[EDITORIAL] IRS shows we're all at the mercy of feds' incompetence

As the financial crisis wreaked havoc on America's economy in October 2008, billionaire investor Warren Buffett made a wise observation about Fannie Mae and Freddie Mac — the two institutions at the center of the crash — and the regulatory agency that oversaw them at that time.

"It's really an incredible case study in regulation," Buffett said. "[T]he sole job of OFHEO was to watch over Fannie and Freddie. ... Two companies were all they had to regulate. OFHEO has over 200 employees now. They have a budget now that's $65 million a year, and all they have to do is look at two companies."

Of course, the catastrophic failure of the two tightly-regulated, government-sponsored enterprises is now the stuff of financial legend. Buffett's point stands as a nice antidote to the myth that tight government control can prevent most anything from going wrong. And as Fannie and Freddie were government enterprises, it also shows how government not only fails to prevent catastrophe, but often creates it or makes it possible.

On Tuesday, the Internal Revenue Service announced that about 100,000 taxpayers had had their personal data stolen from one of the agency's systems. As the Washington Examiner's Sarah Westwood reportedWednesday, this theft comes after years of warnings from the Treasury Department's inspector general about identity theft, which already costs the agency more than $5 billion each year, and which the agency remains incapable of preventing. No one expects the Internal Revenue Service — the supposedly wise guardian of millions of Americans' most private financial data — to be a leaky sieve for identity thieves to exploit. But it is.

Historically, fraudsters have exploited the tax-filing process by claiming the tax refunds of others. The IRS, ever quick to pounce taxpayers for innocent errors, is notoriously slow in dealing with such situations once they have been identified — according to the Government Accountability Office, it can take up to nine months in resolving them. And as the inspector general noted in 2012, the agency has no idea how many identity thieves exploit their processes to make bank.

Via: Washington Examiner

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U.S. Wants BofA To Pay $864M Over Bad Loans: WSJ

WASHINGTON –  The U.S. government wants Bank of America to pay a penalty of $864 million for bad mortgages made from August 2007 until April 2008 and purchased by Fannie Mae and Freddie Mac , according to a [l:Wall Street Journalstory|http://online.wsj.com/news/articles/SB10001424052702304448204579187942897087218|NEW] that ran Saturday. The mortgages were part of a program called "Hustle," which aimed to quickly make loans that were then sold to government sponsored enterprises Fannie and Freddie, according to the Journal's story. The government said the sought penalty amount would cover Fannie and Freddie's gross losses from "Hustle," according to the story. "Hustle" was created by Countrywide, which Bank of America purchased in 2008.

Via Fox Business
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Fannie, Freddie close to paying off taxpayer bailout bill

Fannie Mae and Freddie Mac, the housing giants whose combined $188 billion bailout dwarfed all others during the 2008 financial crisis, announced Thursday that they will return another $39 billion in dividends to the U.S. Treasury next month, bringing them close to fully repaying the taxpayers who rescued them.

Fannie Mae said it plans an $8.6 billion dividend that will bring its total payments to the Treasury in the past two years to $114 billion — $3 billion shy of its total $117 billion bailout — while Freddie Mac said a payment of $30.4 billion in dividends will more than complete the repayment of its $71 billion bailout.

Further dividends from both mortgage giants at the beginning of next year almost certainly will make taxpayers whole and turn their rescue operations into once-unimaginable cash cows for the government.

Although the two mortgage guarantee agencies technically cannot expunge their debts to the taxpayers and are still owned and controlled by the Treasury under the terms of their bailouts, the near break-even point they have achieved marks a symbolic closing of a major chapter in U.S. economic history as their bailouts were among the most dramatic, controversial and far-reaching events during the tumultuous financial crisis.

The large dividend payments to be reaped by the Treasury also highlight the important role the two mortgage giants have played in helping to sharply reduce the federal budget deficit in the past year to less than half of its $1.4 trillion peak during the crisis.

Via: Washington Times

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The Fannie and Freddie Fee Machine Federal government now collecting Fannie and Freddie profits

The federal government, in order to wind down mortgage giants, is collecting all profits generated by Fannie Mae and Freddie Mac—a move some say may backfire by providing the federal government a source of revenue that Congress will be hard-pressed to let go.

The Treasury announced in August that it would take all profits from the two housing giants in “a quarterly sweep of every dollar of profit that each firm earns.”

This “quarterly sweep” is an effort to recoup money that the federal government has loaned Fannie and Freddie, starting with the 2008 bailout. The federal government took over Fannie and Freddie in September of 2008, in the middle of the housing crisis that brought down the economy. Since then, the two firms have struggled to regain profitability, only recentlymaking money on their investments.

The federal government has loaned the two firms almost $200 billion, with the expectation that they would eventually repay the money. The Treasury argues that the policy shift, along with mandatory portfolio reductions, is a step toward ensuring Fannie Mae and Freddie Mac will “not be allowed to retain profits, rebuild capital, and return to the market in their prior form.”

However, a former Fannie Mae official pointed to a potential problem in the “quarterly sweep”: Fannie Mae and Freddie Mac could become a revenue source for the government, making it very difficult politically to end the two institutions.

Edward Pinto, former chief credit officer at Fannie Mae and a housing finance expert at the American Enterprise Institute, warned that because the money will be flowing into the Treasury, “If you don’t do something quickly, Congress could get used to this.”

Congress has used Fannie and Freddie’s profits to fund their legislation in the past, Pinto said. He pointed to legislation from Congress late last year that raised fees at Fannie and Freddie for 10 years in order to fund a two-month extension of the payroll tax cut.

Via: WFP

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