Seeing Through Data

Oops, they did it again.

Mortgage Daily News reports Fannie and Freddie spent $600K in Oct., 2011 at the MBA’s annual convention.  In 2010 they spent $640K on the same conference and Congress went ballistic.  Apparently Fannie, Freddie, and the FHFA thought the outrage of our elected officials warranted a change, so they responded by reducing spending by a whole 6.25%.

I shouldn’t be writing.  I’m backed up with arguably the most complicated and important data aggregation project I’ve ever been involved in.  When finished I’ll be pushing out chart’s that make CR’s chart fascination look benign.

But I can’t help but to take a few minutes and digitally ink a few words about this.

Fannie Mae and Freddie Mac just stuck up the middle-finger to you, Congress, and to the American’s that you’re supposed to represent.  Will you finally do something meaningful about it?

Unlike many I don’t think that Ed DeMarco is evil incarnate.  I think that he’s doing his best given the constraints of HERA but he’s dealing with two unruly, entitled, dishonest beasts who hold themselves above the law, who have shown that they can’t be regulated, and who need to be unwound.

Let’s finally change HERA, the law that funds these monsters.  Let’s admit we can’t mend it, and finally end it. 

It’s time for Congress members to stand, Reagan-style, in front of their headquarters and scream “Fellow members of Congress, tear down these organizations.”

This isn’t a Democrat nor Republican problem: Fannie and Freddie have become the vision of an equal-opportunity contemptuous monster.  They’re like the child of parents who bitterly divorced and who later realizes he can play them off one another, listening to neither, while repeatedly spending wildly on their credit-cards then sneering when called out.

Speaking of children, my own son is in a public charter-school math and science program where three years of honors high-school math are required before starting high-school.  His class is the first where Hon. Algebra II wasn’t offered in summer-school because of budget cuts, so they took the class online.  Teachers confirm that the whole group has struggled substantially more in pre-calc and now calc classes than their predecessors who had a real teacher for what is, for eighth graders, a tough class.

Congress, why don’t we have enough money to fund honors math classes for our brightest kids — the one’s who have proven by working their asses off that they’re the future one-percent types that pay all those taxes — but we do have $180 billion to fund these reckless, worthless, market-destroying organizations.

Here’s a blueprint to burn down Fannie Mae and Freddie Mac:

1. Over 3-6 months auction the portfolio, the loans they own, at whatever the private market is willing to pay.  Allow people to “buy” their houses out of the pool at auction value plus a small administrative fee, and the rest go to private investors.  Leave the guarantees intact since they’re contractual obligations.  If people scream this is “illegal,” that it’s some type of taking, then just stop funding them, call Fannie and Freddie’s own loans when they miss a payment, and allow a bankruptcy judge to do what the Constitution contemplates should be done to bankrupt organizations.  Since Fannie and Freddie executives advocate for fast foreclosures I’m sure they’ll be enthusiastic at their own organizations quick liquidation; they can quickly pack and leave, with no severance.

2. Create a new organization to continue the guarantees, albeit on a ramp-down period of 5-8 years until the private market can find it’s footing.  That is, for the first 48 months the guarantee program will continue as-is, though with first-loss provisions for originators, then over the next 36 months the maximum volume of guarantees would be reduced by 1/36th of the volume from the first 48 months.  Then .. they’re gone; nothing but a bad memory of failed social experiment that caused immeasurable suffering.

That’s it.  Loans will be held by private organizations who have shown they have a substantially lower 12-month re-default rate, who are willing to write down principal when they realize it is in their bests interests, and who — while they’re far from perfect — are a lot better than the GSE’s.

Don’t leave them around to “create standards” for new technical infrastructure, their latest gambit.  That’s best left to a consortia of private businesses.  Plenty of people, myself included, would love to compete for this work by creating private businesses that will do this more competently and even more transparently than the GSE’s, since we’re not exempt from disclosure laws and have to answer to market forces.

With this latest move the GSE’s have set the stage for their own well-deserved execution.  Now the question is whether our legislators will have the backbone to do what’s needed.  Any legislator, from either party, that won’t cooperate deserves to lose their jobs this fall.