If you have a disputed account on your credit report, both Fannie Mae and Freddie Mac will automatically kick your application back to your bank for manual underwriting. If your bank really wants that loan, they'll underwrite it themselves before sending it back upstream. But if they can't or don't want to do that, they'll just reject your application and blame it on Fannie or Freddie.

Before you buy or refinance a home, pull copies of your credit report and clean it up if necessary. If you see any disputes that were resolved in your favor but that you can't get the bureau(s) to remove, look for a lender that will offer in-house underwriting.

"Old credit disputes can scuttle loan" [Washington Post]
(Photo: me'nthedogs)

The Fannie Mae executive, Edward Pinto, told a House subcommittee that "it appears destined for a taxpayer bailout in the next 24 to 36 months" because further losses will wipe out its $30+ billion in cash reserves. The current FHA head, David H. Stevens, said there's no way that will happen. Well, "absent any catastrophic home price decline."

"Concerns Grow About Another Another Mortgage Giant" [New York Times]
(Photo: Redacted)

The maximum bonus for any employee will be $1.5 million, the regulator said. Freddie's bonuses are going to 80 percent of its employees, while Fannie's are going to 61 percent of its employees.

Ninety-two Freddie employees will receive $100,000 or more in 2009 and 121 Fannie employees will get bonuses of $100,000 or more. The FHFA declined to name the recipients, citing privacy concerns.

At Fannie Mae, chief operating officer Michael Williams is in line for a $1.3 million bonus, according to regulatory disclosures. Deputy chief financial officer David Hisey is slated for $1.1 million, while executive vice presidents Thomas Lund, responsible for the mortgage business, and Kenneth Bacon, responsible for housing and community development, are each in line for $1 million.

The director of the Federal Housing Finance Agency, the housing regulator that approved the bonuses, says that they are needed to keep the klutzes who ruined our housing market from ruining something new.

And you thought AIG's $165 million in bonuses were bad...

Fannie, Freddie Budget $210 Million On Bonuses, Draw Lawmakers' Fire [The Washington Post]

A separate part of the Homeowner Affordability and Stability Plan is aimed at the growing number of homeowners who have been unable to refinance because they have little equity in their home. Only homeowners whose mortgages are owned or financed by Fannie Mae and Freddie Mac, the mortgage financing companies recently taken over by the government, can qualify for this part of the program. They would have until June 2010 to refinance.

To find out whether or not you qualify for this program, or the loan modification program that is aimed at homeowners in danger of foreclosure, click here.

Treasury Dept. Details Foreclosure Prevention [WaPo]
(Photo:afagen)

Four to five million ineligible homeowners who borrowed from Fannie Mae and Freddie Mac will be able to refinance their mortgages at a lower rate.

Any institution that wants to receive any government assistance will have to abide by new guidelines (which will be announced in two weeks) that make it easier for homeowners to refinance their primary residences. Monthly payments will not exceed 31% of homeowner's income.

President Obama expects his plan to cost $75 billion, but argues that this will eventually be offset by fewer foreclosures and defaults.

The Treasury and Fed will continue buying assets from Fannie Mae and Freddie Mac. Treasury is authorized to spend $200 billion in capital on these assets.

Awesome: bankruptcy judges will have the authority to modify the terms home loans so that homeowners can actually pay their mortgages.

$2 billion in grants to community groups who come up with innovative ways to solve the foreclosure crisis.

President Obama closes by chastising lenders and borrowers for irresponsibility. "They promised profits that were literally too good to be true," and, "All of us have to learn to live within our means again," which got huge applause.

(Photo: chchchacos)

Fannie will lower its credit score requirements, reduce the amount of income verification needed, and waive the need for appraisals. These changes apply to loans which the company owns or guarantees.

"To allow more borrowers to take advantage of today's historically low interest rates and help the lending community break the logjam in mortgage refinancing, the company is extending its refinance offerings," a Fannie Mae spokesperson said in an e-mailed statement. The program "will streamline" refinancing "for potentially millions of current mortgage holders," he said.

Fannie Mae to Loosen Rules for Home-Loan Refinancing (Update2) [Bloomberg]
(Photo:cmorran123)

Marketplace Money interviewed Jason Allnutt, a vice president at Fannie Mae.

