I stumbled across your blog and I appreciate the tongue-in-cheek style of your first post on this topic and your direct communication throughout. Your mild cynicism no doubt serves you well.

I’ve been trying to better understand the likely impact of the HAFA program. After carefully dissecting an unrelated program from Treasury (PPIP), I’ve concluded that policy direction can be better inferred from careful analysis than reliance upon casual observation or Treasury’s public statements. In the case of PPIP, I concluded the program amounted to a stunning scheme to prop up asset prices at taxpayer expense (many subtle details; I won’t bore you).

My question on HAFA requires just a few points to set up. As you probably know, Treasury quietly announced on 12/24/09 that they would provide unlimited backstop to Fannie/Freddie losses thru 2012. I understand that you believe the program is optional for lenders, and presumably there’s no language you can find that would strong arm note holders into arriving at Minimum Net Proceed calculations that might be characterized as “fire sale” pricing. But what if Fannie/Freddie engaged in such pricing behavior? Could they not move the market substantially based on their share of loans? I cannot find a listing of participating lenders; however Freddie’s last quarterly 10Q statement referenced the HAFA program—it is clear they’ll be participating.

I am fully aware that Treasury’s strategy so far (across the entire debt crisis) has been to support asset prices and do anything to delay price discovery. However, if they were to shift strategy, for whatever reason, to force market clearing pricing, could they use HAFA to substantially move market prices? My understanding is that there are nearly 3/4 million homes in the HAMP pipeline now, most of them likely to be eligible for HAFA. With resets on ALT A and option ARMs ramping up, the deluge of supply could eventually be quite large. Given Fannie/Freddie have a large portion of loans, could they not be a major price setter?

I’m interested in whether you’d place any merit in the questions I’ve outlined above. To the extent that you do, do you see anyway to confirm the possibility before it obvious to everyone? Is there sufficient wiggle room under the plan to derive fire sale pricing, if a lender was willing to do so? Of course such a lender would be insane, unless others paid for their losses, and they had other reasons to expedite write-downs.

Thanks,
Wade

I stumbled across your blog and I appreciate the tongue-in-cheek style of your first post on this topic. Your mild cynicism no doubt serves you well.

I’ve been trying to better understand the likely impact of the HAFA program. After carefully dissecting an unrelated program from Treasury (PPIP), I’ve concluded that policy direction can be better inferred from careful analysis than reliance upon casual observation or Treasury’s public statements. In the case of PPIP, I concluded the program amounted to a stunning scheme to prop up asset prices at taxpayer expense (many subtle details; I won’t bore you).

My question on HAFA is this: can you infer the likely outcomes related to Minimum Net Proceed calculations (your point #1 above)? I’ve read the full document, which only generally references “investor”, as the other interested party. My question is fundamental to program intent and effect here: 1) do the note holders retain considerable freedom to protect themselves by establishing prices at their discretion; or 2) does HAFA in meaningful ways nudge them to set competitive prices. Even if there is no arm-twisting of private banks, etc., an important 3rd question I guess is whether the “investors” will typically be Fannie/Freddie? What I’m attempting to get at here, is whether this program is likely to be modest and have little impact, or if it might have a profound impact because it results in market clearing prices, possibly substantially below current market prices.

My understanding is that there are nearly 3/4 million homes in the HAMP pipeline now, most of them likely to be eligible for HAFA. With resets on ALT A, etc., ramping up, the deluge of supply could eventually be quite large.

With the Fannie/Freddie 3 yr unlimited loss coverage announced by Treasury on 12/24, the HAFA program could well represent a profound turning point in Treasury policy: from extend and pretend, and anything to avoid price discovery, to a mad rush to market clearing prices (in housing anyway, and at taxpayer expense; there are other reasons to wonder if Treasury is ready to embrace a further downturn in housing). If Fannie/Freddie are the “investors” for most homes under HAFA, it may be important to recognize their losses are guaranteed for the next 3 years. Should Treasury wish to transition to price discovery, I presume Fannie/Freddie could easily drive market pricing due to their larger volumes. At what point might the direction of pricing policy be known? Do you have thoughts on likely outcomes here?

Hopefully this inquiry makes sense. I would appreciate any information or insights you might be able to share.

Cheers,
Wade

HAFA could be available on Jumbo Loans, but the program appears to be a bust. Please read Part II and III of this series to see why.