Sandy’s Point Of View

“A huge part of the recovery process depends on these two companies Fannie Mae and Freddie Mac”said Sandy Hutchens ” we need to be sure these companies will have success in the near future.”

James Lockhart’s successor as director of the agency that regulates Fannie Mae and Freddie Mac will hold much of the US mortgage market in his hands when he takes the helm.

Government-backed mortgage financiers Fannie and Freddie own or guarantee 73 per cent of new mortgages in the country and 56 per cent of all existing single-family mortgages. The companies were taken into their regulator’s “conservatorship” last autumn, after mounting mortgage losses eroded their capital cushions and raised fears of collapse.

The government has pledged up to $400bn of taxpayer funds to keep the two companies afloat.

The replacement for Mr Lockhart, who on Wednesday announced his resignation, will thus have a central role in shaping the future of the giant mortgage financiers and of the US mortgage market writ large.

The White House has said it will unveil a plan for Fannie and Freddie when it releases its 2011 budget in February.

An administration official said it was still considering a long list of options for the so-called government-sponsored enterprises (GSEs) and that “no one option is under strong consideration at this time”.

Edward DeMarco, chief operating officer at the Federal Housing Finance Agency, will serve as acting director until President Barack Obama’s administration appoints a permanent successor. Fannie and Freddie have tapped $85bn of the Treasury’s lifeline so far, while the Federal Reserve has bought more than $1,000bn worth of their debt and mortgage-backed securities to try to push mortgage rates down.

The GSEs have also become the engine of government policies to modify or refinance mortgages for struggling borrowers, helping to fuel further losses at the companies.

Fannie on Thursday reported a $14.8bn loss for the second quarter and asked Treasury for a further $10.6bn of bail-out funds.

Many are asking how the government plans to extricate itself from such heavy involvement with the housing market when the crisis subsides.

One option could be a gradual wind-down of their operations and liquidation of their assets in a good bank-bad bank split. Other options include incorporating the GSEs’ functions into a federal agency, breaking them up into many smaller entities, returning them to their previous structure or conversion to a public utility model.

Fannie and Freddie were for decades shareholder-owned companies with a public mission to ensure the broad availability of mortgage financing.

The administration official said: “It should come as no surprise that the Administration is thinking through GSE reform, a commitment we made to Congress in the regulatory reform white paper, but we are in the preliminary stage of the process, the systematic development of options has not taken place and no decisions have been made.”

In an interview this week – just days before he announced his departure – Mr Lockhart said he was against nationalisation of the GSEs and that, while the old government-sponsored model could be made to work, “it would have to be structured a lot differently”.

Regulators would need power to restrict the size of their portfolios and make them conserve more capital, particularly “countercyclical capital” which would make them set aside more in the good years and less in the bad, said Mr Lockhart. This would also dampen housing bubbles.

“If you want to keep the 30-year mortgage… and you want to keep the money flowing in from the rest of the world to help fund our housing market, then you have to have a very robust secondary mortgage market,” said Mr Lockhart.

“You have to decide what you want that market to look like and how much government involvement you want in it. But you really have to draw the line very sharply, and it wasn’t in the past.”

Alternatively, he suggested they could be privatised and perhaps broken up into smaller chunks, but made to buy insurance from a government-run “catastrophe insurer” which would pay out if they incurred “giant” losses, but would leave them on the hook for smaller ones.

Mr Lockhart was wary of what legislators would ultimately come up with, however.

“It’s difficult to create those kinds of things up on Capitol Hill,” he said. “I don’t see a lot of appetite for nationalisation, but I think there’s going be a lot of tension between the ‘put it totally in the private sector’ [camp] versus the new GSE model.”

Tags: Fannie and Freddie, Fannie and Freddie own or guarantee 73 per cent of new mortgages in the country, Fannie Mae, financiers Fannie and Freddie, Freddie Mac, Government-backed mortgage, Huge challenge, James Lockhart’s, new chief, Sandy Hutchens, White House
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Posted By Sandy Hutchens

Defunct investment bank Lehman Brothers will get 325,000 euros ($459,100) for losing its role on a big European mortgage bond after the bank collapsed.

