FHFA Director Defends Big Bonuses To Fannie And Freddie Execs

By Janie Amaya

Federal Housing and Finance Agency (FHFA) Acting Dirctor Edward DeMarco responded to questions from members of the Senate Banking, Housing and Urban Affairs Committee today over why the agency has paid out $13 million in bonuses to the top 10 executives at twin mortgage giants Fannie Mae and Freddie Mac.

DeMarco defended the boneses, saying FHFA must take such necessary actions to put the regulated entity in a sound and solvent condition in order for it to operate in a safe and sound manner.

“I certainly think we have an entire competitive marketplace in the financial industry that suggests that compensation is an important factor in attracting and retaining high quality talent,” DeMarco said.

On Sept. 8, 2008, FHFA took conservatorship of Fannie Mae and Freddie Mac when the housing crisis began, and has since been working to help both companies regain footing.

“In our time as conservator, we’ve had quite a number of senior executives depart both companies and it has not always been easy to fill these positions with people from the outside,” DeMarco said. He added that often times compensation and the uncertain future of the companies are cited as key reasons for candidates to turn down offers.

DeMarco said that through the Emergency Economic Stabilization Act of 2008, the FHFA must also implement a plan that seeks to maximize assistance for homeowners and use its authority to encourage the taxpayers to take advantage of available programs to minimize foreclosures helping the companies succeed.

However, with no improvement in these companies, some committee members argued that the continuing failure is Congress’ fault.  

According to top Republican Richard Shelby (R-Ala.), Fannie and Freddie have already requested an additional $14 billion for last quarter’s loses.

“If Congress had acted, taxpayers would not be subsidizing the pay of Fannie and Freddie executives,” Shelby said.

Currently, the FHFA has established a new set of standards for mortgage servicers.

“We try to simplify the process and to provide very uniform guidance to mortgage servicers on what to do the next day after a mortgage payment is missed, DeMarco said.

GOP Proposes Legislation Eliminating Fannie And Freddie

By Adrianna McGinley

Acting Director of the Federal Housing Finance Administration (FHFA) and Fannie Mae/Freddie Mac conservator Edward DeMarco told a House subcommittee Thursday that he is supportive but wary of a proposal to increase private mortgage investments.

Chairman of the Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises, Rep. Scott Garrett (R-N.J.), proposed last week the “Private Mortgage Market Investment Act,” which would eliminate the bailed out Fannie Mae and Freddie Mac in order to encourage private secondary mortgage investments.

“By facilitating the adjudication of disagreements between investors and issuers, secondly by clarifying the rules around the first lean holders rights, and third by preventing government forced loan modifications that would negatively impact investors, investors will finally have the certainty that they need to get back into the market,” Garrett said in his opening remarks.

DeMarco agreed on the need to move mortgage investments away from government owned entities, but said there is still much that needs to be considered before legislation such as the one proposed could be enacted. Even then, he seemed hesitatant to confirm that Fannie and Freddie could be 100 percent eliminated.

“If the market has certainty that these are the rules of the road, and that these rules of the road aren’t going to be changing every three months, I believe that the private market can step in and do a great portion of what is currently being done by Fannie and Freddie.”

DeMarco acknowledged that the third year anniversary of conservatorship is approaching, but it not meant to be a long term solution, merely an opportunity to maintain a stable market while lawmakers deliberated on appropriate housing finance reform.

Rep. Barney Frank (D-Mass.) also criticized the committee for acting too slowly on housing legislation.

“This bill is premised on the situation when there is no more Fannie and Freddie, but this committee has the power to deal with that and hasn’t moved on anything in that regard.”

Bipartisan Commission Tasked With Shaping Housing Recovery

By Adrianna McGinley

The Bipartisan Policy Center introduced a new Housing Commission led by former Cabinet members and senators that has been tasked with giving lawmakers policy suggestions for long-term housing wellness.

Former U.S. Senators Kit Bond, George Mitchell, and Mel Martinez; and Henry Cisneros, former HUD Secretary under President Clinton, will serve as co-chairs of the commission that was touted as an idea generator to solve the lingering housing issues plaguing the country. 

Mitchell jokingly said the bipartisan commission “does not have the luxury” of proposing solutions that will not be able to pass in Congress. Instead, Mitchell said he had high hopes that his new team will be able to “assist those in office by demonstrating that it’s possible to come up with a meaningful, practical solution that is deliberately bipartisan in nature.”

