Bank Lawyer's Blog

Andy Cuomo's Pinata Week

New York Attorney General Andrew Cuomo is a man who appears in many respects to want to follow in the footsteps of Eliot "Mess" Spitzer, only, he hopes, without tripping over a stray hooker. Like The Spitz, Andy is generating a lot of hostile feelings. The latest emanations of negativity issued forth last week from two sources, one a Duke University professor and the other a well known banking analyst. Both of them think Cuomo's abilities and character are lower than a gnat's navel.

First out of the starting gate was Duke professor Michael Munger, who, in an interview with LegalNewsline.com, excoriated Cuomo for suing Bank of America over alleged concealment of Merrill Lynch losses.

The way Duke University professor and former North Carolina gubernatorial candidate Michael Munger sees it, there can be only two reasons New York Attorney General Andrew Cuomo is suing Bank of America -- and neither of them are good.

"One is that he actually believes it," Munger said Tuesday when asked about Cuomo's fraud lawsuit. "That would mean his hypocrisy is incredible.

"The other is that this is fake, that he's doing this for personal aggrandizement."

I hate it when people sugarcoat their opinions, don't you? Eventually, Munger stopped being polite and took off the gloves.

Munger, like a recent Wall Street Journal editorial, says Cuomo's reign as secretary of the Department of Housing and Urban Development Authority under President Bill Clinton was a big cause of the financial problems of today.

Cuomo required Fannie Mae and Freddie Mac to buy $2.4 trillion in mortgages over a 10-year span. Cuomo said that meant affordable housing for 28.1 million low- and moderate-income families.

"The fact is that pressure had been placed on both private banks and Fannie Mae and Freddie Mac to increase the amount of affordable housing available for people who couldn't afford it," Munger said.

"Banks were making loans they wouldn't make under normal circumstances. They were pressed by both Congress and Cuomo and the HUD. Basically, they were putting a government stamp of approval on them to buy these as investment-grade assets.

"To put it bluntly, the government was setting a trap... For Andrew Cuomo to blame somebody else, he caused it as much as anybody, or his agency caused it more than anybody -- and certainly more than any bank merger."

[...]

Asked to describe Cuomo's term with one word, Munger chose "complicit."

"He didn't resist," Munger said. "He was far from being someone who made it better. He went along to create the conditions that caused the disaster.

"He forced the banks to make bad loans, then he forced Fannie Mae and Freddie Mac to certify the bad loans as if they were good."

Another verbal whipping was administered by Dick Bove, who, in an interview with CNBC, drove home the same point. Bove went so far as to call Cumo "the father of the subprime crisis." I guess we'll have an awful lot of potential fathers having to take paternity tests before that issue is settled, but the old saying is certainly true, that success has many fathers while failure is an orphan.

"One of the key reasons why [Fannie Mae and Freddie Mac are] bankrupt today, and why the government is spending hundreds of millions of dollars in supporting them, is because of the edicts pushed through by Mr. Cuomo," said Bove, of  Rochdale Securities, in a live interview.

"It's also thought by many that the hundreds of thousands of people who are losing their homes, are [doing so] to a great degree because of the actions taken by Mr. Cuomo at HUD," Bove added.

Bove also bashed Cuomo for attacking big banks that are so important to the business base of New York. He thinks that was a dumb move for a man who apparently wants to follow The Sheriff of Wall Street from the Attorney General's office to the Governor's mansion.

"His lack of financial acumen may prevent him from doing the right things even if he wants to," he said. "You just don't want someone with that type of lack of understanding of the financial system running a state as important as New York."

Given the pitiful performance of the most recent governors of New York, it's pretty damning to state that Andy's too dumb to be governor of The Empire State. That has been a position where cerebral firepower has been as absent as personal virtue. If Andy can't limbo under a bar set that high, he may have already risen to his level of incompetence.

Freddie Mac's Originators Balking At Buybacks

A recent article in The American Banker (paid subscription required) focused on an unpleasant fact for Freddie Mac: when it pushes loan sellers to buy back loans, some of them tell Uncle Freddie to "take your loan and shove it, we ain't buyin' back no more."

