Tag: Freddie Mac

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Cost of Fannie / Freddie Bailout Less than Previously Thought

The Federal Housing Finance Agency, which oversees mortgage giants Fannie Mae and Freddie Mac, issued revised estimates on the cost of bailing out the two companies on Thursday, indicating the cost will be nearly 20 percent lower than previously estimated. The agency now forecasts the combined cost of propping up the two agencies at $124 billion through 2014, down from an estimate of $154 billion offered last year.

The agency said that $124 billion was the expected cost, but offered a range of $121 billion and $193 billion, somewhere in which the actual cost will be depending on the economy, housing market conditions and the performance of the loans the two entities guarantee. The downward revision in the cost estimate, FHFA officials said, was due to Fannie and Freddie requiring less assistance over the last year as their financial results improved.

Even with the expected cost being lowered, the rescue of Fannie and Freddie will easily be the most expensive bailout stemming from the 2008 financial crisis. The two companies were seized by federal authorities in September 2009 and placed in a government-run conservatorship before large amounts of money were pumped in to cover losses stemming from failed mortgages they owned or guaranteed. Thursday’s report estimated that future earnings of the two companies will begin reducing the amount lost either next year or in 2013.

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SEC Considers Fannie and Freddie Charges

The US Securities and Exchange Commission is reportedly considering filing chargers against a number of former and current executives of mortgage giants Fannie Mae and Freddie Mac with violations related to the recent financial crisis. The move would set up a battle between the SEC and the housing regulator charged with overseeing the tow government-controlled entities.

The SEC, whose function is to enforce the nation’s securities laws, claims that at least four senior executives at the two firms failed to provide sufficient information to investors about the companies’ mortgage assets as the nation’s housing market collapsed. But the Federal Housing Finance Agency, the agency charged with regulating the two companies since they were seixed by the government in 2008, disagrees with that assessment.

FHFA officials argue that financial disclosures from the two entities were sufficient, and the agency has sent a letter to the SEC opposing the filing of any charges. Over the last couple of months, SEC officials have sent a series of letters to the executives in question saying that they could face civil charges, though the agency has not yet made a final decision to file them.

The SEC has alleged that executives at Fannie and Freddie misled investors about the potential risk involved with certain mortgage products such as subprime loans. Executives that could face charges reportedly include Fannie chief Daniel Mudd, former Freddie head Richard Syron, former Freddie CFO Anthony Piszel, and current Freddie staffer Donald Bisenius, who recently announced his intention to resign after receiving his notice.

The main allegation against Fannie executives is that they mis-classified certain risky loans as “prime”, while the Freddie staffers allegedly failed to warn investors of potential risks involved with subprime loans.

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SEC Investigation Into Freddie Mac Heats Up

The US Securities and exchange Commission has reportedly escalated up its probe of mortgage giant Freddie Mac concerning its disclosures to investors, notifying at least one former official that civil charges will be filed against him.

Freddie’s chief financial officer between 2006 and 2008, Anthony “Buddy” Piszel, has been served with a “Wells notice” from the agency, according to Corelogic, where Piszel now serves as CFO. A Wells notice is a notification that SEC staff members intend to file civil charges.

Corelogic reported the Wells notice on February 10th, and said that Piszel had submitted a resignation, but would stay on until June, adding that he intended to submit a response to the SEC soon. Corelogic has declined to make any further comments on the matter, and Piszel has been unavailable for questions. Likewise, SEC officials have declined requests for comment.

In 2008, Freddie officials announced that the mortgage insurer had been subpoenaed for documents relating to its accounting practices, disclosure policies, and corporate governance since 2007. Fannie Mae, having also required government aid to stave off bankruptcy, is also under investigation.

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Fannie and Freddie “Biggest Disasters of All Time”

A congressional panel, the Financial Crisis Inquiry Commission, released audio files of testimony it gathered during its 18-month investigation into the causes of the financial collapse. Included in that testimony was an interview with JPMorgan Chase CEO Jamie Dimon, in which he called Fannie Mae and Freddie Mac “the biggest disasters of all time”, adding that the two now-government controlled entities and their failures were a leading cause of the nation’s financial meltdown.

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Meanwhile, the US Treasury Secretary, Timothy Geithner on Friday outlined three options for unwinding the two mortgage companies in a report sent to Congress. The Obama administration is currently trying to find a way to end taxpayer support for the agencies and gradually decrease the dependence of the $11 trillion mortgage market on the US government. Combined, Fannie and Freddie have been given more than $150 billion in taxpayer assistance since federal regulators seized the two companies in September 2008.

