuing their collateral (didn't forsee the bubble ever ending), and underestimating the effect of interest rate resets. The liability shifts to FHA only if the loans go bad on the revised terms. It's as if a time machine was created and we went back and re-did the transactions with more realistic prices -- although the 2006 sellers get the keep the money! Maybe the lenders won't want to participate and would rather foreclose and deal with a huge inventory of houses.

[bigerikwithak]

Jim Bunning for President!
One another note; in the comment section of that San Luis Obispo robber story, a commenter tips on a recent '60 Minutes' story about Online Realtors and their battle against tradtional RE Agents' sacrosanct 6% commision?
Check it out folks;
http://www.cbsnews.com/stories/2007/05/11/
60minutes/main2790865.shtml

[SoCalRealEstateNews.com]

Actually, Barney Frank astutely added some very sensible components to his radical, $300 billion "let's just bailout everybody" bill. The strategy apparently worked--at least with Fannie & Freddie & maybe even Bernanke.

There are both legitimate and illegitimate victims in the subprime meltdown as well as the Fed-stimulated bubble. Frank wants to bail out everyone. Hopefully the Senate's effort at bipartisanship will result in a more moderate and practical bill.

We have a number of posts on this evolving bill as well as the whole subprime mess on our blog,

http://SoCalRealEstateNews.com

[MyLessThanPrimeBeef]

(In my best Welch/Godfather's Tom Hagen imitation)

You have done enough, senator. Have you no sense of decency, sir, at long last? Senator, in attempting to bail out speculators and flippers, you owe decent, hard-working, financially responsible Americans an apology. You own them and all unborn Americans a fair chance at subsistence living, after you and your colleagues have, via NAFTA & WTO in years past and through on-going world-class coin-clipping work at the Fed, taken 'class' away from these middle class Americans.

[bulwark]

I'm outraged. Our family has gone without for years while we saved our money and paid our taxes. Now our savings won't amount to anything, and our taxes are used to bail out banks and speculators. Jim Bunning, you have my vote!

[bulwark]

VETO THIS BILL!