The GSE said some big-bank customers aren't honoring its loan repurchase requests "in a timely manner." A total of $4 billion in loan repurchase requests were unfulfilled as of Dec. 31, up by about a third from a year earlier. Nearly 30% of those requests had been outstanding for more than three months. And though some servicers had financial difficulties, three of the GSE's "larger, higher credit quality" servicers had more than 30% of their repurchase obligations outstanding that long.

"It's more like the movie 'Network,' where the star says, 'I'm mad as hell, and I'm not going to take it anymore,' " said Larry Platt, a partner in the financial services group at K&L Gates LLP in Washington. "The dollars are too much."

Fannie Mae recently launched a "Quality Control Initiative" to support its contention that its repurchase requests aren't the result of nitpicking nor a desire to recoup the massive losses that it (and Freddie Mac) have been taking since they started operating as part of the US Government's bottomless pit of public money that is being used to support residential mortgage markets without having to appear as part of the wildly widening US government's deficit, but are, instead, a result of lenders being dumber than a stump. It's apparent that such public relations ploys aren't impressing the troops.

Lenders have complained that the GSEs are being too picky, pushing back loans for minor oversights.

"I think why you see resistance is there is this overcorrection going on, in terms of everything being pushed back," said Paul Anastos, president of Mortgage Master Inc., a Walpole, Mass., lender. (He said he sells loans to Freddie, which has never asked him to buy any back.)

"If they focused in on really what was the problem, they'd gain more traction. I think they'd have more cooperation."

Observers note that neither side can afford to push the other side to the brink. Fannie and Freddie are the only game in town when it comes to loan purchases, while the GSEs need big loan originators like Wells Fargo, Bank of America, and JP Morgan Chase, so it can't afford to financially damage them or honk them off to the point that they get really creative and find a way to bypass Fannie and Freddie or simply say "screw it" and focus on something more profitable and less likely to involve the US Government changing the deal on them (again) after the fact. Sooner or later, they'll have to reach a compromise.

In the meantime, the spat will provide plenty of fodder for chit-chat among those of us who saw this buy-back Armageddon coming years ago.

Fannie and Freddie In Full Put-Back Mode

The country's largest commercial banks have become the largest originators of residential mortgage loans. Unfortunately for them, they're also becoming the recipients of knuckle massages lovingly administered by those "instruments of public policy," Fannie Mae and Freddie Mac. As we've long noted, the major risk in being a mortgage originator and seller is the risk of the buyer doing everything it can when default rates rise to force the seller to buy back the loans that don't perform well. According to The Wall Street Journal, Fannie and Freddie, who now account for 70% of the market for residential mortgage loan purchases, are doing precisely that.

It is payback time for Fannie Mae and Freddie Mac on some mortgages sold to the finance companies by lenders.

Stuck with about $300 billion in loans to borrowers at least 90 days behind on payments, Fannie and Freddie have unleashed armies of auditors and other employees to sift through mortgage files for proof of underwriting flaws. The two mortgage-finance companies are flexing their muscles to force banks to repurchase loans found to contain improper documentation about a borrower's income or outright lies.

The result: Freddie Mac required lenders to buy back $2.7 billion of loans in the first nine months of 2009, a 125% jump from $1.2 billion a year earlier. Fannie Mae won't disclose its figure, but trade publication Inside Mortgage Finance said Fannie made $4.3 billion in loan-repurchase requests in the first nine months of 2009.

Community bankers have watched the big banks dominate the residential mortgage origination business, especially following the collapse of the large independent mortgage originators over the last few years. It's very difficult for community banks to compete with the large boys in a business where profit margins are thin and compliance and technology investments can be heavy. Therefore, it brings a little tear of joy to the corner of the eye of many small bankers when they see who's taking it on the chin from the punches thrown by Uncle Freddie and Aunt Fannie.

The biggest losers are likely to be Bank of America Corp., J.P. Morgan Chase & Co. and other mortgage lenders when the housing bubble burst. Such lenders also are being deluged with loans kicked back to them by holders of mortgage-backed securities who uncover deficiencies with loans bundled into the pools. One common example: a borrower who said the loan was for an owner-occupied home but used it for a second house.