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Banks To Benefit From Unwinding of Fannie, Freddie

The move to unwind mortgage giants Fannie Mae and Freddie Mac is gathering momentum as Congress and the Obama administration continue to debate how to accomplish it. Privatizing of the nation’s finance system could, in the end, represent a significant boost to the bottom lines of US banks.

Obama’s administration, as well as a number of Congressional Republicans, have proposed eliminating the Fannie and Freddie, which have been controlled by the government since requiring assistance in June 2008 to avoid bankruptcy. It is not clear at this point what, if anything, will serve as a direct replacement for the two agencies.

The elimination of the two mortgage insurers will be accomplished gradually, to avoid destabilization of the housing market. Insiders say that some of the companies’ basic functions, as well as some of their staff, will be shifted to other government agencies including the Department of Housing and Urban Development (HUD) and the Federal Housing Authority.

Treasury Secretary Timothy Geithner said Friday the dissolution of Fannie and Freddie could take between five and seven years to complete. Representatives from Fannie and Freddie declined to comment on the proposal.

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Fannie Mae / Freddie Mac Bailout Costs Estimated

The government announced on Thursday the total tab taxpayers will end up picking up to bailout the mortgage giants Fannie Mae and Freddie Mac, could be as much as $259 billion. The figure is just about twice what the two companies, now under a government conservatorship, have received so far.

By comparison, bailouts of financial firms and auto manufacturers have only cost taxpayers a combined $50 billion, according to the latest projections from the Treasury Department. And the bailouts of some of the largest Wall Street banks, which caused significant public outcry, have so far earned taxpayers a return of $16 billion.

When the housing bubble burst, Fannie and Freddie were inundated with losses on bad loans they backed as foreclosures mounted. The two companies essentially purchase mortgages from various lenders, package them together into bonds with a guarantee against default, and sell the bonds to investors.

The figures released on Thursday are a general estimate of the cost of bailing out the two mortgage firms, as their actual losses could vary widely depending on what home prices do over the next several years. If prices continue to drop, as predicted by some analysts, it will limit the amount of money the two companies can salvage in foreclosures, and they would require more aid.

So far the government has pumped about $135 billion into the bailouts of Fannie and Freddie, but the Federal Housing Finance Agency (FHFA) projects the bailouts could end up costing between $142 billion and $259 billion by the end of 2013. Those numbers reflect dividends the two companies are expected to have to repay.

The terms of the federal bailout require Fannie and Freddie to pay an annual dividend of ten percent to Treasury, and they have paid a total of $13 billion combined in dividends already. That amount is expected to rise sharply over the next few years, with regulators projecting the two companies to make additional dividend payments of between $67 and $91 billion combined over the next three years.

Fannie Mae and Freddie Mac have been operating under the government’s control for more than two years now. When the government first stepped in, back in September 2008, their combined rescue was expected to cost taxpayers $200 billion.

Thursday was the first time the FHFA offered taxpayers a public estimate of the total tab. The two companies’ combined bailout is on pace to be easily the largest federal expense stemming from the financial crisis. The numbers dwarf the previous record-high single bailout effort, the rescue of American International Group (AIG). That bailout is currently expected to end up costing about $5 billion, and that bailout could eventually end up turning a profit for taxpayers, according to Treasury, if their plans to unload AIG stock succeed.

The Obama administration’s bailout of the auto industry, meanwhile, is expected to cost a total of $17 billion, according to Treasury. Fannie and Freddie own or guarantee close to 31 million home loans with a combined value of more than $5 trillion, or in excess of 50 percent of all US home mortgages.

Over the next year, legislators plan to review the mortgage-lending system and consider possible replacements for Fannie and Freddie. The recently-passed financial-reform package did not address the Fannie/Freddie problem.

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CFO of Freddie Mac Found Dead in Fairfax County Home

David Kellermann, 41, was found dead in his home in Fairfax County this morning. Kellermann was acting Chief Financial Officer for mortgage giant Freddie Mac. He shared the home, which was in the Hunter Mill subdivision in the Vienna area of Fairfax, with his wife and daughter. according to local authorities. Officers responded to call from Kellermann’s wife at 4:48 AM. When they reached the house, they found Kellermann’s body in the basement, he had apparently hanged himself. No suicide note was found. He was hired by Freddie in 1992 as an analyst. He was promoted to the office of CFO last September, when Freddie Mac was taken over by the government and it’s top executives removed. The job is very demanding and Kellermann was monitored very closely by the government regulator assigned to watch Freddie Mac.