"You have a family who is networked into the neighborhood, into the school system, into the job market, and it's very, very difficult to be wrenched out of that network and put on the street to look for a new place to live," he said.

The policy seems like a step in the right direction, but if only a small one. Currently, Fannie Mae only owns about 10% of all foreclosures. So, how can you tell if your building is owned by Fannie?

There should be an attorney's name on the foreclosure notice.

"If you call that attorney and say, "Is this a Fannie Mae home?," I will make sure that those attorneys are ready to receive those phone calls and ready to help those folks who are renters in these properties transition from that foreclosure into a new lease," said Allnut.

Fannie tries to cut renters some slack [Marketplace Money]
Fannie Mae starts new foreclosure rental policy [Reuters]
(Photo:jetsetpress)

Choosing only 10 this year was next to impossible, but somehow we managed. Incidentally, we'd like to throw a special shout out to Angelo Mozilo of Countrywide for making this year's list extra debacle-riffic. Thanks!

Clearly, there's no possible way to include all the memorable f-ups that occurred in 2008 — so fill these comments with your personal favorites and help us look back at "the year the investment bank died."

Consumerist's Biggest Business Debacles [Ad Age]

• Be 90+ days late on their payments
• Show affidavit of financial hardship
• Not have filed for bankruptcy
• Have taken out the mortgage before Jan 1, 2008

Fannie, Freddie Unveil Plan to Modify Loans [WSJ]

FBI probing bailout firms [CNNMoney]

Fannie, Freddie chiefs lose 'golden parachutes' [Washington Post] (Thanks to Matthew!) (Photo: Getty)

Here's how it went down:

• Treasury Secretary Henry Paulson told Fannie Mae CEO Daniel Mudd (whose name is good as...) and Freddie Mac CEO Richard Syron that they and their boards were fired.
• The companies will be placed into conservatorship of the Federal Housing Finance Agency.
• Common shareholders will be virtually wiped out. Preferred shareholders (banks) will be protected.
• Instead of providing a massive headline-grabbing infusion of cash upfront, the government will provide quarterly subsidies to cover losses.
• Freddie and Fannie will continue to operate normally, except taxpayers will be on the hook for future losses.

Both Obama and McCain announced that they support the plan, not that either of them can veto the Bush Administration's takeover.

The Treasury made its move now partly to reassure Mexico, Japan, and China that their central banks' shares of the Depression-era institutions will be backed by you.

Isn't that great?!

U.S. Rescue Seen at Hand for 2 Mortgage Giants [The New York Times]
U.S. Near Deal on Fannie, Freddie [The Wall Street Journal]
Fannie, Freddie's boards meet Saturday to mull government plan [Reuters]
PREVIOUSLY: U.S. Treasury Attempts To Save Freddie, Fannie, Avert Apocalypse
Bush Administration Considering A Takeover Of Freddie And Fanny
(Photo: Getty)

...expenses related to foreclosures and other credit losses increased to $5.3 billion from $3.2 billion in the previous quarter. And the company signaled that those losses would probably accelerate.

The loss “is a reflection of the extraordinary pressures at work in the housing and mortgage markets,” Fannie Mae’s chief financial officer, Stephen M. Swad, said in a statement. “The credit picture remains very difficult.”

“We estimate that average home prices declined by 6 percent on a national basis during the second quarter of 2008, which translates to an 8 percent total national decline since the beginning of the downturn in the second quarter of 2006."

Two days ago Freddie Mac, the second largest lender, told investors that it had experienced a loss that was 3 times what they were expecting.

Fannie Mae says they will stop offering Alt-A mortgages and cut operating costs by 10%.

A $2.3 Billion Loss for Fannie Mae [NYT]

The faxed scam says, "We are happy to info you that you have emerged a winner under the F&F EQUITY DRAW, which is part of a promotional draws organized by all crediting lending partners to enable home owners who owned a home all over the United States of America have more money, and at the same time buy more homes in the area where they live. The funds were drawn from part of the total Fifty Billion US Dollars ($50 Billion) release to the financial institutions and creditros by the Government and other donor nations who have so much interest and investments in the United States of America."

