Housing Bailout Warning

Posted on in GSE, Housing, TV Appearances

There is a legitimate risk that Fannie and Freddie would have to call on a credit line that they have with the Treasury. That’s what Collingwood’s Chairman, Tim Rood, told Neil Cavuto on Fox Business Network’s Cavuto. The difference this time, Rood says, is that the Government bailout is by design. He says, “It’s part of this do or die gamble by officials to basically make such a scary outcome, engineering a crisis at Fannie Mae or Freddie Mac to compel Congress to act and its not working so well.

When asked how Fannie Mae and Freddie Mac have fared since the housing crisis, Rood answered “Pretty remarkably.” He says that the GSEs have a natural ability to make profits, because, “when you’ve got a $5 Trillion book of business, little tweaks to their guarantee fees or their insurance premiums really bears out into big numbers.”

Fannie Mae and Freddie Mac made about $123 Billion in 2013, they’ve paid back the full amount that the government lent them and they are actually up about $40 Billion from the amount that they borrowed. Rood says that, “It’s a pretty remarkable turnaround but you can’t have that kind of luck forever.”

Furthermore, Rood noted that, “This new chatter about the solvency of Fannie and Freddie is because the way the government has engineered their takeover of Fannie Mae and Freddie Mac essentially guts them—it takes all the profits from the organization and it makes them deplete their capital levels. And by deplete I mean handed to the Treasury Department.”

Finally, Cavuto brought up the moves by the Obama Administration to encourage more home buying. Rood responded by saying, “The administration is clearly trying to balance a couple of things here. They want the access to credit desperately. They want to do everything they can to expand the [credit] box, responsibly of course, in terms of who can qualify for mortgages. They want to make it more affordable so they are doing things to lower the interest rate. But the thing is that patriotism doesn’t compel lenders to actually use these government programs, capitalism does.”

He also added, “There’s so many risks associated with doing these programs that what lenders learned over the last five to six years is that the whole time they thought that they were selling credit risk off to Fannie Mae, Freddie Mac, the the FHA, it turns out they were renting it because when these loans went into default the government basically armed up, worked with the Justice Department, and came and collected as much as they could from these organizations for what we used to call Jay-Walking equals capital murder. They would find one little thing wrong with the file and that would cause you to buy the whole loan back.”

Cavuto ended the interview by jokingly suggesting that if Tim Rood was in charge of Fannie Mae, the crisis might never have happened.


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