This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

On Fannie, Freddie Reform, Wall Street Is Left of Maxine Waters



Policymakers who promise reform have the tough job of explaining to their constituents that their mortgage rates are going to go up.

Sure, that may be the price taxpayers have to pay for a safer housing market. But political observers also know how difficult it is to roll back subsidies.

Consider the recent efforts to raise flood insurance premiums to repair the finances of the National Flood Insurance Program. The Briggert-Waters Flood Insurance Reform Act of 2012 was a bipartisan plan that instructed the Federal Emergency Management Agency or FEMA to phase out subsidies so that premiums more accurately reflect risk.

About 20% of policyholders are likely to see their premiums increase annually, though only a fraction of them will see really steep hikes. But there is a big push to delay the implementation of the rules from none other than Maxine Waters, who co-authored the reform bill.

"I am outraged by the increased costs of flood insurance premiums that have resulted from the Biggert-Waters Act," she said in a statement. "I certainly did not intend for these types of outrageous premiums to occur for any homeowner. When I agreed to coauthor this legislation, our goal was to create a bipartisan solution to repair our National Flood Insurance Program. Neither Democrats nor Republicans envisioned it would reap the kind of harm and heartache that may result from this law going into effect."

It is not hard to see this kind of pushback happening in the debate over housing finance reform.

Investors are betting that as the cost of mortgage reform sinks in, there will be a shift in thinking in Washington. Housing reform measures would likely be diluted and an increasing number of politicians might favor just "rebranding" Fannie and Freddie.

That sounds plausible, especially if it happens to be an election year.

But in trying to advance a populist agenda in Washington, Wall Street seems to have underestimated their own unpopularity. "We believe the prospects for significant recoveries on the GSE junior preferreds is inversely proportional to the amount of lobbying and public pressure fund managers exert. No matter the type of fund -- hedge, mutual, or private equity -- the bulk of lawmakers will publicly distance themselves from any proposal which could be framed as "enriching" money managers no matter its merits," Isaac Boltansky, an analyst with Compass Point said in a note last week. "Simply put: Wall Street is not viewed as a sympathetic constituency in D.C. and that fact will not change as the 2014 midterm election comes into focus."

Right now in D.C. it  apparently pays to be anti-Wall Street even more than it does to be pro-homeownership.

-- Written by Shanthi Bharatwaj in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.
3 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
SYM TRADE IT LAST %CHG
FNMA $2.92 1.04%
FMCC $2.82 1.08%
AAPL $125.01 -0.63%
FB $78.10 0.70%
GOOG $524.22 -1.24%

Markets

DOW 17,841.98 -86.22 -0.48%
S&P 500 2,080.15 -9.31 -0.45%
NASDAQ 4,919.6440 -19.6830 -0.40%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs