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Friday, May 16, 2014

Freddie or not

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The new top regulator of Fannie Mae and Freddie Mac thinks the U.S. needs more mortgages. Mel Watt, the head of the Federal Housing Finance Agency (and ex-Democratic congressman), gave a speech at Brookings this week sharply diverging from his predecessor's goal to wind down the mortgage giants. The goal going forward is to relax regulation to make it more likely banks will lend to homeowners with less-than-perfect credit. The WSJ has a great chart comparing credit score distribution of people who qualified for loans in 2001 and 2013. Needless to say, it's a lot harder these days.

"What could go wrong?" the Economist writes, calling Watts' plan the "return of the toxic twins", whose risky investments (and loose credit standards) helped inflate the housing bubble prior to 2008. But a Bloomberg View editorial argues that Watt's proposal makes sense: "It's unclear how much the changes will boost mortgage lending or the housing market, but there's no need to worry that they'll bring back the crazy lending of the boom years". For one thing, they say, "delinquency rates on loans guaranteed since the crisis have been close to zero".

Watt says his goal isn't permanent conservatorship of the government-sponsored enterprises, but just keeping things on the right track until Congress can get its act together. "Our role is to maintain an efficient credit market, and as private capital demonstrates that it will come into this market, it will be clear that Fannie and Freddie will step back", he said in his speech.

There are several bills in Congress that attempt to wind down Fannie and Freddie, but none of them have much hope of passing. Tim Johnson (a Democrat from South Dakota) and Mike Crapo (a Republican from Idaho) have gotten the closest, with a bill that was voted out of committee onto the Senate floor Thursday. It "would construct a new market system in which private investors would take initial losses on mortgage securities that would carry government reinsurance", writes Nick Timiraos. Barry Ritholtz calls it an "idiotic proposal". Matt Levine suggests that in order for private capital to take over for Fannie and Freddie, the government will need "to go a bit of the way toward understanding what private capital wants -- something that it does not seem to have done very much of, judging from the Johnson/Crapo proposal".

Regardless, it's unlikely to get enough Democratic support, especially before the upcoming midterm elections. "In the meantime, attention will shift to federal courts", says Timiraos. Fannie and Freddie are fighting shareholders over profits, which because of a 2012 ruling, currently go almost entirely to the Treasury department (Matt Levine explainer here).  

Ben Lane cites analysis from Keefe, Bruyette and Woods, who don't think GSE reform is going to happen until 2017. The analysts "suggest that the legislative efforts for reform may eventually evolve into turning the GSE's into a government-run utility similar to Ginnie Mae to guarantee mortgage-backed securities", he says. Shane Ferro

On to today's links:

Housing
Stagnant incomes might have something to do with the housing market slump - Robin Harding
Housing is recovering. Single-family homes aren't. - Neil Irwin

Data Points
"AIDS has claimed more people in New York City than in Spain, Italy, the Netherlands, and Switzerland combined" - Michael Hobbes

Correlation Not Causation
"What's important is... to make it clear to your readers where the data analysis ends and the speculation begins" - Andrew Gelman

Equals
"As executive editor, Abramson's starting salary in 2011 was $475,000, compared to Keller's salary that year, $559,000" - Ken Auletta

Long Reads
Mark Zuckerberg's mostly failed plan to revamp the Newark education system - Dale Russakoff

General Whimsy
Camp Alphaville seems fun - FT Alphaville

Profiles
Who is Alex Trebek? - Noreen Malone

 

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Business Today: Wall St. ends up in late-day bounce with small caps

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05/16/2014
Reuters Election 2012 Daily round-up of the day's top news from the campaign trail, the White House and all the politics in between
Wall St. ends up in late-day bounce with small caps
NEW YORK (Reuters) - U.S. stocks closed higher on Friday in a late rebound as small-cap names edged up after recent weakness and consumer discretionary shares rose.
GM to pay maximum U.S. fine for delaying response to faulty ignitions
WASHINGTON (Reuters) - General Motors Co was slapped on Friday with a $35 million U.S. fine for its delayed response to an ignition switch defect in millions of vehicles.
At big-ticket dinners, a blunt Bernanke sounds theme of low rates
NEW YORK/BOSTON (Reuters) - In a series of quarter-million-dollar dinners with wealthy private investors, Ben Bernanke has been clearer than he ever was as chairman of the Federal Reserve on his expectations that easy-money policies and below-normal interest rates are here for a long time to come, according to some of those in attendance.
Demand for rental units buoys housing starts
WASHINGTON (Reuters) - U.S. housing starts jumped in April and building permits hit their highest level in nearly six years, offering hope the troubled housing market could be stabilizing.
Boeing vows to fight unfair U.S. labor practices ruling
SEATTLE (Reuters) - Boeing Co vowed on Friday to contest a ruling that found the plane maker committed unfair labor practices against its unionized engineers near Seattle and in Portland, Oregon, when it photographed and videotaped workplace marches in 2012.
SAC's Steinberg gets 3-1/2 years prison for insider trading
NEW YORK (Reuters) - Michael Steinberg, a portfolio manager at Steven A. Cohen's SAC Capital Advisors hedge fund, was sentenced on Friday to 3-1/2 years in prison for insider trading.
Sweden fights back as Pfizer move on Astra threatens jobs
STOCKHOLM (Reuters) - The Swedish government launched a fightback on Friday against U.S. drugmaker Pfizer's proposed takeover of AstraZeneca , which has half its roots and more than 5,000 staff in Sweden, highlighting the risks to jobs and science.
Abbott to buy Latin American drugmaker CFR in $2.9 billion deal
(Reuters) - Abbott Laboratories said on Friday it would acquire Chile's CFR Pharmaceuticals SA in a $2.9 billion deal that will more than double its branded generic drugs business in the fast-growing Latin American market.
EU may challenge $8.7 billion U.S. tax breaks in Boeing-Airbus trade dispute: sources
PARIS (Reuters) - The European Union is considering raising the pressure on the United States in the world's largest trade dispute by challenging tax breaks that encouraged planemaker Boeing to keep production of its latest jet in Washington state, people familiar with the matter said on Friday.
Fed's Bullard says inflation, job goals 'within sight'
LITTLE ROCK (Reuters) - The U.S. economy is within sight of the Federal Reserve's inflation and employment goals, and is expected to grow at a "robust" pace for the rest of the year, St. Louis Federal Reserve Bank President James Bullard said on Friday.
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