Here's the BBB's report on investigating the scam:

After faxing my official “Equity Draw” information sheet to a number in Idaho, I called the 778 number and had the pleasure of speaking to “Jorge Marcelo”, at Fannie n Freddie Prize Headquarters. He said he had my fax right there in front of him, which is interesting since I never told him who I was nor did he ask. But he did tell me that to collect my big prize I was required to wire a “processing fee” of $850 to the Vegas address in my documents via Western Union, call him with the WU control number and then I could collect my riches.

Obviously I’m excited, so I invited the FBI to share in my excitement. I’m not sure if there’s anything here worth law enforcement pursuit, but that’ll be up to them. My guess is Jorge is probably not in BC, and that the WU office in Vegas will forward my $850 to another location, and it may be bounced several times.

Fraudsters have a core set of scams that they just keep putting new hats on old scams to fit the zeitgeist. Most of us wouldn't fall for this iteration, rife with spelling and grammatical errors. But a few, like the desperate, elderly, ignorant, non-native-English-speaking, or some combination thereof, might. The scammers, will, however, try another variant on the lottery scam. For them, it's all a numbers game, and their auto-dialers just keep ringing up one more.

(Photo: ptaff)

Bush had originally threatened to veto the bill over the inclusion of $3.9 billion in "neighborhood grants" which he claimed would benefit the lenders who caused the mortgage meltdown, but relented as the credit crisis deepened.

Bloomberg says that the big losers in the bill may be Freddie and Fannie shareholders, who could lose their equity if the US Treasury uses its new authority to take over the GSEs.

Bush signs housing bill to provide mortgage relief [AP]
(AP Photo/Pablo Martinez Monsivais)

From the NYT:

An official said the Fed’s decision to permit the companies to borrow from its so-called discount window was approved at the request of the Treasury, but that it was temporary and would probably end once Congress approved Treasury’s plan. Some officials briefed on the plan said Congress could be asked to extend the total line of credit to the institutions to $300 billion.

The actions, which taken together could provide an overwhelming surge of capital to the companies, were the second time in four months that the housing crisis had prompted the government to scramble over a weekend to rescue a major financial institution. Last March, the Treasury Department engineered the sale of Bear Stearns to prevent it from going into bankruptcy and cause a shock to the financial system.

Paulson, who has spent the last week assuring everyone that Freddie and Fannie are "adequately capitalized," had this to say:

“The president has asked me to work with Congress to act on this plan immediately,” the Treasury secretary, Henry M. Paulson Jr., said Sunday on the steps of the Treasury building. “Fannie Mae and Freddie Mac play a central role in our housing finance system and must continue to do so in their current form as shareholder-owned companies. Their support for the housing market is particularly important as we work through the current housing correction.”

Treasury Acts to Shore Up Fannie Mae and Freddie Mac [NYT]

Together, Freddie and Fanny own or guarantee more than half of the nation's mortgages — about $12 trillion, according to the NYT.

Under a 1992 law, Fannie or Freddie could be put into conservatorship if their top regulator found that either one is “critically undercapitalized.” A conservator would have sweeping powers to overhaul them, but would not have the authority to close them.

Treasury Secretary Paulson maintains that he is in favor of supporting the GSEs in their current form.

"Today our primary focus is supporting Fannie Mae and Freddie Mac in their current form as they carry out their important mission,'' Paulson said in a statement today in Washington. ``We are maintaining a dialogue with regulators and with the companies.''

As of this post, Freddie is trading at 5.85. Fannie is trading at 9.83. Both are down about 25%.

U.S. Weighs Takeover of Two Mortgage Giants [NYT]
(Photo: Jonathan Ernst/Reuters)

As you might expect, this didn't exactly instill confidence in the GSEs (Government Sponsored Enterprises). Their stocks are down, way down, and people are staring to wonder what will happen if they fail?

Unfortunately there's no good answer, all we seem to know is that it would be really, really, really bad if the government was forced to step in and bail out the GSEs, but it would probably be worse if they just let them fail.

From Fortune:

"If Fannie or Freddie failed, it would be far worse than the fall of [investment bank] Bear Stearns," says Sean Egan, head of credit ratings firm Egan Jones. "It could throw the economy into depression or something close to it."

In case you're wondering what Freddie and Frannie do — Fortune explains: they "help the mortgage market function by purchasing pools of loans and packaging them into securities. If one or both couldn't function, the result would be chaos."

