[David] Let’s get over to Alice with an update on what is happening. I’m really interested in your thoughts with Pulte coming in as FHFA Alice, and the whole group taking GSEs out of conservatorship. That’s your thoughts.
[Alice] I was just going to report on today since we have that movement with getting him confirmed and some folks are talking about that. I’m in the camp that is, first of all, a lot to educate Congress on for them to even be motivated to put it in front of the hundreds of other topics that they have in front of them. But we have a good chance for somebody who’s that educated. The other thing I guess I just wanted to remind our listeners of where Fannie and Freddie are today, and that you want some background on this. The MBA did write them did do a write up on this. It was back in 2017, their GSE reform creating a sustainable, more vibrant secondary market. And if you haven’t read that for a while, maybe go dust it off. I saw Rob Chrisman highlighted a couple of points on that, but there’s a lot in that to give you an idea of what’s involved in that transfer and so here are just some quick numbers that I picked up on trying to pull this together I was curious, you know about the dividend payment. So, there’s been 311 billion that b with a b that Fannie and Freddie have paid to the US treasury in dividend, but this does not reduce the 228.7 billion liquidation preference that they owe. So, when this was all passed, right? and in 2008, it was a total of 191 billion that was in the bailout fund to keep them afloat. Then there was the senior preferred stock that the Treasury received. This is 10% annual dividend, and then later a net worth sweep was added. So today, those dividends do not reduce the liquidation preference, essentially that principle that they owe. So they have not had to make payments on this since 2020. They’ve been allowed to grow but that amount that they owe increases each quarter by the net worth increase of the company. So even though they’ve paid 311, the bill that they would owe when they come out of conservatorship which would have to be paid in dividends ahead of any stockholder different dividends right now, that’s just at 228.7 billion and it goes up every quarter. So that’s how that goes. I, yeah, many of you probably knew that already, but for those of us who don’t focus on that every day. I had to remind myself now. Wait a minute It feels like we’ve paid a lot of Fannie and Freddie have seen a lot more than they owed but that’s not the case. They still owe so that’s where we are today.
[Kittle] I have a comment about that. So, think about that. The government owns them basically they went into conservatorship in September of temporary conservatorship in September of 2008 just about three and a half weeks before I went in as chairman of MBA. That is the same exact behavior that Congress has done for the last four or five decades. They’ve had the money to pay it off, but instead they’ve taken it. They won’t let them out of conservatorship because it’s cash cow and they spend it in other places. I don’t see, I don’t see any chance of them letting them come out of conservatorship.
[David] I would have said that if Kamala Harris had won the election, but now that Trump’s here and he made a promise and he, what he is doing in DC, David, I think we got a new game going on in DC and I think there’s, I understand.
[Kittle] They’ve got to start paying off the debt or let them start retaining earnings so that they can do so instead of taking all the cash and spend it in another place.
[David] It’d be interesting to see what’s going on. Alice, do you have any sense of what, how much they’re pulling out of the GSEs? I thought they were leaving it in here recently. I thought I heard a report on that that they were beginning to let their offers fill back up or any perspective on that?
[Alice] So they do it does stay in Fannie and Frannie’s. Basically, it’s just on their P and L, right? They get to keep the revenues and the dividends, but there’s still this line item of the basically the dividend that they would have to pay the federal government once this is solved. Even though the government isn’t getting the cash directly, it’s still what I would call receivable in the books to David’s point. So, what’s the disincentive by them to stop with this? It’s still revenue that’s out there to them, even though Danny and Freddie haven’t actually cut the check.
[David] Mark, any thoughts you have on Fannie in or out of a conservatorship?
[Marc] I’m actually still surprised it lasted this long. They lasted this long and inside the government. Yeah. Yes, inside the government. Yep. I’m just I’m just really surprised. We need to deal with that. It’s been it’s something been hanging out there for a while. I’m not sure where it is as the right way to be, of course and I just think somebody needs to step up and do it. I’m really surprised that Trump hasn’t focused more on it than he has at this point. Yeah.
[David] He’s got so many other issues internationally going on. It’s really interesting. Yeah.
[Bill] So David to me, a couple of third rails, if you will, that till those get serious discussion, I’m going to remain skeptical, and one is the explicit guarantee for the MBS out there. And if that has to go through Congress put another blanket on it and put it back to bed. Cause it’s not going anywhere. The other thing that I find intriguing is they keep talking about getting Fannie and Freddie out of conservatorship. But with Chainsaw Elon running around, why are they going to focus on taking two organizations out of conservatorship that from the outside world perspective do the exact same thing?
[David] Mhm. No, I understand. In fact, other than Trump seemed to be committed to and make comments of that, he’s going to privatize them and while he’s running, not a lot of comments about that. But what comment was out there? The commentary was that he was privatizing.
[Alice] But in terms of privatizing, does that mean it wouldn’t be an explicit guarantee? And that.
