Fannie, Freddie Privatization: Don’t Hold Your Breath, but Alternative is “Groundhog Day”

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December 12, 2016
Fannie, Freddie Privatization: Don’t Hold Your Breath, but Alternative is “Groundhog Day” 

Donald Trump’s Treasury Secretary-designate Steven Mnuchin opened the door to privatizing Freddie Mac and Fannie Mae but according to a new report from Moody’s Investors Service, privatizing the companies is not going to happen any time soon.

fanniefreddie.jpegFurther. Moody’s says it’s  hugely cost-prohibitive.

It goes on, “Privatization would be credit negative for the GSEs because it increases the risk of funding disruptions owing to the many questions about how privatization would occur given the amount of debt the GSEs must refinance,” Moody’s analyst Brian Harris writes in the report.” And, confidence in (the GSEs’) financial standing would be critical given the need to refinance their debts during any transition to becoming a private company.”

According to Moody’s, Fannie Mae’s outstanding debt totaled $351.6 billion as of third quarter of 2016, while Freddie Mac’s was $378.1 billion.

Tom_Cronin_15505_crop-512x640-120x150-120x150.jpg“As to GSE capitalization, Mnuchin and company are smart guys,” says the Collingwood Managing Director Tom Cronin. “Give them a chance to come up with a plan.

Collingwood’s Cronin adds,  “The report is correct in stating that the amount of capital required to support the GSE’s portfolios is massive; what’s new? We need to think differently on this one. Nobody should expect a solution with the flip of a switch. Why not think in terms of a gradual transition, based on operational success and build up of capital via retained earnings —the old fashion way. It will take years, BUT! Control could transfer over time.”

Cronin cautions, “The alternative is perpetual government control and the discussion will be like it is today….. Groundhog Day.”

Congress Gets in on the Fannie, Freddie Bandwagon

Congress may consider a bill to require Fannie Mae and Freddie mac to offload more credit risk onto the private sector.

fannie.pngFannie and Freddie have begun to shift some of the credit risk that each holds onto the private market.

But Representatives Ed Royce (R, CA) and Gwen Moore (D, WI)  want them to move quicker.

freddie.pngGrowing private sector participation in the secondary housing market reduces taxpayer exposure to future losses,“Congress should encourage Fannie and Freddie to increase the amount and the types of credit risk transfer transactions to the maximum level that is economically and commercially viable. Doing so is not only compatible with housing finance reform, it eases the way for future action.”

The bill, called the Taxpayer Protections and Market Access for Mortgage Finance Act, would require the FHFA to establish guidelines for Fannie Mae and Freddie Mac to engage in “significant and increasing” credit risk transfer transactions.

Will Janet Yellen Play Scrooge Ahead of Christmas

Hold on to your Christmas stockings…the Fed is expected to raise rates on Wednesday.

This will be the first time this year and only the second time since the recession ended in 2009 that Yellen and company have felt confident enough in the economy to pull the trigger.

CollingwoTim_On_CNBC_(200x109)_(2).jpgod Group Chairman Tim Rood says, “ Higher rates may be especially tough on first-time buyers and Millennials, who have been forced out of the market due to increasing student debt and the low supply of homes at or near entry level prices.  We have a long way to go to satisfy demand for starter homes”, adds Rood, “and we need to address the underlying issues – red tape and excessive regulatory costs of procuring build-able lots, and the tight credit environment.”

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Ten-X EVP Rick Sharga on the Jim Bohannon Radio Program said he expects the Fed to raise rates by a quarter-point, but that we should remember t”mortgage rates will not necessarily follow that rise.”

Although, last week mortgage rates hit their highest level of the year in anticipation of the Fed increase.  30-year fixed-rate mortgage averaged 4.13 percent with an average 0.5 point for the week ending December 8, 2016, up from the previous week when it averaged 4.08 percent. A year ago at this time, the 30-year FRM averaged 3.95 percent.