Meanwhile,Treasury Secretary Hank Paulson maintains that Freddie and Frannie are going to be fine:

"Fannie Mae and Freddie Mac are also working through this challenging period," Paulson said. "Their regulator has made clear that they are adequately capitalized."

As of this post, Freddie and Frannie have lost about 43 percent and 25 percent of their value (respectively) since Monday.

Fannie and Freddie Stocks Continue Their Slide [Washington Post]
Lehman Shares Sink as Fannie, Freddie Plunge Further [Bloomberg]
The Fannie and Freddie doomsday scenario [Fortune](Thanks, Chris!)

My adjustable rate mortgage with Verity Credit Union is due to reset next month. As part of the note there is an option to convert to a fixed rate. The calculation of this fixed rate is clearly defined as equal to Fannie Mae's required net yield for a 30 year fixed rate covered by an applicable 60-day mandatory delivery commitment plus five-eighths of one percentage point, rounded to the nearest five-eighths of one percentage point. So take the Fannie Mae 30 year 60 day rate add 5/8ths and round to the nearest eighth. The note said the note holder got to decide the day of the rate but Verity was nice enough to let me pick which day I wanted as long as I gave them 15 days notice before the reset date. I patiently watched the rates every day and fortunately right before I was to give them notice rates were steadily declining...

I called to verify everything but was given a conversion rate which was 1/8th higher than I expected. I quickly double checked my math and found no mistake. I started asking questions, like where did they get the Fannie Mae rate which was rounded up to the nearest 1/8th. The lady did not know where the rate came from just that her rate sheet said what it said. I then went above her to a supervisor and posed the question why was the rate being rounded up to the nearest 1/8th when the Fannie Mae rates are not rounded at all. She was puzzled as well and asked for the website that was publishing the daily rates I was seeing and told me she would look into this.

The next day I got a call telling me that they had redone their procedures/policies and from now on would be calculating their conversion rates how I was doing it. Oddly enough I was apparently the first person to ever question or notice this discrepancy. In the end we are only talking about $15 a month difference but the lesson here is to always do your research and only work with quality establishments.

The daily Fannie Mae rate can be found online here.

"We would expect that our total future credit losses on our current book of business would total approximately between $10 billion and $12 billion," Chief Executive Officer Richard Syron told an investors conference sponsored by Goldman Sachs.

"If I were you, I would want in this time period someone running one of these companies (Fannie Mae and Freddie Mac) to err on the side of pessimism rather than optimism," he said.

In other news, both Freddie and Fannie have decided to stop buying so many bad loans and are are changing their criteria for purchasing delinquent home loans, in order to reduce the number they buy from investors.

The companies customarily repurchased most mortgages once they were 120 days past due. Freddie Mac said it will now purchase delinquent loans that were part of larger securities issued by the firm when the mortgages are at least 120 days past due and either the mortgage has been modified, a foreclosure sale occurs, or the cost of payments to security holders exceeds the cost of holding the loans. It will also repurchase mortgages that are 24 months delinquent.

Fannie, Freddie Buying Fewer Bad Loans [NWITimes]
Freddie Mac expects $10-12 billion credit losses [Reuters]
(Photo:wwworks)

comment on this post

Much of the blame for the fiduciary inaccuracies was laid on CFO J. Timothy Howard, and Leanne G. Spencer, former controller.

A schedule prepared by Ms. Spencer "set out different earnings projections based on different types of expense deferrals that described a plan, ultimately accepted by senior management, to defer nearly $200 million in expenses in order to meet earnings projections, and, as a consequence, meet the target for awarding the largest amount in executive bonuses," reported the New York Times.

Something to check out while boning up for Round 7 of the Worst Company Poll.

How does Fannie Mae make its money in the first place?

Pretty pictures after the jump...

"On the left, Fannie issues bonds on Wall Street and has to pay interest on that money. With the money they buy mortgages from banks and collect the interest on the mortgage. The difference between the two interest rates is Fannie's profit.

On the right, they guarantee mortgages. The fee they get by guaranteeing the mortgage (minus the cost of any defaults) is their profit." (Chart and explainer courtesy of L-dopa).

And yes, Fannie Mae is an actual person, lacking legs, seeing only through two slits. To see her disembodied form floating down Wall Street is a sight to send shivers down to your soles.

Report on Fannie Mae Cites Manipulation to Secure Bonuses [New York Times]