At What Point will Capitalism Actually be Given a Chance?

What does one do when your bank is the largest mortgage originator in the country, has outsized exposure to an array of toxic mortgage loans (pay-option ARMs and the like), and is located in the heart of the weakest real estate market nationwide? Call Ghostbusters . . . that is, call on Washington to further tap the wards of the state known as Freddie (FRE) and Fannie (FNM) in an attempt to offload this risk and future risk on the American taxpayer. Of whom do I speak? Wells Fargo, led by CEO John Stumpf, called for just such actions in a recent interview with the Financial Times, Wells Fargo Urges U.S. to Boost Mortgage Market.

The FT writes:

The US government should help revive the moribund market for big mortgages by getting Fannie Mae and Freddie Mac to buy large home loans from banks, the chief executive of the lender Wells Fargo urged on Tuesday.

In an interview with the Financial Times, John Stumpf, whose bank originates a quarter of all US mortgages, called for an increase in the size of loans purchased by Fannie and Freddie, the troubled finance groups controlled by the authorities.

Mr Stumpf said such a move would help reduce the interest rates charged by banks on so-called “jumbo” mortgages and revive a market for higher-end housing that has been devastated by the credit crunch.

Fannie and Freddie can currently buy or guarantee mortgages worth up to $417,000. The stimulus plan approved last year set the companies higher limits of up to $729,750 in certain high-cost areas such as California until the end of 2009. Congress has to approve any extension of those higher limits.

Be mindful that Freddie and Fannie have already been approved to purchase conforming loans with loan-to-value ratios of up to 125% and are also purchasing jumbo mortgage product in certain regions of the country. The simple fact is our domestic mortgage finance market can now be defined as nothing short of socialized finance.

CEO Stumpf’s call for a further extension of this socialized housing finance is nothing more than a veiled attempt to offload risk from Wells Fargo (WFC) onto the American taxpayer. In the process, risk based pricing for Jumbo mortgages will not be properly aligned and the American taxpayer will eat larger losses now and in the future.

At what point will capitalism actually be given a chance?

About Larry Doyle 522 Articles

Larry Doyle embarked on his Wall Street career in 1983 as a mortgage-backed securities trader for The First Boston Corporation. He was involved in the growth and development of the secondary mortgage market from its near infancy.

After close to 7 years at First Boston, Larry joined Bear Stearns in early 1990 as a mortgage trader. In 1993, Larry was named a Senior Managing Director at the firm. He left Bear to join Union Bank of Switzerland in late 1996 as Head of Mortgage Trading.

In 1998, after 15 years of trading and precipitated by Swiss Bank’s takeover of UBS, Larry moved from trading to sales as a senior salesperson at Bank of America. His move into sales led him to the role as National Sales Manager for Securitized Products at JP Morgan Chase in 2000. He was integrally involved in developing the department, hiring 40 salespeople, and generating $300 million in sales revenue. He left JP Morgan in 2006.

Throughout his career, Larry eagerly engaged clients and colleagues. He has mentored dozens of junior colleagues, recruited at a number of colleges and universities, and interviewed hundreds. He has also had extensive public speaking experience. Additionally, Larry served as Chair of the Mortgage Trading Committee for the Public Securities Association (PSA) in the mid-90s.

Larry graduated Cum Laude, Phi Beta Kappa in 1983 from the College of the Holy Cross.

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