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Trending Thursday: Forensic accounting in #FannieGate gets audited

Is it time for an entirely new housing policy?

September 10, 2015

Trending Thursday is a roundup of the stories shaping the week and what’s yet to come through the weekend — also taking into account social media reaction. Think of it as a mid-week Monday Morning Cup of Coffee, but with extra caffeine.

A few months ago, HousingWire delved into a detailed forensic accounting report that looked at the complex legerdemain that went into the federal government putting the GSEs in conservatorship.

It revealed some head-scratching accounting and some three-card Monte-style mathematics. For starters, they said, Treasury justified the conservatorship of the GSEs via accounting gimmicks since they faced no liquidity issue at the time of the crisis and recession. They noted that Fannie Mae’s Cash Net Income, adjusted for non-cash items, was positive throughout entire crisis and recession.

Fannie Mae disclosed they held $36.3 billion cash in the bank on Sept. 30, 2008 with a maximum exposure of roughly $6 billion per quarter. That was enough liquidity to survive over 18 months, assuming it didn’t bring in another dime.

The full 27-page report, which can be read here, was from two activist investors involved in the FannieGate controversy with extensive legal and business backgrounds, Adam Spittler CPA, MS and Mike Ciklin JD, MBA, MRE.

Now, an independent audit of that report certifies that, yes, their findings are pretty much right in the center of the bulls-eye.

D. Larry Crumbley, is emeritus professor in the Department of Accounting at Louisiana State University. His letters include CFD, Cr.FA, CPA, CFF, FCPA — a solid alphabet of credentials.

What Crumbley found, he agreed with. His full report, definitely worth the time, can be read here.

Based on the evidence reviewed, Adam Spittler & Mike Ciklin’s reports, and my independent analysis, I concur with the numerical analysis conducted by Spittler & Ciklin (expect where discrepancies are noted). Furthermore, in my opinion, management’s actions taken under the conservatorship are consistent with the notion that the interests of management and the majority shareholders were aligned, to the detriment of the minority shareholders. If further facts are discovered, I have the right to amend this report.

There are facts that I reviewed that remain outside of this report. I am aware that at least one District Court of Columbia has dismissed claims against the government and Fannie Mae for sending nearly all profits generated by Fannie Mae and Freddie Mac to the U.S. Treasury (Perry Capital LLC and Fairholme Funds Inc.). The dispute is now before the Court of Federal Claims (Fairholme v. U. S.,13-cv-00465, U. S. Court of Federal Claims, Washington), and there is talk of possibly 12 other disputes. Since this information is beyond the scope of addressing balance sheet management, it was excluded from the report and my analysis for this project. I do wonder, however, why the SEC has not brought abusive balance sheet management charges against Fannie Mae.

Speaking of Fannie, Freddie and accounting fraud, the cover of Yahoo Finance looks like this today.

Click to enlarge

(Source: Yahoo Finance)

They’re featuring excerpts from the new book Shaky Ground: The Strange Saga of the U.S. Mortgage Giants, by Bethany McLean, a contributing editor at Vanity Fair and bestselling author.

Good stuff. (But does anyone really say “FOO-fah” when referring to the FHFA? New one on me.)

Elsewhere, in the housing and mortgage finance sphere, and somewhat related, Ed Pinto from the American Enterprise Institute argues in The Hill that America needs a new housing policy entirely.

For more than 50 years, U.S. housing policy has relied on looser and looser mortgage lending standards to promote broader homeownership and accomplish wealth accumulation, particularly for low- and middle-income households. This effort has achieved neither goal due to two flaws: First, it fosters unsustainable lending by piling heavy debt burdens onto households with limited financial resources. Second, by relying on 30-year loans with small down payments, homeowners build equity very slowly, giving them little protection against life’s vicissitudes and volatile home prices. 

As a result, our homeownership rate is no higher today than it was in the early 1960s, with millions losing their homes as a result of a misguided affordable housing policy implemented in the 1990s, which encouraged aspiring home buyers to buy homes they could not afford. Further, the goal of building wealth for low- and moderate-income households has not been achieved.

So you think you’ve saved enough for college? Start a new fund to save for college housing. Yes, it’s that much more expensive than you thought.

That’s what Trulia found.

The first lesson college students and their parents need to learn: Off-campus housing costs may be far more than what their schools estimate on their websites. Yet on-campus living may still be more expensive.

In a year, the class of 2020 –current high school seniors -- will head to college. Many will live on their own for the first time in either an on-campus dorm or an off-campus apartment, both of which will likely cost a pretty penny. So as students and their parents crunch the numbers on financial aid and student loans, they should also factor in cost of housing from the get go. As a first step, many will look to the school’s website for information – but how reliable are their cost estimates?

To find out, Trulia handpicked 20 universities across the country with sizable student populations, both private and public, many of which were located in higher-cost rental markets. We then looked up the estimated costs on each school’s website. Using Trulia’s rental listings, we calculated the median rent for apartments in the nearest ZIP codes surrounding each campus.

The schools we looked at didn’t specify, on their website, whether they based off-campus housing costs on a one or two bedroom apartment living situation, or some other configuration. That’s why we looked at housing configurations from a studio with no bedrooms up to a four-bedroom apartment. To calculate the monthly rent per person, we assumed that there would be as many students living in a dwelling as there are bedrooms in the dwelling. For example, a two-bedroom apartment would have two occupants.

In looking at the school’s estimated housing costs versus the actual rental listings near 20 colleges nationwide, Trulia found that schools often underestimate the cost of off-campus housing, sometimes by thousands of dollars for the school term. For instance, the University of California, Berkeley, estimated that it would cost a student $7,184 to live off campus. Trulia’s rental data shows that it would cost $12,375, assuming two people shared a two bedroom apartment for nine months.

The nation’s leading Latino housing industry and business leaders will gather at the National Association of Hispanic Real Estate Professionals’ 2015 National Convention & Latin Music Festival in Chicago starting Sep. 20.

It’s a three-day event sponsored by Quicken Loans that spotlights the latest developments in Hispanic real estate and lending markets. NAHREP’s convention combines business sessions led by the nation’s chief practitioners and advisers with cultural elements, showcasing an assortment of Latino music, dance and culinary arts.

The event’s brimming expo hall will feature dozens of the housing industry’s foremost companies exhibiting their innovative products and services.

Key speakers at the event include Darren Hardy, publisher of the world renowned Success Magazine; Esai Morales, award-winning actor and activist featured in the classic movie, La Bamba; Julissa Arce, former investment banker turned activist; Bill Emerson, CEO of Quicken Loans; Brad Blackwell, executive vice president of Wells Fargo (WFC); Dave Liniger, CEO and co-founder of RE/MAX; and Lynn Fisher, vice president of research and economics at the Mortgage Bankers Association.

For more information, click here. 

Complementing our list from realtor.com of the hottest 20 housing markets at the moment, the folks at PropertyShark offer up this graphic of three of those hot markets: San Francisco, Los Angeles and NYC. Median home prices in these cities have hit record levels in the last quarter – with San Francisco having exceeded the $1 million threshold – and are not showing any signs of slowing down.


Provided by PropertyShark

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