Wells Fargo CEO: Get The Government Out Of The Home Mortgage Business

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“If it wasn’t for Fannie and Freddie, [the mortgage crisis] would have been a small problem,” Wells Fargo CEO Richard Kovacevich told CNBC today. “Fannie and Freddie and other government agencies guaranteed 70 percent of those mortgages.”

He’s right, of course, though Fannie and Freddie’s market penetration when far beyond that. At the time of the housing market collapse, Fannie and Freddie combined owned or secured some 51% of the entire US mortgage market, not just subprime loans.

Kovacevich did say that if the feds want to be in the mortgage market, they should do it through the FHA. I’m not sure that’s a better idea, given that the FHA isn’t doing so hot either:

FHA’s FY 2012 Actuarial Study for its main single family program shows that its capital position has turned negative, by $13.5 billion. That’s a shift of $23 billion in economic value in a single year, and it puts the 78-year-old agency $34.5 billion short of its legal capital requirement.

If it were a private company, it would be shut down.

What I don’t understand is why the government need be involved at all. After all, banks want to make loans. That’s how they make money. By charging you interest in exchange for lending you money. The only people banks aren’t going to loan to are people who they feel don’t have good chance of paying back the loans in a timely manner.

What the government does by getting involved is distort the market so that people who probably shouldn’t get loans get them anyway. And, as we can see from the outcomes, that’s terrible policy.

Rob Port is the editor of SayAnythingBlog.com. In 2011 he was a finalist for the Watch Dog of the Year from the Sam Adams Alliance and winner of the Americans For Prosperity Award for Online Excellence. In 2013 the Washington Post named SAB one of the nation's top state-based political blogs, and named Rob one of the state's best political reporters. He writes a weekly column for several North Dakota newspapers, and also serves as a policy fellow for the North Dakota Policy Council.

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  • retirenowconrad

    If you take government out of mortgage lending, our senators wouldn’t get special interest rates, duh.

    • Bat One

      Nah! There’s always guys like Tony Rezko to help them out.

  • Bat One

    Let’s be honest. It was Democrats (Cisneros and Cuomo) who pushed Fannie and Freddie into the sub-prime mortgage market forcing both GSEs to lower their credit standards to accommodate the “minority and under-served communities.” And it was Democrats (Barney Frank, Chris Dodd and Barack Obama) who steadfastly refused attempts to reform the two GSEs. It was also Democrats, installed at the helm of Fannie and Freddie (Johnson, Raines, and Gorelick, principally) who cooked the books by buying not mortgages, but hundreds of billions in “blended” MBSs to boost their own multi-million dollar bonuses, thus creating an even larger market demand for sub-prime mortgage paper.

    The federal government, and Democrats in particular, have no business in the residential finance business.

    • SusanBeehler

      I thought Newt worked at Fannie or Freddie?

      • Bat One

        Wrong verb!

        Newt had a personal services contract with Fannie as an outside consultant. On the other hand, House Financial Services Committee Chairman Barney Frank’s live-in boyfriend, Herb Moses, was Fannie’s executive in charge of developing new, sub-prime mortgage loan programs. Moses got the gig after Barney lobbied on his behalf with Franklin Raines, Fannie CEO and former Clinton Budget Director.

        • ellinas1

          You are sugar coating Newts job description.
          In doing so you remind me of this republican hypocrite:

          The attempts to censure and expel Frank were led by Republican Larry Craig (whom Frank later criticized for hypocrisy after Graig’s own arrest in 2007 for lewd conduct while soliciting gay sex in an airport bathroom).

          For the record: Herb Moses left Fannie in 1998.

          • Bat One

            And Mr. Moses’ job title before he left was… ?

            Sorry, e, but you have not refuted a single thing I’ve said here.

          • ellinas1

            We know what Mr. Moses’ job title was before he left in 1998.
            For those that do not know you, my point which you so artfully evaded
            was this:
            You are sugar coating Newts job description.
            In doing so you remind me of this republican hypocrite:
            The attempts to censure and expel Frank were led by Republican Larry Craig (whom Frank later criticized for hypocrisy after Graig’s own arrest in 2007 for lewd conduct while soliciting gay sex in an airport bathroom).

          • two_amber_lamps

            We know what Mr. Moses’ job title was before he left in 1998.

            We also know what your job title here is….

            “but everybody knows who post’s under the moniker ellinas1″

            Q: That would be a pederast with homosexual tendency?

            Ellinas: “My point exactly.

            1/3/13

          • ellinas1

            Happy New Year, harpy.

          • two_amber_lamps

            Happy new year to you too pederast.

            Admit it…. you’d hit it.

            http://versioned.nameberry.com/blog/wp-content/uploads/2009/12/nyearsbaby2.bmp

          • ellinas1

            Happy New Year, harpy.

      • http://realitybasedbob.sayanythingblog.com/ realitybasedbob

        Newtie was their “housing historian”. But don’t call him a lobbyist. Really, don’t.

        Don’t google ‘bush ownership society’ either.

        OPPS! I already did!

        http://www.youtube.com/watch?v=kNqQx7sjoS8

        Good luck with this one, nutters.

        • donwalk

          Wall Street Journal, April 2009

          Democrats trying to re-write History.

          Fannie and Freddie are government-sponsored enterprises. Therefore, they had the guarantee of taxpayers and could borrow
          money at rates well below their competitors.

          The Bush administration warned in the April 2001 budget that Fannie and Freddie were too over leveraged. Their failure “could cause strong repercussions in financial markets, affecting federally insured entities and economic activity” well beyond housing.

          President Bush wanted to limit risk by raising the capital requirements, compelling preapproval of new activities, and
          limiting the size of their portfolios. President Bush wanted the GSEs to be treated just like private competitors. Congress did pass the Bush reforms, but not until 2008, after Fannie and Freddie
          collapsed.

          Republican Richard Shelby of Alabama, chairman of the Senate Banking Committee, pushed for comprehensive reform in
          2005, but Democrat Sen. Chris Dodd of Connecticut successfully threatened a filibuster. When Fannie and Freddie collapsed, Mr. Dodd asked, “Why weren’t we doing more?” He then voted for the Bush reforms that he once called “ill-advised.”

          Rep. Barney Frank of Massachusetts defended Fannie and Freddie as “fundamentally sound” and labeled the president’s proposals as “inane.” Frank later voted for the reforms.

          Sen. Charles Schumer of New York called Mr. Bush’s “safety and soundness concerns” a “a straw man.”

          “If it ain’t broke, don’t fix it,” was the advice of both Sen. Thomas Carper of Delaware and Rep. Maxine Waters of California.

          Rep. Gregory Meeks of New York berated a Bush official at a hearing, saying, “I am just pissed off” at the administration for raising the issue.
          Some Excerpts from the Wall Street Journal, April 2009

          • http://realitybasedbob.sayanythingblog.com/ realitybasedbob

            Don, when you got to the 4:20 mark of bush’s speech, what did you think he was talking about?

          • Bat One

            Chris Dodd’s co-filibusterer was Illinois rookie back-bencher Barack Obama.

            Typical Democrat dishonesty. Resist reform at all costs. Then when the crisis hits, blame the guys who pushed for reform.

    • WOOF

      Let’s be honest.
      Barney Frank is SuperStud.
      He made sex slaves of the majority House and Senate Republican congress critters and GW Bush.
      How else could Barney have kept those three Republican controlled branches of government from enacting meaningfull mortgage reform during their 2002-6 reign. The years of the housing bubble.
      Whip me Barney, beat me Barney, make me write bad loans.

      • mickey_moussaoui

        actually he had nancy Pelosi running defense making sure the Democrat controlled congress gave Frank all the protection he needed.
        Nice try woof, even if you are pathological liar and dem party tool

        • WOOF

          The housing popped bubble before Speaker Nancy was in charge.