The Fed’s  main rationale for a rate raise is that the economy has made solid progress in 2016.  While it remains anemic by historical standards, economic growth has been strong enough that the labor market continues to tighten.

Job growth has averaged about 180,000 per month, somewhere close to twice the pace needed to keep up with underlying population growth.  As a result, the unemployment rate has fallen below the level that Fed officials have signaled is consistent with “full employment,” one of their two Congressionally-mandated goals for the real economy.

Radiator Deaths: Imperfect Solutions to Rising Homelessness

New York Mayor Bill de Blasio has taken responsibility for the city’s worsening homelessness problem, saying, ‘I own it.’ Less than two hours later, his pledge took on tragic implications, when two young sisters were burned to death in the South Bronx by radiator steam in city-financed housing for the homeless. “Although Mr. de Blasio characterized the deaths on Thursday as a ‘freak accident,’ the tragedy underscored the many challenges he faces in addressing an issue where even the potential solutions can create further problems. Rising rents are driving record numbers of New Yorkers into homelessness. The city’s shelters are bursting, but efforts to build more have been met with neighborhood resistance. Alternate forms of shelter, such as temporarily housing families in so-called cluster sites – like the building where the girls died – are costly and, officials say, can contribute to other problems.

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The Russian are Coming, The Russians are Coming

The number of Russians who have expressed interest in buying luxury properties in the U.S. has spiked by 35% over the previous year following the billionaire’s win, according to global real estate consultancy Knight Frank.

Knight Frank said Russians are interested in vacation homes as well as investment properties. Nearly all are looking to spend between $500,000 and $5 million on a residential property, while 10% are hoping to buy commercial real estate.

The two most popular destinations are New York City and Miami.

“Many of our customers are going go to the Art Basel Miami Beach exhibition and will see real estate there,” said Marina Kuzmina, head of international sales at Knight Frank Russia. “A few customers are interested in the opportunity to buy property in development projects of Donald Trump, and we have received requests from U.S. developers wishing to cooperate with Russia.”

Some investors see Trump’s election as a sign that relations between Russia and the West may soon improve. Trump has praised Vladimir Putin as a strong leader, and the Russian president has made clear that he preferred Trump over his rival Hillary Clinton.

Russian purchases of U.S. property accounted for roughly 15% of Knight Frank’s international sales as recently as 2014.

Some of the Russian purchases were extraordinary. Ekaterina Rybolovleva, the daughter of billionaire Dmitry Rybolovlev, made headlines in 2011 when she purchased the then most expensive apartment in Manhattan. The Central Park West condo was bought by a trust under the name of the then 22-year old for $88 million.

Rybolovlev himself bought a $95 million beachfront estate in Palm Beach, Florida in 2008. The seller? Donald Trump.

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Starbucks $10 Cup of Coffee Priced Just Right?

It’s not about the $10 cup of coffee. Critics have derided Starbucks Corp.’s push into higher-end coffee bars, which the chain discussed in detail on at an all-day confab with Wall Street investors and analysts. Skeptics questioned whether millennials would pony up for pricey drinks such as the $10 Nitro cold-brew coffee, which is infused with nitrogen gas. Others poked fun at descriptions of exotic beans small-batch roasted in Seattle. They are missing the point.

Starbucks is not trying to change its current business model by going even more upmarket than it already is, nor is it trying to convince folks to spend more on its run-of-the-mill drip coffee just because it’s served by hipsters in hats and leather-lined cloth aprons (the new uniform of the higher-end Roastery stores).On the contrary, Starbucks has launched a completely separate, brand new restaurant chain — one that rejects the old model of brick-and-mortar ubiquity, while also getting back to the chain’s roots. 

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The Trump Transition

Inside Word From @realDonaldTrump Economic Team Meeting

rood cnbc december-697494-edited.jpg

Collingwood Group Chairman Tim Rood met in New York with President Trump and his economic team including Treausry Secretary-designate Steven Mnuchin and Chief of Staff Reince Preibus.  Rood came away from the meeting impressed that the team wants to cut through red-tape and regulation to help fix housing and mortgage industry problems.  There was also talk of the future for Fannie Mae and Freddie Mac, public housing and more.