Overall, banks repurchased about $14.2 billion in loans from holders of mortgage-backed securities in the first nine months of last year, up from $3.6 billion a year earlier, according to Barclays Capital. The figures are based on data reported to regulators by federally insured banks and savings institutions.

Forced loan buybacks threaten to "wipe out a significant portion of the [loan] origination profits…made in the last year," said Nicholas Strand, a Barclays analyst.

I went through this on a much milder scale for a large client that bought the large servicing platform and a bundle of servicing rights from the RTC. The platform and servicing rights had previously belonged to a large savings bank that had bitten the dust in the early 1990s. Unlike a private seller, the RTC sold servicing rights without the ability to put them back if there were defaults under Fannie Mae's or Freddie Mac's seller/servicer guides prior to the date of sale. When problems later cropped up with loans in the portfolio, which, as might be expected, arose when borrowers started defaulting, Fannie and Freddie looked to the current servicer (my client) and told it to buy the loans back. In a perfect world, the current servicer then passes the loan back down the line until it reaches the originator. When my client turned around to pass off the loans, it was looking in the mirror. It's tough being the last solvent man standing when the repurchase arrows start flying. You better hope the relatively cheap price you paid the RTC makes up for the fact that you're stuck in the mud with no way out.

Today, the problem is much, much worse.

Fannie reported Thursday that borrowers of 5.29% of the loans it guarantees were at least 90 days behind as of November, up from 2.13% a year earlier. Fannie guarantees $2.9 trillion in loans.

At Freddie, such delinquencies reached 3.87% at the end of December, up from 1.72% a year earlier.

While growth in subprime defaults is slowing, defaults on prime loans are accelerating. Such loans account for 90% of all mortgages guaranteed by Fannie and Freddie.

"Delinquency rates are up, so it's not surprising" that buyback demands are up, said Brad German, a Freddie Mac spokesman. "Consequently, the number of loan put-backs will reflect that."

As an American taxpayer, I can't say I'm displeased that the two publicly-owned mortgage securitizers are scouring loan files looking for ways to lower their losses. Then again, I don't own stock in Bank of America, J.P.Morgan Chase, or Wells Fargo. If I did, I wouldn't be quite so sanguine.

Treasury Claims It Took Big Banks To The Cleaners

One of the most popular games in Washington, D.C. these days is poking fingers in the eyes of big banks to show "The Peeps" what a populist can do to a rootless cosmopolitan capitalist oppressor of the working man (and womyn). In that vein, the US Treasury Department today crowed about how it drove a hard bargain with the big banks who repaid TARP CPP money on the purchase price of the warrants those banks bought back.

The Obama administration said Wednesday it's increased the investment return to taxpayers by pushing banks to pay higher prices to repurchase stock warrants given to the government during the financial crisis.

[...]

The Treasury said the $2.9 billion it received in the repurchase transactions exceeded estimates it and others had made. Those estimates had put the value of the warrants at between $2.6 billion and $2.7 billion. Treasury said the initial bids from the banks, which it rejected, totaled $1.7 billion on this group of warrants.

"This report makes clear that Treasury's process for selling these warrants has been consistent, transparent and has delivered strong returns for taxpayers," Herb Allison, the head of Treasury's financial rescue program, said in a statement.

What Treasury didn't crow about was the fact that if the federal government hadn't engaged in bad faith after-the-fact changing of the CPP terms, the banks might not have paid back the CPP funds yet and those warrants would be increasing in value instead of being converted into cash which may very well be flushed down those TARP rat holes called "General Motors," "AIG," Freddie Mac," and "Fannie Mae," entities which will be paying back the money invested in them by the US Treasury when Porky flies over the White House and does a victory roll. But hey, that's just my take on the matter and as every reader of this blog knows, I'm just another bourgeois exploiter of the proletariat, a lickspittle idler and a kulak parasite, a Bonapartist pig, a Trotskyite fascist hyena, a revanchist, and a class traitor, who deserves to be gulaged.