          • ellinas1

            Don’t bother mickey with the true facts.
            He cannot handle the truth.

          • Bat One

            Your “true facts” aren’t at all factual. The last of the GOP efforts to reform the GSEs was in late 2007.

            …first things first when it comes to those two institutions. Congress needs to get them reformed, get them streamlined, get them focused, and then I will consider other options.

            These institutions provide liquidity in the mortgage market that benefits millions of homeowners, and it is vital they operate safely and operate soundly. So I’ve called on Congress to pass legislation that strengthens independent regulation of the GSEs – and ensures they focus on their important housing mission. The GSE reform bill passed by the House earlier this year is a good start. But the Senate has not acted. And the United States Senate needs to pass this legislation soon

            – President George W. Bush, 8/9/07 and 12/6/07 respectively.

            Nancy Pelosi became Speaker of the House on January 2, 2007.

          • ellinas1

            And?
            So, what!
            When democrats were sounding the alarms over the eonomy the republicans did what?
            Remember this?

            “I don’t believe for one minute that
            we are in, or about to enter into, a recession.
            Despite the best efforts of the Democrats and the media to convince us otherwise…”
            Bat One on January 25, 2008 at 10:17 am

            “The threat to our financial system wasn’t the individual homeowner behind on his payments, but rather the creditworthiness of all those institutions whose zest for a greater return in a low interest rate environment led them to buy CMOs, SIVs, and other sub-prime mortgage backed derivatives which they should not have purchased. ”
            – Bat One, Dec 6, 2007

          • Deficit Hawk

            No it didn’t. She obstructed the Fannie and Freddie overhaul in 2006 before the liquidity crunch hit. Revisionist historian? Once again you comment on everything without researching!

      • donwalk

        From the New York Times:
        New Agency Proposed to Oversee Freddie Mac and Fannie Mae
        By STEPHEN LABATON
        September 11, 2003

        The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.

        Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.

        The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.

        The plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac — which together have issued more than $1.5 trillion in outstanding debt — is broken. A report by outside investigators in July concluded that Freddie Mac manipulated its accounting to mislead investors, and critics have said Fannie Mae does not adequately hedge against rising interest rates.

        Whip me and beat me Barney’s response:

        ”These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis,” said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ”The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of
        affordable housing.”

        Representative Melvin L.
        Watt, Democrat of North Carolina, agreed. ”I don’t see much other
        than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing,” Mr. Watt said.

        • ellinas1

          In 2006, a Fannie Mae representative stated in SEC filings that they “did not participate in large amounts of these non-traditional mortgages in 2004 and 2005.In response to criticism, Frank said, “In 2004, it was Bush who started to push Fannie and Freddie into subprime mortgages, because they were boasting about how they were expanding homeownership for low-income people. And I said at the time, ‘Hey—(a) this is going to jeopardize their profitability, but (b) it’s going to put people in homes they can’t afford, and they’re gonna lose them.”

          In 2009 Frank responded to what he called “wholly inaccurate efforts by Republicans to blame Democrats, and [me] in particular” for the subprime mortgage crisis, which is linked to the financial crisis of 2007–2009.
          He outlined his efforts to reform these institutions and add
          regulations, but met resistance from Republicans, with the main
          exception being a bill with Republican Mike Oxley that died because of opposition from President Bush.
          The 2005 bill included Frank objectives, which were to impose tighter regulation of Fannie and Freddie and new funds for rental housing. Frank and Mike Oxley achieved broad bipartisan support for the bill in the Financial Services Committee, and it passed the House. But the Senate never voted on the measure, in part because President Bush was likely to veto it. “If it had passed, that would have been one of the ways we could have reined in the bowling ball going downhill called housing,”
          Oxley told Frank. In an op-ed piece in the Wall Street Journal, Lawrence B. Lindsey,a former economic adviser to President George W. Bush, wrote that Frank “is the only politician I know who has argued that we needed tighter rules that intentionally produce fewer homeowners and more renters.” Once control shifted to the Democrats, Frank was able to help guide both the Federal Housing Reform Act (H.R. 1427) and the Mortgage Reform and Anti-Predatory Lending Act (H.R. 3915) to passage in 2007.Frank also said that the Republican-led Gramm–Leach–Bliley Act of 1999, which repealed part of the Glass–Steagall Act of 1933 and removed the wall between commercial and investment banks, contributed to the financial meltdown.
          Frank stated further that “during twelve years of Republican rule no
          reform was adopted regarding Fannie Mae and Freddie Mac. In 2007, a few months after I became the Chairman, the House passed a strong reform bill; we sought to get the [Bush] administration’s approval to include it in the economic stimulus legislation in January 2008; and finally got it passed and onto President Bush’s desk in July 2008. Moreover, “we were able to adopt it in nineteen months, and we could have done it much quicker if the [Bush] administration had cooperated.”