Many important business leaders were also in attendance  including that “My Pillow” guy.

 >CLICK HERE:   Collingwood’s Rood explained this and more in an appearance on CNBC Power Lunch 

Carson Conundrum

Reaction flooding in to President Elect Donald Trump’s choice, tapping Ben Carson as his nominee for Housing Secretary.

Collingwood Group Chairman Tim Rood on Fox Business’s Cavuto said, “Dr Carson is an intelligent, impassioned, and empathetic individual.”

tim carson.jpg

As for his lack of experience in the housing arena that may be a positive, Collingwood’s Rood says, “Sometimes the very best policy makers are those who listen; and sometimes, good leaders who are not steeped in the subject matter are better listeners than those who believe they have all the answers.”

>Click Here for Collingwood Chairman Tim Rood’s full interview on FBN’s Cavuto

B.Montgomery_-_Head_Shot.jpgCollingwood Group Deputy Chairman Brian Montgomery tells Westwood One’s First Light radio show, “There is little doubt President-elect Trump greatly admires and respects Dr. Ben Carson and felt strongly about him joining his Cabinet.

Having spent almost eight years in the Executive Office of the President, I speak from experience in saying a Cabinet Secretary who has the ear of the President is a positive for that agency and individual.  In this instance, I think Dr. Carson will be able to “elevate” the issue of Housing within the Trump Administration.  The fact Dr. Carson is a household name I believe will provide him a larger platform to articulate his vision for how best to help tackle any number of issues within the housing arena: shortage of affordable rental housing, the impact of new regulations which have constricted the mortgage market, and the growing senior population and how best to address their housing need.,”

sharga tv.jpg“Dr. Carson’s nomination is an indication of the tremendous respect that President-Elect Trump has developed for his former rival,” says Ten-X EVP Rick Sharga.Sharga adds “Dr. Carson has spoken out in the past about the need to revitalize many of the country’s urban areas, so it wouldn’t be a surprise if he focuses on doing that, and trying to find solutions to the growing problem of affordable housing. Since Dr. Carson has also discussed the unintended consequences of over-reaching government regulations, it’s possible we may also see some streamlining, or regulatory relief as well.”

By the way, Fannies’ stock price ended the day down 5 percent, Freddie’s is down 6 percent, and both were going even lower in after-hours trading

-“The Trump Effect” on Housing, The Collingwood Group Chairman Tim Rood on Fox Business’s Cavuto: chicago.jpg?v=TqPcoYyJuo

-Rood on the National Business Report  >CLICK HERE TO WATCH: Group’ Chairm

-Collingwood’s Rood on Business First AM >CLICK HERE TO WATCH:

-Rood with the trifecta, a third television interview from the Chicago Board of Trade >CLICK HERE:

Will Trump Tackle Housing Finance Reform?

Housing was the talk of the campaign two presidential elections ago, but it stayed under the radar in the 2016 race, leaving plenty of room to speculate about President-elect Donald Trump’s likely mortgage policy for the next four years.

On the one hand, without a crisis, observers said there is little incentive for him to move quickly on the issue.

But the unresolved question of what to do with Fannie Mae and Freddie Mac – both in conservatorship since before Barack Obama’s election – will loom large over the future Trump administration.

Exactly how Trump would address the issue is a complete mystery. The issue was never raised on the campaign trail.

“If you read the republican party platform, it is pretty obvious the Republicans are for less government in housing,” said Brian Montgomery, vice chairman of The Collingwood Group and a former Federal Housing Administration commissioner.

But no one expects sweeping action because other issues are higher priority, such as health care reform.

“If you ask most lenders, the market works today,” says Patrick Sinks, the chief executive of MGIC Investment Corp. and the chairman of U.S. Mortgage Insurers, a trade group for the private mortgage insurance industry.”A lender wants to originate a loan, insure that loan and turn around and sell that loan to the GSEs and replenish their capital and start the process over again. That works. And it keeps humming along.”

