Geithner: Changes Coming To Fannie Mae And Freddie Mac

The two-headed mortgage lending monster known as Fannie Mae and Freddie Mac will more than likely undergo serious reforms next year, according to U.S. Treasury Secretary Tim Geithner.

The pair of GSE’s, both of which required federal bailouts in 2008 after faltering as a result of the housing collapse, are headed for certain changes when the Obama administration puts forth a plan to overhaul the industry in early 2011.

Geithner told a panel of executive lending officers on Tuesday that the administration “will not support returning Fannie and Freddie to the role they played before conservatorship, where they fought to take market share from private competitors while enjoying the privilege of government support.”

“We will not support a return to the system where private gains are subsidized by taxpayer losses,” he added.

Before being placed under total government control in 2008, the twin lenders ran into trouble, stemming mainly from involvement in the subprime mortgage movement in the early 2000’s. Speculators argue that entering that market under federal directives to increase home ownership is what caused Fannie and Freddie to become vulnerable when the skyrocketing housing bubble burst around 2006.

Geithner told the panel that he and Department of Housing and Urban Development (HUD) Secretary Shaun Donovan have been presented with a wide array of options for reforming the system, from nationalization of the lending market to complete government withdrawal.

However, Geithner admitted that as of today, a solution has not yet been reached.

“It’s safe to say there’s no clear consensus yet on how best to design a new system.”

Geithner: Mortgage Service Companies Failing The American People

By Chingyu Wang-Talk Radio News Service

Treasury Secretary Timothy Geithner accused mortgage service companies of not providing adequate assistance to Americans at-risk of losing their homes.

"We do not believe that servicers are doing enough to help the homeowners, they are not doing enough to help navigate the difficult and often frightening process foreclosure," said Geithner.

To counter the mortgage service companies’ shortcomings, Geithner touted a new program developed by the Obama administration entitled Home Affordable Modification Program (HAMP).

"HAMP has now offered trial modification to more than 1.4 million Americans, this represents roughly 3 quarters of Americans estimated to be eligible for this program today. About 1.2 million homeowners have begun trial modification and seen an immediate reduction in their monthly mortgage payment by an average just more than $500 per month,” Geithner said.

The secretary stressed that the program is not designed for those who those invest in real estate or are at risk for losing vacation homes.

Pay Czar Lists Recommendations He's Made For Executive Compensation Limits

By Laura Smith - University of New Mexico/Talk Radio News Service

Treasury Official Kenneth Feinberg testified on Wednesday before the House Oversight and Government Reform Committee about his review of the bonuses paid to executives at the seven largest TARP recipients.

According to Feinberg, the Special Master for Executive Compensation under the Troubled Asset Relief Program - also referred to by some as the White House's 'Pay Czar' - those recipients include American International Group (AIG), Bank of America, Citigroup, Chrysler, Chrysler Financial, General Motors and GMAC.

“For the last five months, I have a narrow mandate under the law, and that was to determine pay compensation packages for the top 25 officials in just seven companies that receive the most TARP assistance,” he said.

Feinberg explained that he received proposals from each of the seven companies on the matter of compensation, and after he reviewed them, he took specific actions to correct their flaws.

“I requested and received comprehensive submissions from each of the seven companies, explaining their view on what they thought they needed for their top 25 officials in the way of a comprehensive package. I examined those submissions with the utmost care and scrutiny, and I concluded that six of the seven submissions...were contrary to the statute, contrary to the regulations, and contrary to the public interest,” he said.

Feinberg clarified his remarks by stating that certain of the companies “wanted too much cash guaranteed salary...and made no mention of the perks that were part of their salary.”

Feinberg said that his office evaluated the submissions and made some material changes.

“First we greatly reduced the amount of cash that would be available to the senior officials. Second, they required that when they issue stock, that stock may not be cashed out for up to four years. Third, we said no more unlimited perks. Perks are limited to $25,000 per individual, and anymore than that would have to be approved by the Office of the Special Master,” he said.