Also getting a lot less public yodeling by Secretary Geithner and his merry band of warrant regulators is a plaintive cry last week from the Conference of State Bank Supervisors for a continuing taste of TARP to be served up for community banks to dine upon. The CSBS wants Geithner to take some of that TARP money that's been repaid and institute a program for community banks that (a) permits banks to qualify for TARP CPP if they can show that they'll be viable after receiving the CPP injection (as opposed to the previous requirement that they must be viable without the CPP), and (b) establishes a "functional and attractive small business lending program" that community banks can use to make loans to those small businesses that drive the economy. Our inside sources tell us that Treasury Secretary Geithner was so impressed with CSBS CEO Neil Milner's request that he personally dialed him up and quoted this famous of line of Jack Handy's: "It take a big man to cry, but it takes a bigger man to laugh at that man."

Frankly, I think Mr. Milner would have made more headway if he'd sent the letter to Ariana Huffington.

Handwriting on the Wall?

In mortgage banking, the "elephant in the room" used to be repurchase obligations. That elephant (just like Sarah Palin) "went rogue" over the past two years and as a result, mortgage loan investors are busy trying to ensure that if you pay it forward, you sure better be able to buy it back,

Fannie Mae...updated its eligibility requirements for lenders wanting to sell and service residential first mortgages, according to the new selling guide released Friday.

To do business with Fannie Mae, lenders must now have a net worth of at least $2.5m — 10 times the previous required net worth — plus a dollar amount equal to 0.25% of the outstanding principal balance of any Fannie Mae portfolio it services.

In the April 2009 version of the guidelines, lenders needed a net worth of at least $250,000 and an additional dollar amount equal to 0.20% of the portfolio.

This exercise in barn door-shutting makes sense. Many mortgage originators who operated as toxic waste disposal plants during the last orgasmic flurry of residential credit debauchery were sadly deficient in capital and unable to withstand the weight of all their chickens coming home to roost simultaneously and pooping on their shoes when Fannie Mae and Freddie Mac started putting loans back to them faster than Paris Hilton sheds "fiancees." Nothing depresses an investor like Uncle Freddie or Aunt Fannie more than trying to force a corpse to do anything, much less honor its contractual obligations. Requiring ten times the capital that it previously took to be a mortgage seller might help weed out the less (financially) stable originators. At least, that's the hope.

What this type of requirement will also do is accelerate the consolidation of the residential mortgage origination business, which consolidation has been ongoing since the subprime mortgage meltdown commenced and originators started dropping like passes thrown anywhere near Terrell Owens. Last month, Bloomberg noted that over half the single family originations in this country are now made by three entities: Wells Fargo, Bank of America, and JPMorgan Chase. Bank of America wants to increase its percentage another 10%. Obvously, independent originators are worried.

Daniel Crockett, head of Franklin, Tennessee-based Franklin American Mortgage Co., among the largest independent mortgage lenders, said yesterday at the conference that consumers should be wary of increased concentration.

“Competition is the greatest form of regulation,” he said.

Yeah, competition worked great at regulating the mortgage business so far this decade, didn't it? We had plenty of competition, much of it engaged in a race to the bottom.

Don't expect the regulators to back you up on that contention, Daniel. Sheila Bair's previously stated publicly that she believes that the entire mortgage banking business model (what she calls "the originate and sell" model) is "broken." I don't think the model itself is broken, although I do believe that some of the players themselves had broken ethical and moral compasses. It doesn't matter a fig what I belive, however. I suppose Ms. Bair, and perhaps some other federal banking regulators, would like to see banks hold on to more of the loans that they originate. Certainly, a preference for "originate and hold" would require that mortgage lenders be quite large if they're to do large volumes of originations and control costs through economies of scale, both of which are necessary to make money under that business model. A preference for such a model might also lead you to suspect that banking regulators would prefer that loan originations occur through in-house employees of the lender, and that all the guys who operated as "free agents" in the last deluge of home mortgage lending, who produced all the garbage and quickly pushed it out the door to generate fees, simply dry up and blow away.