As long as that remains true, the incentive to make big chances won’t be there.

“The bigger issue is what the right role for government in housing is,” Sinks said. “That’s going to take legislative action and [lawmakers in either party] just don’t seem to be in a hurry to resolve it.”

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Industry Insight: The Opportunity for Change in Housing Policy

DS News covered what the future of loss mitigation will look like after the expiration of HAMP on December 31, 2016. To explore the topic further, DS News sat down with Meg Burns, Managing Director of The Collingwood Group, to discuss the opportunities that come from pairing a new administration with housing policies such as loss mitigation, regulatory compliance, and more.


Burns joined The Collingwood Group in 2014, and as Managing Director, supports the firm’s Business Advisory and Business Development practices. Prior to Collingwood, Burns served as the Senior Associate Director of the Office of Housing and Regulatory Policy at the Federal Housing Finance Agency (FHFA). There, she managed various policy and regulatory initiatives involving single-family and multifamily finance and loss mitigation strategies, as well as insurance-related activities of the government-sponsored enterprises. As such, she was actively involved in industry-wide discussions regarding the role of the federal government in addressing the mortgage crisis.

With the end of HAMP drawing close, what is to come for loss mitigation?

The fact that the sunset of HAMP coincides with the arrival of a new leadership team in Washington is a great opportunity because there is a chance for a really fresh policy dialogue. The good news is that the industry has a lot of work that has been underway for quite sometime now to put forward a good plan for a new set of loss mitigation strategies including a particular set of modifications. It is a very cool time for HAMP to be expiring in some respects and I think that what we will see are some programs that really do reflect the lessons that have been learned. I also think that the reason a new leadership team in Washington is so helpful is because we can have really honest discussions and assessment of what those lessons learned are. It is often a lot easier for a new group of policy leaders to embrace the policy achievement of the team before them but also to acknowledge program flaws without feeling defensive or like they were integrally associated with them. At its core, what was reaffirmed through the HAMP experience was something that most good policymakers know very well which is that complicated program rules generally translate into fewer program beneficiaries. In the HAMP space there was an extended period where they were really striving for perfection and precision both in the data collection aspect and some of the calculations to determine who was eligible. One of the lessons learned in HAMP is that striving for that perfection and precision really rendered  fewer distressed borrowers eligible. I think that what we will see are the modifications that replace HAMP will be modifications that follow some basic rules rather than complex calculations.

Aside from HAMP, what other policy changes might be impacted by the entrance of a new administration?

I think there is tremendous opportunity across the board and I think that the new leadership team has certainly publicly acknowledged a concern with the heavy-handed nature of the regulatory framework in Washington D.C. today. If the new team begins their policy discussion from that perspective, there is a chance that we will see some of the very aggressive enforcement activity move into a space where those who are responsible for monitoring the leading communities activities will start to identify problems and issues but more for the purpose of addressing them and resolving them as opposed to taking very stringent enforcement actions. That type of enforcement outcome clearly has resulting in less lending activity and stifled access to credit. There is a huge opportunity for the Trump Administration to revisit the way rules have been enforced and to take a more relaxed approach not to identifying problems, but to how those problems get resolved. That should make a big difference for lending activity in the country and help more consumers.

Do you think that taking a relaxed approach will possibly improve homeownership?

I do. I think that the nature of the regulatory expansion over the past eight years has affected home sales. The cost in certain parts of this country to build homes has increased so substantially that it’s almost impossible in certain communities to construct starter and affordable homes. I think there is certainly a good opportunity for this new administration to take a look at ways to reduce some of that regulatory activity to the extent that the federal government has a role. This will also impact the lending space where there have been a lot of new regulations put in place as a result of Dodd-Frank in part. They have had a suffocating effect on the ability of lenders to reach the population of borrowers who are most in need of affordable financing options.

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Have a productive day and a great week!

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