Fannie And Freddie Reform--The Right Way

Tuesday, April 29, 2014
With Congress poised to begin marking up legislation to reform mortgage giants Fannie Mae and Freddie Mac by the end of the month, more and more Fannie and Freddie investors have learned exactly what that means for their pensions and personal investments. And what are those investors being told? That Fannie and Freddie are going away and stock held by firefighters, police, school teachers, community banks, pensioners and individual investors will amount to nothing more than worthless paper.

The Federal government used $187.5 billion taxpayer dollars to keep the Government Sponsored Enterprises (GSEs) afloat and placed them into conservatorship at the height of the financial crisis in 2008.  The government held to its original conservatorship agreement until August 2012 when it arbitrarily decided to change the rules in midstream with an amendment that diverted 100 percent of Fannie and Freddie's profits to the Treasury's coffers, effectively wiping out private investors. Some of the investors who had their dividend swept away were invested in the GSEs years before the conservatorship took effect; some people had invested around the outset of the conservatorship and some had invested a few years after.

After hearing outrage from Fannie Mae and Freddie Mac investors from across the country, I decided to organize a group to visit Washington last week to meet with our elected representatives. Our message to lawmakers was simple: Washington must reform the GSEs in such a way that shareholders are paid what they are contractually and legally owed-something that the currently proposed legislation put forth by members of the Senate Banking Committee fails to do.

How does their bill treat shareholders?  First, it permanently writes into law the Treasury Department¹s move to forever seize the profits of Fannie and Freddie.  And second, it wipes out FHFA's legal duties as a conservator to all other entities besides the Treasury Department.  Put another way, individual shareholders, retirees, police and fire pensioners, and others will be left without a penny; the government gets it all.

Senators Corker and Crapo have both said that their legislation "leaves the investor issue to the courts",  but that claim defies credibility.  Their legislation puts Congress' thumb firmly on the scales of justice and on the side of the Obama Administration taking money it wasn¹t entitled to.  Last week, Treasury Secretary Jack Lew explained the federal government's taking by saying "I doubt a lot of people [the taxpayer] would feel they have been made whole."  But Mr. Lew ought to check his math:  the federal government put in $187 billion, and so far has received $205 billion back plus 80 percent of any upside of a recapitalization.   The Treasury Department has made out much better in their support of Fannie and Freddie than they did with the auto bailouts.  But regardless of losses or profits, the government has to live by the terms of its contracts the same way private parties do.   

Moreover, the very premise of this legislation, that Fannie and Freddie need to be wiped out, may be politically convenient but it ignores the realities of how the nation¹s mortgage market is capitalized, and how affordable housing becomes a reality for the middle class. Handing over the housing finance market and the guarantee business to the too-big-to-fail banks, wiping out the community banking system and obliterating Fannie and Freddie investors won¹t encourage private capital to show up for mortgages..

I know this; as a professional money manager, I allocate capital for a living.  If private investors can't rely on the rule of law in the mortgage market, they'll re-allocate capital to fund auto loans, credit card debt, or even apartments.  Capital follows the rule of law. 

America's mortgage market is a $10 trillion industry that needs private capital.  Without it, mortgages will become harder to obtain for ordinary Americans;  mortgage fees will increase, creating substantial burdens for homeowners; and the 30-year mortgage may become a thing of the past.

Ask an investor and they will tell you:  The marketplace functions based upon rules and certainty. Arbitrarily changing the rules in the middle of the game is destructive to investor confidence, and it's un-American.  We can only hope that Washington will listen to investors in its bid to reform Fannie and Freddie ­ the right way.   

Tim Pagliara
Franklin, Tn.

Make Government Work Again

There hasn't been as much talk about it in the national news as the presidential candidates, but please don't forget the down race ballots, our do-nothing Congress and the obstructionism they have practiced over the last eight years. It is time to break the log jam and make government work again. That includes the state level as well.  John Fricke (click for more)

Roy Exum: What Southerners Sing

Barry Norris plays the organ at Birmingham’s East Lake United Methodist Church and two days ago the church hosted what we used to call “A Singing on the Grounds.” Today it is called a “Hymnfest” and, believe it or not, it is has to be just as fun today as it was 100 years ago when our forefathers tied their horse and wagon to a tree. It just so happens I know a little bit about ... (click for more)

In Surprise Vote, Chattanooga City Council Turns Down Short Term Vacation Rentals

In a surprise vote, the City Council on Tuesday night turned down allowing a process to legalize short term vacation rentals in Chattanooga. Only Chip Henderson and Jerry Mitchell voted in favor. Opposed were Carol Berz, Yusuf Hakeem, Larry Grohn, Moses Freeman, Ken Smith and Russell Gilbert. Chris Anderson was absent. Afterward, Councilman Smith said, in light of the vote, ... (click for more)

Cold Case Unit Makes Arrest In Murders Of Brothers In Brainerd Almost 20 Years Ago; Detectives Say Brainerd Jeweler Rick Davis Tied To Incident

The Cold Case Unit set up by District Attorney Neal Pinkston has made an arrest in the murders of two brothers in Brainerd almost 20 years ago. The Hamilton County Grand Jury on Monday indicted 52-year-old Christopher Jeffre Johnson on two counts of first-degree murder in the January 1997 deaths of Sean and Donny Goetcheus. The 25-year-old Sean Goetcheus and his ... (click for more)

Taylor Luthringer, Thomas Porter Win Region Cross Country

COOKEVILLE – Tuesday was a pretty good day for the Signal Mountain cross country teams. Not only did they celebrate with both individual winners in the Region 4-A/AA races, but both teams finished in the top three and will advance to the state meet, which will be held at Nashville’s Percy Warner Park a week from Saturday. Taylor Luthringer and Thomas Porter captured the individual ... (click for more)

Notre Dame Draws Top Ranked Greeneville, CCS Opens With Madison Magnet

For the second year in a row, Notre Dame drew the top-ranked Greeneville in the opening round of the TSSAA Class A/AA state tournament.  Notre Dame is scheduled to play Greeneville on Wednesday at 8 p m. (EST)  in Murfreesboro. CCS will play Madison Magnet in the first round on field #1 at 7:30 p.m. (EST) . CCS and Greeneville met in the state championship game ... (click for more)