If the current trend continues, the big banks will be taking this business over and dominating it completely. The independent mortgage broker may ultimately become as rare as a Republican politician who yearns to become "the logical successor to George W. Bush."

Of course, none of us know that such consolidation is inevitable or what, definitely, will become of independent mortgage brokers. If we were that bright, we wouldn't be writing or reading blogs as puny as this one. Instead, we'd have banked our fotune in the Grand Caymans and would be having our liver Rolfed so that we could start consuming our second pitcher of Mai-Tais with Catherine Zeta-Jones, while we watched our eight adopted multi-culti kids frolic in the sea from the deck of our yacht anchored off Hapuna Beach.

Still, if I were an independent mortgage broker, I'd be looking for a "dependent" safe harbor, one that's FDIC-insured.

Looking For Lessons in the Madness

While most of the press focused on the FDIC's use of the cross-guaranty provisions of FIRREA, a couple of other interesting tidbits floated to the surface near the shipwreck that occurred last Friday when the OCC sank, and FDIC took control of, nine banks owned by FBOP. One of those tidbits was the fact that earlier last Friday, Tim Geithner, who had flown to Chicgo, announced that the FBOP's community banking arm, Park National Bank Initiatives, had been awarded $50 million in tax credits. No one told Tim that the bank was being closed later that day. While the FDIC keeps the closing information a state secret, I had several interested observers break into hearty guffaws at the thought that Sheila Bair had stuck it to a guy who once cursed her (and other bank regulators) out for not being a team player (meaning that she should stop thinking for herself and become part of the "Yes, We Can" hive). The Treasury Department assured everyone that (A) there was nothing unusual about the FDIC (or the OCC, the lead federal regulator of the banks, and another target of Geithner's previous F-bomb barrage) not communicating the pending seizure to Treasury, (B) no tax credits were "lost" when the bank went down, because they'll go to the acquirer of all of the failed banks, US Bank, and (C) blah, blah, blah, yadda-yadda-yadda.

My secret inside sources assure me that Sheila and her staff broke into a late-day giggle-fest behind closed doors over the picture of Geithner's empurpled face clouding with rage when he realized, late in the day, that he'd been goosed by his arch nemesis. They also assured me that Geithner responded with a veritable carpet F-bombing of all within earshot, causing a passing sparrow to fall dead from the sky. You have to give this bureaucratic "gotcha" to Sheila.

Another interesting tidbit was that the failed banks were fatally hit by the collapse of FNMA and FNMA, which rendered worthless $855 million in preferred stock owned by the banks. Those investments were considered gold not so many years ago, and banks thought of that preferred stock as a safe haven that yielded nice dividends. Although one expert criticized the "business plan" of the banks, it's hard to see how holding hundreds of millions of dollars in GSE preferred stock was anything other than a no-brainer until everything went to hell in a hand basket in a hurry. Who knew Fannie and Freddie were going to be as broke as Bernie Madoff? Other than know-it-all bloggers and anonymous commenters on the internet, that is.

A final interesting facet is that the regulators apparently stymied the holding company's attempt to raise $750 million in private equity. One analyst was quoted as saying that the FDIC wouldn't approve that infusion of capital because it might have had to come back and take over the bank anyway at a later date. Huh? As long as you don't let the bank use the new capital to grow its way out of the problem, my preference would have been to let the bank burn through the $750 million in private money before it ever got to the insurance fund. Then again, I'm merely a tool of private enterprise and not a free thinker with a big picture view like those in D.C.

Another Bank Fail Friday approaches. More fun is likely to ensue.

NOTE TO SELF: Even though you barely have time to bang out these daily screeds, do yourself and all the rest of the readers a favor: proofread BEFORE you post. Thank you.

Barney Ain't To Blame

A reader sent me a link to a video of an interview with Barney Frank in which Barney engages in rapid-fire rewriting of history, and asked me what I thought of it. I thought it was business as usual for a slug like Frank, who wouldn't know the truth if it ran up and bit him in the hind quarters. Revisionist history inside The Beltway is just politics as usual.