    • ellinas1

      Let’s be really honest.

      “The threat to our financial system wasn’t the individual homeowner behind on his payments, but rather the creditworthiness of all those institutions whose zest for a greater return in a low interest rate environment led them to buy CMOs, SIVs, and other sub-prime mortgage backed derivatives which they should not have purchased. ”
      – Bat One, Dec 6, 2007

    • camsaure

      Lets not forget Conrat.

  • http://realitybasedbob.sayanythingblog.com/ realitybasedbob

    In related news, Wells Fargo joins 7 other banks in an $8,500,000,000.00 settlement of wrongful foreclosure lawsuit.

    Ten major banks and mortgage companies have agreed to pay $8.5 billion to settle complaints that they wrongfully foreclosed on homeowners who should have been allowed to stay in their homes.

    http://www.cnbc.com/id/100359366

    What swell fellows those bankers are!

  • Hal637

    The fed govt is currently purchasing $40 billion in mortgage backed securities per month. The fed govt has taken over the student loan market, home mortgages are clearly next on their list.

    • Bat One

      And the “money” used to make those purchases is being created out of thin air. Bernanke has been rather clever though. By increasing the banks’ reserve requirements, he has seen to it that all that extra money he’s printing up doesn’t go into circulation causing higher inflation. Sooner or later, however, both interest rate increases and inflation will be unavoidable.

  • Guest

    So why did Wells sell my mortgage to Freddie Mac if its CEO believes this?

    • ellinas1

      This is why:

      “The threat to our financial system wasn’t the individual homeowner
      behind on his payments, but rather the creditworthiness of all those
      institutions whose zest for a greater return in a low interest rate
      environment led them to buy CMOs, SIVs, and other sub-prime mortgage
      backed derivatives which they should not have purchased. ”
      – Bat One, Dec 6, 2007

      • Bat One

        All true, as we’ve discussed before. But irrelevant to Guest’s question.

        • ellinas1

          I say it is very relevant to the sock puppet’s question.

    • http://sayanythingblog.com Rob

      That’s an excellent question, one you liberals don’t ask nearly often enough.

      And the answer is, “Because the government was buying.”

      You guys keep saying that “Wall Street Greed” caused the housing collapse. You’re only half right. It was Wall Street greed enabled by Big Government.

      Take Big Government out of that equation, and the subprime mortgage crisis doesn’t happen.

      • WOOF

        So, Wells Fargo was crying “Stop us before we defraud you again.”

    • Bat One

      Your mortgage was sold before it even closed. The purpose of the GSEs is to provide liquidity to the mortgage market… in other words, to buy mortgages, and raise money do do so by bundling and securitizing the mortgages they purchase, then selling the securities to be able to use the proceeds to buy more mortgages. If Wells had done your mortgage and kept it on its own books, thus tying up its own capital, the interest rate would have been between 75 basis points and 150 basis points higher. Richard Kovacevich may not approve of the federal government system, but his fiduciary responsibility to the stockholders of Wells Fargo mandates that he uses that system. After all, without the system of securitization to provide liquidity, sooner or later even Wells Fargo would run out of funds to lend.

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