Proposed Financial Regulatory Agency Will Protect Consumers, Claims Treasury Official

Leah Valencia, University of New Mexico-Talk Radio News Service

U.S. Treasury Department Director for Consumer Protection Peggy Twohig said that establishing a far reaching financial regulatory agency could create a system of checks and balances for financial institutions, thus ensuring the strength of the U.S. economy.

“An agency would create uniform protection for consumers and make a level playing field for all types of financial services,” she said.

While discussing the Obama administration’s proposed Consumer Financial Protection Agency at the New American Foundation Friday, Twohig said it is necessary for all financial institutions to learn a sense of responsibility for the consumer by following base regulations

“The administration has supported that,” she said. “Part of the legislative proposal is for federal rules to be a floor not a ceiling that would apply to everyone.”

Twohig said there was not acceptable oversight of banking sectors in the past, adding that this caused a race to the bottom, where nonbank lenders offering aggressive products often steered consumers to unacceptable loans. As a result, banks who wanted to compete felt pressured and began to loan irresponsibly. Twohig said the proposed agency will prevent such an occurrence in the future.

“We need basic standards that will protect all consumers,” she said. “This will help the responsible players... who want to offer straightforward transparent products for consumers.”

Treasury Official: Recovery Act Stalled Job Loss

By Justin Duckham-Talk Radio News Service

A high-ranking Treasury Department official says that the stimulus plan is not responsible for the August rise in unemployment and may in fact have mitigated it. Friday in a briefing with reporters, Alan Krueger, Assistant Treasury Secretary for Economic Policy and Chief Economist, said that there are signs that the economy is improving, but that employers are not hiring because of a lack of confidence. In August, the number of unemployed persons increased by 466,000 to 14.9 million and the unemployment rate rose by 0.3 percent to 9.7 percent. Nonfarm payroll employment rose to 9.7 percent, or 216,000 Americans without jobs.

“Without the steps (the Obama administration has) already taken, the pain would be much worse,” Krueger said, alluding to the American Recovery and Reinvestment Act, a two-year program which will provide $787 billion to jump-start local and state economies. “The typical pattern is that we see the job market recover more slowly. From employers’ perspectives, they want to be more confident that they are going to see an increase in demand before they hire.”

According to the U.S. Bureau of Labor Statistics: “Among the major worker groups, the unemployment rates for adult men (10.1 percent), whites (8.9 percent), and Hispanics (13.0 percent) rose in August. The jobless rates for adult women (7.6 percent), teenagers (25.5 percent), and blacks (15.1 percent) were little changed over the
month. The unemployment rate for Asians was 7.5 percent.”

Since December, 2007, employment has fallen by 6.9 million. In August, construction employment declined by 65,000, in line with the trend since May. Monthly losses had averaged 117,000 over the six months ending in April. Employment in the construction industry has contracted by 1.4 million since the onset of the recession. Starting in early 2009, the larger share of monthly job losses shifted from the residential to the nonresidential and heavy construction components. In mining, employment declined by 9,000 over the month.

In August, manufacturing employment continued to trend downward, with a decline of 63,000. The pace of job loss has slowed throughout manufacturing in recent months. Motor vehicles and parts lost 15,000 jobs in August, partly offsetting a 31,000 employment increase in July.

Employment in the retail trade industry was little changed in August. Employment also was little changed in professional and business services over the month. From May through August, monthly employment declines in the sector averaged 46,000, compared with 138,000 per month from November through April. Job loss in its temporary help
services component has slowed markedly over the last 4 months.

Employment in health care continued to rise in August (28,000), with gains in ambulatory care and in nursing and residential care. Employment in hospitals was little changed in August; job growth in the industry slowed in early 2009 and employment has been flat since May. Health care has added 544,000 jobs since the start of the recession.

September employment figures will be released on Friday, October 2.