In Frank's case, he's been doing it for awhile. Larry Doyle at Sense on Cents fisked Frank's lies about home-ownership-versus-subsidized-rental-housing a few months ago. It's as if these clowns don't understand that there's this technology called "television," and when you stand in front of a TV camera and you're recorded saying one thing in 2003, 2004, or 2005, there's a record of it, so that when a few years later you tell a completely different story, your lies are rendered completely transparent.

It's likely that Frank feels comfortable in the fact that there's nothing he can do except not bring home the pork that would cost him his seat in Congress. The bottom line is that he doesn't care. Like Humpty Dumpty, a word means whatever he says it means. His constituents apparently deserve him, since they return him every two years, no matter what he says, does, or doesn't do.

Frank's not the only cynical sack of utter uselessness cluttering the corridors of the nation's capitol. He's just low-hanging fruit that's easy to pick off. When  your time to blog is limited, low-hanging fruit is attractive.

As the truth commissions begin the arduous task of assigning blame for the current mess in strict accordance with political ideology, expect the duck-and-run-for-cover reprobates of both parties to all be singing the same basic song. Rome burns, Nero fiddles.

More Of The Same Old Sleaze

We once thought that Clinton appointee Franklin Raines had a sweet deal at Fannie Mae (even though he had to--kind of--sort of--pay back a wad of his "compensation"). On a per-hour basis, Franklin had nothing on current White House Chief of Staff Rahm Emanuel. Emanuel, appointed to Freddie Mac's Board of Directors by Clinton, stayed a smidge over a year at Freddie Mac, didn't serve on any of the committees where the actual work of the Board was performed, and still pocketed a cool $320,000. Even if he forced himself to attend seven board meetings (the board met only every other month) and actually stayed awake during them, what's that work out to, $46,000 an hour? Wow, even Eliot Spizer wouldn't pay that much for an hour of straight sex.

 And, boy did Freddie get its money's worth of strict oversight out of Rahm ("Eagle-Eye") Emanuel!

On Emanuel's watch, the board was told by executives of a plan to use accounting tricks to mislead shareholders about outsize profits the government-chartered firm was then reaping from risky investments. The goal was to push earnings onto the books in future years, ensuring that Freddie Mac would appear profitable on paper for years to come and helping maximize annual bonuses for company brass.

The accounting scandal wasn't the only one that brewed during Emanuel's tenure.

During his brief time on the board, the company hatched a plan to enhance its political muscle. That scheme, also reviewed by the board, led to a record $3.8 million fine from the Federal Election Commission for illegally using corporate resources to host fundraisers for politicians. Emanuel was the beneficiary of one of those parties after he left the board and ran in 2002 for a seat in Congress from the North Side of Chicago.

The board was throttled for its acquiescence to the accounting manipulation in a 2003 report by Armando Falcon Jr., head of a federaloversight agency for Freddie Mac. The scandal forced Freddie Mac to restate $5 billion in earnings and pay $585 million in fines and legal settlements. It also foreshadowed even harder times at the firm.

Many of those same risky investment practices tied to the accounting scandal eventually brought the firm to the brink of insolvency and led to its seizure last year by the Bush administration, which pledged to inject up to $100 billion in new capital to keep the firm afloat. The Obama administration has doubled that commitment.

Freddie Mac reported recently that it lost $50 billion in 2008. It so far has tapped $14 billion of the government's guarantee and said it soon will need an additional $30 billion to keep operating.

The Change We Have Been Waiting For. Not.

Take My TARP...Please

TCF CEO Bill Cooper is mad as hell, and he's not going to take it anymore.

The man who recently told the Treasury Department that he's got a bad case of seller's remorse and wants to give back his bank's CPP investment, got everything that's been bugging him about the nation's financial mess off his chest. According to BankThink's Rebecca Sausner, who listened to Cooper rant at yesterday's SourceMedia’s Best Practices in Retail Financial Services Symposium in Florida, it was a rare glimpse into the utter honesty of man who's been around long enough that he's not afraid of anything other than running out of Viagra.

