Freddie Mac’s pick? Former E*Trade head Donald Layton: Layton, a former JPMorgan Chase exec who led a turnaround at E*Trade Financial at the peak of the financial crisis, would become the company’s third CEO in the last four years. Considered the front-runner for over a month, sources close to Layton say he plans to accept the nomination, and sees doing so as a “public service.” He’s got his work cut out for him, as the government-controlled company, along with sister company Fannie Mae, has pulled in over $170 billion in bailout money since 2008. The announcement of Layton’s hiring is expected as early as Thursday. source
» Those who refinance will feel the pinch, too: To help pay for the $33 billion cost of the extended-by-two-months payroll tax cut, the federal government will increase the cost for homeowners to get their homes insured by Fannie Mae and Freddie Mac, who currently back nine out of ten home mortgages in the U.S. The fee, currently around 0.3 percentage points, would jump by 0.1 percentage points, which translates to roughly $17 per month for most homeowners. However, this fee would not affect current homeowners unless they refinance starting next year. Is this the best way to handle the extension?
These material misstatements occurred during a time of acute investor interest in financial institutions’ exposure to subprime loans, and misled the market about the amount of risk on the company’s books.Securities and Exchange Commission enforcement division director Robert Khuzami • Discussing the civil fraud charges that the SEC filed against six former top execs at Fannie Mae and Freddie Mac, charges that came about due to alleged misrepresentation of investors’ exposure to the subprime mortgage crisis. Lawyers for the six officials claim that the executives acted in the best interests of investors despite the allegations otherwise.
squashed asks: I can offer a bit more on the refinace question. First, the caveat: any sort of financial analysis is going to be highly subjective based on an individual's situation. Make your own decisions, etc.. WIth that said, there isn't much of a disadvantage to lowering the interest rate--though people may get hurt if there are fees connected with the refinance that increase the principle balance. Second, the banks have sold the loans to investors. The investors don't get a choice to prevent a refinance.
» SFB says: Ah, thank you. I admit offering people refinancing info is not my strong suit. :) Thanks for the tips! Hope these help, guys! — Ernie @ SFB
aclutteredmind asks: I've been wondering about Obama's refinance plan. Is there any downside to a homeowner refinancing from a 6.5-7.5% interest rate to 4.38 or whatever the rate currently is? Why would the mortgage companies go for it, if they're set to lose so much over the course of the 30 years? Is there some way they can take it off their taxes or something? I guess I'm just missing the catch.
» SFB says: Admit that this question is slightly above our pay grade (which is why we’ve been slow to respond … sorry), but fortunately it appears that Daniel Indiviglio of The Atlantic has worked out the pros and cons at length here. His take? “If this works as hoped, then those consumers will have more money in their pockets each month. Borrowers who see their mortgage interest rates drop from 5% or 6% to near 4% will often have a few hundred dollars more per month to spend or save.” He also notes that changes between the 2009 plan and this one could help out more homeowners over a longer period. However, one key point Indiviglio mentions which might explain a lot: “This program only applies to loans owned or guaranteed by F&F.“ As the government technically owns Fannie Mae and Freddie Mac, they have more leverage with them. Anyway, we’ll point you over that-a-way. — Ernie @ SFB
» The American companies include: Bank of America, JPMorgan Chase, Morgan Stanley, Goldman Sachs, and Freddie Mac. Two of the top three companies on the list are Chinese. On the upside, the Treasury has as much money as Google, so that’s kind of a nice consolation prize.
This is a plan for fundamental reform — to wind down the GSEs, strengthen consumer protection and preserve access to affordable housing for people who need it.Treasury Secretary Timothy Geithner • Explaining how he wants to wind down Fannie Mae and Freddie Mac, two government-owned mortgage-securities organizations which helped fuel the housing bubble and were ultimately felled by the subprime mortgage crisis. Geithner laid out three different ways to solve the Fannie and Freddie problem, all of which involve getting them off the taxpayer’s dime. The solutions rank in varying degrees – one is completely privatized with government guidance, one plays middle ground, and the third is a more-regulated version of Fannie and Freddie. The current organizations would pay off their massive debts, though. source (via • follow)
» Why such a big charge? Apparently, someone at Bank of America (or Countrywide) was really bad at doing paperwork, or was trying to push through half-baked mortgages. Because both were named as factors in creating the huge charges which resulted from investors making claims against them. Most of the fees are headed to Fannie Mae and Freddie Mac, by the way. Had this charge (and a separate $2 billion goodwill charge related to the Countrywide merger) not been there, Bank of America would’ve been profitable in the fourth quarter.