Have the Fed Financing Bank fund the agencies with fixed rate amortizing term funding.
Have the FFB eat the convexity and allow prepayments of advances at par as mtgs pay down.
Have Congress set the FFB’s advance rate for the mtgs for public purpose.
Have fed member banks originate agency mtgs on
Congressionally dictated terms as agents for the agencies on a fee basis.
Have the agencies hold all these newly issues loans in portfolio.
Have the banks do the servicing for a fee.
This would lower mtg rates maybe 1%.
Have the agencies offer refi’s for existing agency loans at current rates without new appraisals or income statements.
Am i missing anything?
Feel free to distribute!
Warren, I would end public/private partnership in mortgage lending. Either go fully private, or fully public. My choice would be to go fully public. I would end public/private partnership in retail banking too, and make it fully public.
How about the public gets to barrow directly from the fed……..0% interest rates for everybody!! …….that would fuel the economy and get rid of a lot of bad business
I agree with Tom’s framing of the issue.
However, I’d go entirely private in both sectors.
Time to Bring Back the Home Owners Loan Corporation?
I get a “you don’t have premission to view this feed” message…
Aha – found the original link:
http://www.rooseveltinstitute.org/new-roosevelt/time-bring-back-home-owners-loan-corporation
So what’s the Fed Financing Bank’s cost of money? Congress can dictate to the Fed as easily as to Tsy, is there a reason Tsy’s in-house bank is used to implement this instead of just directing the Fed to do it?
I believe Congress considers FFB activities on-budget while the Fed’s, of course, are not.
the FFB is already there and in place. the ‘cost of money’ is the cost to the tsy of issuing whatever securities it issues, but remember that functions as interest rate support.
and yes, the advance rate could be 0, that’s a political choice.
using the banks as in my proposal on a servicing fee basis keeps all that admin work away from the agencies, slimming them down to bare bones size.
The banks and servicers are already set up to do this. No point in duplicating the infrastructure at the agencies.
“This would lower mtg rates maybe 1%.”
Why not declare a tax holiday on interest income on residential MBS and GSE debt? Aside from that I’m with those who want to take Fannie & Freddie fully private. The whole mortgage financing Agency conduit model is more or less in the tradition of Mussolini’s Istituto per la
Ricostruzione Industriale (Institute for Industrial Reconstruction).
OK, that does make sense, and using existing resources is faster and more efficient than paying to hire and train a new bureaucracy at the agencies, “infrastructure” means construction jobs and new highways. :o)
I will say though, the Federal Financing Bank is a wonderfully named. I didn’t realize Nixon set it up, not long after dropping the gold standard.
The Federal Financing Bank (FFB) is a government corporation, created by Congress in 1973 under the general supervision of the Secretary of the Treasury. The FFB was established to centralize and reduce the cost of federal borrowing… the FFB has statutory authority to purchase any obligation issued, sold, or guaranteed by a federal agency to ensure that fully guaranteed obligations are financed efficiently.
http://www.ustreas.gov/ffb/index.shtml
I wonder if the easiest route to monetary reform is to take advantage of the fact that most of Congress and the public has no idea there’s a difference between the independent Federal Reserve and Tsy’s in-house Federal Financing Bank. That is a pretty unique selling proposition.
No need to reinvent the wheel, the regional Fed banks should keep on keeping on and surely Federal Financing and Federal Reserve Boards could work cooperatively. But let’s face it, if Tsy hired a bearded Federal Financing chairman, the FFB could be dropped in to replace the Federal Reserve Board and no one in the general public would notice the difference.
So the two questions to think about are, 1. if Congress granted Tsy the legal authority, what changes or expansion of FFB operations could improve the banking system (like Warren’s above proposal)or the operations of the FDIC, Tsy and Fed; and 2. how far could Tsy move in this direction without Congress changing the laws?
Hmm, could Tsy cover Fed account overdrafts simply by selling Treasuries (FFB “obligations”) to itself? Bear in FFB transactions (like US Notes) are part of total public debt but are not included in the statutory debt limit.
(b) Purchase and sale of obligations of Federal Financing Bank by Secretary of the Treasury as public debt transactions
The Bank is also authorized to issue its obligations to the Secretary of the Treasury and the Secretary of the Treasury may in his discretion purchase or agree to purchase any such obligations, and for such purpose the Secretary of the Treasury is authorized to use as a public debt transaction the proceeds of the sale of any securities hereafter issued under chapter 31 of title 31, and the purposes for which securities may be issued under chapter 31 of title 31 are extended to include such purchases… The Secretary of the Treasury may sell, upon such terms and conditions and at such price or prices as he shall determine, any of the obligations acquired by him under this subsection.
http://www.law.cornell.edu/uscode/html/uscode12/usc_sec_12_00002288—-000-.html
Unrelated to the post
http://bis.org/publ/rpfx10.htm – released Sep 1 2010 says
“Global foreign exchange market turnover was 20% higher in April 2010 than in April 2007, with average daily turnover of $4.0 trillion compared to $3.3 trillion. “