The payout, for being replaced as security agent on the 1.1 billion euro Windermere XIV securitisation, could eat into the returns for holders of the bond’s riskiest slice, Windermere said in a statement to holders of the commercial mortgage-backed securities (CMBS) on Wednesday.

The cost to Windermere, a special purpose company set up for the securitisation, of the replacement is estimated to be 700,000 euros, of which about 325,000 euros will be paid to Lehman Brothers International (Europe), the issuer said.

The payment to Lehman will be made “as a contribution to its costs in relation to the termination of its role”, it added.

PricewaterhouseCoopers, administrators to Lehman in Europe, said it would receive the payment and add it to the pot of funds to be distributed to the bank’s creditors.

The cost of replacing the security agent, an administrative role within the securitisation structure, may end up jeopardising payments to bondholders, Windermere added.

“Payment of the security agent’s replacement costs is likely further to affect the ability of the issuer to make payments in full of interest in respect of the notes,” the issuer said.

On Aug 7 rating agency Standard & Poor’s downgraded tranches of four Windermere bonds where Lehman acted as security agent, including Windermere XIV, due to uncertainties about the cost of replacing the failed bank.

Tags: administrators, commercial mortgage, Europe, Lehman, Lehman Brothers, Lehman Brothers get payout, replacement, Sandy Hutchens, special purpose company, Windermere
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New houses have many advantages over the Victorian and Edwardian homes that dominate many of Britain’s towns and cities. They boast the latest fixtures and fittings, they are cheaper to maintain, you do not have to move in, rip off the gruesome wallpaper and spend the next three years repainting them. But they do have one — fundamental — drawback. They are too small for modern living.

Indeed, when it comes to living space, people in the South East of England have to endure some of the most cramped conditions in the developed world.

Research by the Commission for Architecture and the Built Environment (Cabe), a government advisory body, has found that owners of new homes in the South East do not have enough space to prepare food easily, to have friends round for dinner or even to find a quiet place to relax.

Moreover, more than 50 per cent of people living in flats, bungalows and houses built between 2003 and 2006 said that they did not have enough storage space; 47 per cent did not have enough room for all of their furniture and 44 per cent said that there was not enough space for children to play safely in the kitchen while a meal was being prepared. Almost three quarters had nowhere to keep three small recycling bins to separate out household waste.

The findings will add to pressure on housebuilders to switch to building larger homes, after they came under fire for supplying too many small flats in high-density urban developments during the property boom.

The Government, too, is likely to be under pressure to set minimum space requirements for all housing. Boris Johnson, the Mayor of London, began a campaign last year to rid the capital of so-called “hobbit homes”, but plans published last month by the Greater London Authority apply only to publicly funded schemes.

Richard Simmons, the chief executive of Cabe, said: “This research brings into question the argument that the market will meet the demands of people living in private housing developments. We need planning authorities to ensure much higher space standards before giving developments the go-ahead.”

The average newly built home in the UK is smaller than in any other European country, at 76 square metres, according to the most recent figures, compiled in 2004. In Japan, the land of the micro-home, the average property was 94.8 square metres in 2003. A typical new-build in Australia is 239 square metres.

Mr Cabe said that lack of space was a particular problem for low-income households. In 2006, when the Government last compiled the figures, the average household, old or new, measured 91 square metres. In deprived areas, that figure fell to 83. Insufficient demand for small flats has led to price falls of up to 40 per cent for such property in the downturn.

Steve Turner, of the Home Builders Federation, said: “In an ideal world, everyone wants space for a grand piano, but if you increase the size of homes without more land becoming available, the cost to the end user will go up, which contradicts the aim of offering affordable housing.”

Pressure to build as many new homes as possible has resulted in overcrowded developments, as well as smaller homes. The average number of new dwellings per hectare in the England has risen from 22 in 2002 to 44 last year, according to official figures.

We cant see a recovery to the new housing market if the builders cant give the consumers what they want.  People need to feel comfortable in their homes and the builders will need to adapt to their needs.

I hope  people get the word out,

Sandy Hutchens

Tags: Affordable Housing, builder, builders, consumers, developments, dwellings, Home Builders Federation, housing market, recovery, Sandy Hutchens, Steve Turner
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