[David] No, I think we’ll have higher rates if there’s not some type of explicit guarantee. I think what the programs that I’ve heard about and be talked about that I get floated by me from a conversation that’s going on there and I don’t want to sound like I’m an insider, but I do get some things run by me from time to time. Pretty interesting is they’re still all talking about finding a way to do the implicit guarantee and that is a conflict I think that Trump is going to have to navigate because he is not into increasing the tax liability, debt liability through Congress, through Fannie and Freddie by having the implicit guarantee. So, it’s, it’ll be a real interesting, like a lot of water flow into the bridge about a lot of it. So, we don’t know, but at least Pulte getting in there, Alice, as you say, will I think there’s more potential of them coming out. So, I’m in the camp, they’re coming out. We’ve got others on. On the other side of that issue. So, Alice, thank you so much for your report. Anything else, Alice, do you want to share?
[Alice] There was one bill out there. It was a house bill and incident right down the number. Maybe I can grab it quickly here as we’re chatting. That was an interesting along the lines of what y’all were talking about with trying to get the housing market back in line, and there was a proposal offer a credit, it would have been a 15% credit to convert commercial housing into individual single family ownership usage in light of all the commercial building vacancies as a result of more work from home. So, I was a credit of up to 10 million, 200,000 per unit. No, it had to be greater than that. Yeah, much larger than the 10,000,000. In any case, I thought that was an interesting concept, the idea to give developers credit for doing those types of conversions to make them easier and then also getting the state housing agencies involved to help them be better equipped to issue them.
[David] Yeah. It’s 200, 000 per unit. That’s a pretty significant tax credit, and it would converting some of the commercial office space, especially when you look inside of New York City, an amount of lights that are not coming out of buildings to convert those into residences, and we certainly need that and see prices, the cost of things to improve in major cities like that. Marc, your thoughts?
[Marc] I think, I don’t know if I get a very regionalized. Yeah, it’s not going to affect that much of the country. It’s very regionalized going to be looking at big cities. I don’t I don’t get a warm fuzzy that’ll take off and do anything special and it certainly is. I really have to look at the areas that are talking about doing it because I’m not sure the pockets I think of where they’d be taking things like to do it. It’s not exactly places where a lot of people want to live. Okay.
[Alice] That’s what I was thinking, Marc.
[Marc] I’ll say it. I just, I don’t know.
[David] Give me an example of that, because when I hear you and Alice agreeing on something like that, I want to dive into it a little bit deeper. What do you mean where there’ll be pockets? What pockets are you referring to?
[Marc] Let me give you an example. When I drive to work every day, I pass probably 50. Commercial buildings. Now they’re not what you’d find outside of Philadelphia or Baltimore or Boston or LA or whatever, but they’re commercial buildings and I look at it every time and say, why aren’t homeless shelters put in that? Why aren’t. Why aren’t this done, that done, everything done? Because their buildings sitting there have been vacant from what I figure on a lot of these for a number of years. What it’s about is the primary concept of real estate. Location location. So, what you’re talking about probably wouldn’t work on the commercial facilities that be available for conversion in the two types of commercial things for basic construction, it wouldn’t work for that. But then you look at the things that have been commercial and they’ve been apartment buildings and stuff like that and convert them to condo type structures and all that. Even in many cases that won’t work because you look where those things are located. They’re not located in the mainstay areas where people necessarily want to make that a personal residence for a good part of their time enough to go put a mortgage on it and buy If you could break the apartment complex down in condo units or whatever and things like that so I think it’s different from the marketplace you’re in but it’s also I think location plays into it and I think the socioeconomic structure that area plays into it too. It might be that it’s going to be very necessary because maybe there’s a lot of people out there that right now are have nice homes and all in places and now they’ve lost their cushy government jobs and they might have to figure out what to make ends meet and then some people might be looking at alternatives on things like that. That’s where I was coming from. I don’t know if that’s where, where everybody else was thinking, but that’s my thought.
[David] Yeah, Alice, you were agreeing with Mark. You’re going to add to that.
[Alice] Marc summed it up. He summed up all the aspects of it that I was thinking of because same thing you passed. Commercial buildings. And, there’s another example of, it’s the Chrysler headquarters right now, a building that they built in Auburn Hills, Michigan, I believe is mostly empty with a high rise, off the side of the highway with not a lot that is what a homeowner would want who’s living in a condo, right? You have to also remember this is all would be like condominium ownership style, and that’s in and of itself a market that has A little more resistance than single family and requires certain infrastructure around it to make it successful.
[David] A lot of discussion to be going on. This topic will be interesting. Bob Broeksmit comments. Cause you’ll be talking about resi and the commercial side of the market this Thursday. So, dial in and check out what Bob has to say with that. Good. Thanks everyone.
Alice Alvey, Master CMB
She handles development of their World Class Training program designed to support UHM partners and organizational effectiveness.
Prior to UHM, Alice served as Senior Vice President at Indecomm leading the Indecomm-Mortgage U division, Internal QA and Compliance and SaaS technologies. Indecomm acquired Mortgage U in 2013, where Alice was President/Co-founder, providing training and consulting since 1996. Prior to MU she served as SVP of Operations at a national bank overseeing operations for wholesale, retail and correspondent from underwriting through servicing, and compliance.
She has been in the trenches of mortgage lending operations from application through servicing for over 30 years. Her authoring work in training content, policies and procedures and the FHA/VA Practical guides illustrates her ability to bridge regulatory requirements with day-to-day operations.
Alice has been a weekly contributor to the Lykken on Lending show since its beginning in April 2009 and has made her weekly contributions to 450+ episodes!