The company, as well as rival mortgage giant Fannie Mae, had made investment errors which led to billions of dollars in losses. The government has already awarded almost $60 billion in bailout money to the two companies. Kellermann was involved in some recent controversies within the company. He, along with several company attorneys battled with the regulator over the disclosure of costs related to implementing the Obama housing plan. A group of Freddie Mac employees wanted to disclose the $30 billion estimate but the regulator was strongly opposed. The group claimed that the disclosure was a legal obligation and they needed SEC approval if they failed to make the disclosure. In the end, the regulator gave in.

Freddie is currently under investigation by both the SEC and Dept. of Justice for improprieties in its accounting procedures. The SEC has issued several subpoenas for company documents and is holding interviews with past and current employees. An investigation into Freddie Mac by the US Attorney’s Office in New York’s Southern District ended with no action being taken. A new investigation was started at the end of 2008 by the US Attorney’s Office in Virginia’s Eastern District. The SEC’s investigation is in its early stages and is part of a broader examination at many financial institutions believed to have contributed to the poor state of the economy.

The lives of key Freddie Mac employees have been greatly altered in the last year since the housing market collapsed and the recession began. What used to be a major financial company is now almost a government agency playing a major role in the implementation of Obama’s housing plan. Freddie and Fannie Mae were chastised early in April after announcing plans to pay out more than $200 million in retention bonuses to key employees over an 18-month period. The regulator, James B. Lockhart, defended the action, saying that the companies’ current employees “are an important part of the solution and not the problems of the past.” Kellermann himself was set to receive $850,000 over the 18 months, of which he has only received $170,000 so far.

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Freddie Mac Under Self-Imposed Investigation

The Associated Press has revealed that Freddie Mac has hired lawyers to investigate their own two million dollar lobbying campaign designed to stop regulations against the company before the recent crash of the housing market. It is unknown at this time how much the investigation will cost or whether federal bailout money will help pay for it. The firm was put under government control in November because of extensive debt. A leadin Washington, D.C. law firm, Covington and Burling LLP, has been conducting interviews with current Freddie Mac employees and persons no longer with the firm. All persons interviewed are cooperating on an anonymous basis. The lead investigator in the inquiry is a former Justice Dept. prosecutor named Stephen Anthony, whose legal specialty is corporate inquiries.

The Chairman of the Board of Freddie Mac, John Koskinen, has confirmed the investigation before declining further comment. Investigator Anthony has not been available for comment. The investigation is ongoing whilst President Obama recently awarded an additional $200 billion in government assistance to the financial giant and the even bigger mortgage company, Fannie Mae. The governing body in control of Freddie Mac’s business activities is the new Federal Housing Finance Agency.

The investigation was spurred by accusations that the firm hired DCI Group, a Washington consulting agency, to prevent the passing of a bill that would have forced Fannie Mae and Freddie Mac to liquidate hundreds of billions in assets. The chief sponsor of the bill was Senator Chuck Hagel, a Republican from Nebraska. The DCI group failed to file lobbying reports detailing the services they provided for Freddie Mac. Insiders say that executives at Freddie Mac aware of the initiative nicknamed it “the stealth lobbying campaign.” A DCI Group spokesman claims that no laws or regulations were broken and that the highest ethical standards were adhered to.

Investigator Anthony’s investigation centers around 3 key issues raised by AP stories:

A disclosure of the work done by DCI Group for the two million it received from Freddie Mac. The efforts reportedly were aimed at 17 Republicans in the Senate from 13 states with the goal of defeating Sen. Hagel’s bill, which was never voted on.

Details of work performed by 52 outside lobbying agencies and political consultants who received substantial payments from Freddie Mac totaling in excess of eleven million dollars. The consultants in question include former Speaker of the House Newt Gingrich and former Senator Alfonse D’Amato.

Disclosure of personal use by the firm’s executives of company-purchased tickets and a skybox at the Verizon Center.

This is not the first time Freddie Mac has hired Covington and Burling. The firm has represented Freddie Mac in around twenty lawsuits charging the company with falsely inflating its stock price from 1999 to 2002. All the suits have been settled. They also represented Freddie Mac when it was charged with making illegal campaign contributions, a matter the company was fined almost $4 million by the Federal Election Commission for.