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Trump Treasury Pick Wants To Privatize Fannie, Freddie

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Mike Kennedy

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Certified Residential Appraiser
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Trump Treasury Pick Wants to Privatize Fannie, Freddie
Steve Mnuchin, President-elect Donald Trump's choice for secretary of the U.S. Department of the Treasury, said he wants to restructure and privatize Fannie Mae and Freddie Mac, stating that leaving them under "government ownership" displaces private lending in the mortgage market, HousingWire reported Nov. 30. > FULL STORY
 

timd354

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While this article is slightly dated, the issues impeding growth of private label RMBS still remain

http://www.sifma.org/blog/us-private-label-mbs-market-2015/

In order to obtain the suggested goal of reducing and/or eliminating the GSEs, these issues need to be addressed
Absolutely correct and people need to realize that a significant impediment to the growth of private label RMBS is the very low current interest rates of residential mortgages. We talk to private investors and I can tell you that no one is interested in funding private RMBS's at such low yields and mortgage interest rates would have to be significantly higher before they would be interested. I can understand why some people want to eliminate the GSE's, but people considering whether or not to eliminate the GSE's need to be cognizant of all of the ramifications of doings so, which would likely include a significant increase in the mortgage rates (likely 150-200 basis points for a 30 year fixed loan)
 

J Grant

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A significant increase in mortgage interest rates often correlates to a significant decrease in RE values.
 

sandpiperapp

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Certified Residential Appraiser
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New York
So let me understand. Fannie and Freddie are currently profitable as GSE's. So America is making money.

They want to privatize them so company's and corporations can make the profit. They will then raise rates so other mortgage backed securities can compete with Fannie and Freddie.

As Americans we lose the current profit being made AND as consumers we get to pay higher interest rates so other company's can compete.

Do I have that right?
 

timd354

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So let me understand. Fannie and Freddie are currently profitable as GSE's. So America is making money.

They want to privatize them so company's and corporations can make the profit. They will then raise rates so other mortgage backed securities can compete with Fannie and Freddie.

As Americans we lose the current profit being made AND as consumers we get to pay higher interest rates so other company's can compete.

Do I have that right?
I think that many Republicans and conservatives want to privatize the GSE's because they don't think that gov't ownership of the GSE's is a proper function of government (which is an argument that I am sympathetic to). If the most important argument for keeping the GSE's in government conservator-ship is that the GSE's are profitable for the government, then why should the government not nationalize every profitable industry? (which of course would be absurd)
 
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sandpiperapp

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New York
I see. It seems to me that right now all Americans can benefit on the front side with lower interest rates and on the back side from the profit they make from Fannie and Freddie
I don't want to get into a discussion of Republican, Democrat, Liberal, or Conservative, but from a common sense perspective, isn't it better for all Americans for Fannie and Freddie to stay where it is.I truly don't understand the benefit for all Americans by privatizing them. It does not seem that rates will be lowered. As you said they will probably be raised, so where is the benefit all Americans?
 

timd354

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Certified Residential Appraiser
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Maryland
I see. It seems to me that right now all Americans can benefit on the front side with lower interest rates and on the back side from the profit they make from Fannie and Freddie
I don't want to get into a discussion of Republican, Democrat, Liberal, or Conservative, but from a common sense perspective, isn't it better for all Americans for Fannie and Freddie to stay where it is.I truly don't understand the benefit for all Americans by privatizing them. It does not seem that rates will be lowered. As you said they will probably be raised, so where is the benefit all Americans?
Well, one could certainly make the argument that all Americans would benefit by not having another property value bubble fueled by artificially low interest rates that are in effect subsidized by the government/taxpayers (in the form of the implicit government guarantee which was exercised when the last bubble burst) and from not being on the hook for a bailout the next time MBS's crash and burn.
 

Eli

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Tennessee
What is an artificial interest rate? Is that like a ghost?
 

sandpiperapp

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New York
So you are saying it is a benefit to all Americans that higher interest rates will keep real estate values down. Personally, I don't see the benefit in paying more interest to have less value.

If interest rates are kept low, no investor will want to buy mbs and there will not have to be a bailout.

Should the government be in business and compete with private entities? That is a thorny question.

I believe somtimes, social programs like Medicare have helped many Americans. Yes I know there are problems with Medicare, but it has helped many. I think there is a possibility that Fannie and Freddie would benefit the greater good by leaving them where they are.

Of course there is no profit in that for corporations, and it adds competition for the other mbs, but my kids will be able to afford a home. To me that's not a bad deal.
 
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