Politics and your REIT Fund investments...keep an eye on this story

bee

A new stimulus: Have Wall Street bail out Main Street
-A mass mortgage refi solution is getting support from both sides of the political aisle. And it wouldn't cost taxpayers a dime.
-Written in January of 2012 by Allan Sloan of Fortune:

"Main Street taxpayers have bailed out Wall Street. Now it's time for Wall Street to return the favor by footing the bill to help millions of honorable Main Street borrowers pay lower interest rates on their mortgages, something that should have happened years ago. Wall Street giving back to Main Street -- imagine that!"

It's impact on REIT Investors:

"We're talking about doing $2.1 trillion of refis: 13 million at an average of $160,000. That's about $150 billion of lost market value to holders of the securities. Some small investors would be hurt, and I feel for them. But they -- or the managers of REITs or mutual funds in which they invested -- knew or should have known about prepayment risk. There's no reason to put these investors' interests above those of home-owners."

The politics:
"President Obama could order mass refis, a natural for him given his recent populist bent and the obvious (at least to me) "Wall Street pays back Main Street" trope.Now, to Mitt Romney, the presumptive Republican presidential nominee. Given the uproar over his Bain Capital career, Romney might welcome a "Wall Street helps Main Street" proposal that costs taxpayers nothing. Romney wouldn't have to look far for expertise: Hubbard, the big mass-refi proponent mentioned above, is one of his economic advisers."

Article:
http://finance.fortune.cnn.com/2012/01/18/mortgage-refis-assistance/

catch22

Thank you, bee. An intersting read article and I will find the time to read the origin paper.

tgeno

You have to make a distinction among types of REITs. Mass re-fi's will affect primarily REITs that invest in mortgage-backed securities, e.g. mREITs like Annaly (NLY). I don't expect REITs investing directly in real estate, commercial or residential, to be much affected.

bee

Reply to @tgeno:

Thanks tgeno. I was also wondering how this might impact GNMA funds? I believe Ginnie Mae is a different slice of the market but I need to understand all a little better.

A quick search turned this up:

"What is the difference between Ginnie Mae, Fannie Mae, and Freddie Mac?

Ginnie Mae is a self-sustaining, profitable, wholly-owned government corporation. Ginnie Mae securities are the only MBS that enjoy the full faith and credit guaranty of the U.S. Government.

Fannie Mae and Freddie Mac are both federally chartered corporations. In September 2008, the Government-Sponsored Enterprises (GSEs) were placed under government conservatorship. Fannie Mae and Freddie Mac purchase mortgages to hold in their own portfolios or to issue securities for sale to investors.

Ginnie Mae does not purchase mortgages, nor does it buy, sell, or issue MBS. Ginnie Mae does not issue debt securities or hold an MBS investment portfolio.1 Private lending institutions approved by Ginnie Mae issue the MBS for which Ginnie Mae provides a guaranty. Moreover, Ginnie Mae only securitizes federally-insured or guaranteed loans.

Originally, Ginnie Mae and Fannie Mae began as one organization, known as the Federal National Mortgage Association (FNMA). However, in 1968, Congress partitioned FNMA into two entities: Fannie Mae and Ginnie Mae. Fannie Mae was charged with supporting the conventional market and Ginnie Mae was charged with supporting the market for FHA, VA, RD, and PIH loans.

Mark

So the original article was written in February and main stream media, politicians, political parties etc., have done nothing with it so far. Deduction: since it makes sense and the middle class will benefit the most then it's something we can never let happen until Wall street and their pocketed politicians figure out a way to profit greatly somehow from it. Thus, a no go. UNLESS, Obama grows a pair and starts acting like the President he said he was going to be when he first came on the scene. So far he's caved at every opportunity he's had to take a stand and this is coming from someone who supported him huge.. End of rant. I don't want this to become a political discussion. BTW, I am current on my mortgage, have never missed or been late with a payment and the passage of such a motion wouldn't affect me squat but I care about the country we are becoming.

Old_Joe

I'm afraid that I have to agree with you, top to bottom.

PatShuff

But what the proponents of principal reductions at Fannie and Freddie don’t talk about is what a transfer of wealth from taxpayers (again) to large banks such a program would represent.

Still, the crowd clamors for widespread Fannie and Freddie write-downs, even though they would constitute a direct and sizable gift from taxpayers to the largest banks.

Here’s how: Many banks hold second liens on the same properties for which Fannie and Freddie either own the first mortgage or have guaranteed. If principal amounts on these first mortgages are reduced while leaving the second liens intact, those seconds become much more likely to be paid off over time. With no principal reduction, the banks would have to write off many of those second liens.

As such, principal write-downs are another backdoor bailout for the banks that brought you the mortgage crisis.

So the next time you hear someone advocating vast principal reductions on Fannie and Freddie loans, remind them that it would be another stealth bank bailout, courtesy of taxpayers.

http://www.nytimes.com/2012/03/25/business/a-bailout-by-another-name.html?_r=1&ref=gretchenmorgenson