One notion that members of the commission came to consensus on was that the revival of the housing market and job creation are linked and should both be considered when designing a path to recovery. 

“I don’t think you can have a meaningful jobs recovery without improvement in the housing sector and I think the reverse is true as well,” Mitchell said.

Cisneros in addition emphasized the importance of addressing homelessness when debating housing policy.

“It’s an example of where we can’t allow other things to be eliminated because they involve real people and real pain,” Cisneros said.

He also acknowledged the role immigration reform could play in boosting the housing market saying he believes immigrant populations will provide the spark the housing market is looking for.

“I suspect that one of the really big surges in the market for housing going forward is going to be the immigrant population,” Cisneros said. “We’re blessed in this country to have that rich infusion of workers and talent and many of them completely believe in the American dream, their definition of the American dream is home ownership.”

Treasury Should Mandate Mortgage Modifications, Says TARP Watchdog

The man in charge of monitoring the Troubled Assets Relief Program (TARP) told members of the Senate Finance Committee Tuesday that the Obama administration should consider forcing lenders to reduce payments for homeowners behind on their mortgages.

Neil Barofsky, the Special Inspector General of TARP, a $700 billion financial rescue program designed to help cushion the blow of the recent housing collapse, said that foreclosures have increased since the current administration announced measures last year to straighten out the housing market.

According to Barofsky, the Treasury Department's Home Affordable Modification Program (HAMP), a voluntary $75 billion foreclosure-prevention policy which gives payments to lenders who agree to reduce the principal on homeowners' loans, “has made very little progress in stemming this onslaught."

In a report put out Tuesday morning, Barofsky wrote that the Treasury Department could do more for borrowers by making the program mandatory.

"Giving servicers the discretion to implement principal reduction introduces a questionable inconsistency into the HAMP program and stands in stark contrast to the mandatory nature of the other significant mortgage modification triggers."

Obama Wants You to Go Back to School

By Michael Ruhl, University of New Mexico – Talk Radio News Service

President Barack Obama
Photo by Michael Ruhl

Today President Barack Obama announced a new effort to stimulate tomorrow’s economy by reviving higher education through expanding Pell Grants and removing barriers to success. The public face for his new initiative is to be Dr. Jill Biden, wife of Vice-President Joe Biden and Community College Professor.

Obama’s plan, detailed at opportunity.gov, would help the unemployed go back to school to build new skill sets, with the goal of helping them gain future employment through specialized technical training.

“The idea here is to fundamentally change our approach to unemployment in this country, so that it’s no longer just a time to look for a new job, but is also a time to prepare yourself for a better job,” Obama said. “Our unemployment system should be not just a safety net, but a stepping stone to a new future.”

Among the barriers to success that the President wants to break down are state programs in which a worker might lose temporary financial support if they were to enroll in an education program. Obama said that in some places a worker may be unemployed, but may not qualify for federal assistance to get an education because of the salary they had a year ago but no longer make. The President said that he is committed to working with states to change these laws.

The President said that knowledge is the most valuable skill that one can sell. He encouraged all Americans to aim for getting at least 1 year of higher education, whether it is a community college, a four year school, vocational training or an apprenticeship.

“By 2020, America will once again have the highest proportion of college graduates in the world,” Obama said optimistically.

This announcement came on the same day as the release of April’s unemployment statistics, which saw the loss of more than half a million jobs. The unemployment rate for April was 8.9 percent, up from 8.5 percent in March and 8.1 percent in February. April's numbers have already surpassed both the White House's and the Federal Reserve's projections for all of 2009, which were 8.1 percent and 8.8 percent, respectively.

Acknowledging that unemployment is as its highest rate in 25 years, the President urged patience, reminding us that the economic problems didn’t happen overnight, and couldn’t be fixed immediately.

“We’re still in the midst of a recession that was years in the making and will be months or even years in the unmaking,” Obama said. He continued, “We should expect further job losses in the months to come.”

Obama said that the Economic Stimulus Package is yielding real results, manifest in higher consumer spending and home sales, and an increase in construction spending. He praised the Recovery Act, and said, “Because of this plan, cops are still on the beat and teachers are still in the classroom; shovels are breaking ground and cranes dot the sky; and new life has been breathed into private companies.”

Fixing the economy and reforming education are two goals Obama has set for his administration. He said that in the weeks to come he would start working towards more education initiatives.