One of my personal favorites was his no-holds-barred take on the federal government's role in the meltdown.

“I believe at least 90 percent of this crisis was government driven, created by the government through bad monetary policy, the wrong kind of regulation, the whole impetus for managing economy, lending to the poor, encouraging what was in effect bad lending. All of this stuff was encouraged by the government, and a lot of honest bankers went along with it and didn’t make good judgments.”

Another two I loved, because I find the filing of Suspicious Activity Reports (SARs) to be, for the most part, an egregious waste of time, were these:

On the value of SARs to national defense in the hands of the BSA regulators:
“What the hell? These guys couldn’t find this loan problem when it sat in front of them; they’re going to find a terrorist?"

“Does anybody think there’s not enough regulation in the banking business?” Cooper asked, to a burst of laughter. But, he argues, the regulation is misfocused on issues like BSA instead of fundamental safety and soundness. “They come in and audit the living crap out of you on BSA. Have you guys lived through this? It’s a life/death experience if you flunk BSA. …The only terrorist the BSA program has caught is Spitzer with his pants down.”

And who could resist a Henny Youngman moment.

"I thought swaps were what guys did with their wives in California."

Read them all. They're priceless.

No Good Deed Goes Unpunished

In thrall to their politically correct masters, those entities formerly known as Freddie Mac and Fannie Mae (now simply referred to as Mary-KateandAshley) have adopted consumer-friendly policies that may be at odds with their interest in not only self-preservation (although the US Government will never let them fail, right?), but in collecting on the loans they buy and securitize. One of those new, improved policies is to allow renters of single-family homes that serve as collateral that Fannie or Freddie forecloses upon to remain in the home following completion of foreclosure. As a recent Wall Street Journal article notes, this is a 180-degree turnaround for the two agencies, which routinely kicked tenants to the curb following foreclosure. Tenant advocacy groups are going ga-ga over the new, improved Fannie and Freddie.

Real estate agents, on the other hand, think that the unintended consequence of Freddie's and Fannie's "I Heart Tenants" attitude is to make those homes harder to sell.

They say renting the homes could slow sales because homes don't sell as well with tenants living in them.

"Fannie Mae is in the business of financing homes and selling them, but now this change is going to result in properties probably remaining on the market," said Brett Barry, an agent with Realty Executives in Phoenix who sells properties that now include tenants eligible for a Fannie Mae lease. "Now," he added, "if someone calls me at 3 a.m. with a toilet malfunction or a roof leak, I'm responsible for handling that."

[...]

"If you've got a house worth $350,000 and rent it for $1,200, no investor is going to buy that," said David Peeples, a Tallahassee, Fla., real-estate agent. Because that monthly rent wouldn't cover the mortgage payments, he said, "The end result is that with a tenant, it's going to be unsellable."

Fannie and Freddie claim that, to the contrary, a house with a good renter in it will make these homes more attractive to investors. You know, the type of investors who defaulted on the loans on which Fannie or Freddie foreclosed. Only solvent investors. Or, at the very least, investors who can qualify for a loan to take the property off Fannie or Freddie's hands, after which Fannie and Freddie don't give a tinker's durn how good a borrower that investor might be. I guess Mary-KateandAshley assume that there must be a legion of investors chomping at the bit to get back into the single-family non-owner occupied investment game, and oodles of financing to bankroll them. If not, I hope the like being landlords. I wonder why they didn't think that when they were in the business of being profitable?

An unemployed management consultant once accused me on their blog of being both anti-renter and an elitist. I'll cop to the latter, but not the former. My main interest is that Mary-KateandAshley, now that they're wards of the American taxpayer, take actions that limit the pain for the overwhelming majority of Americans who paid our loans on time and now have to foot the bill for not only those who didn't, but for this potentially painful exercise in social engineering, as well. I hope it works, I honestly do. However, I doubt that we'll ever have reliable data provided by any responsible party to determine whether or not keeping renters in place makes sense. Not that the absence of such data will stop those with an ideological ax to grind from spinning the story to suit their purposes.