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Geithner Says Fannie, Freddie Should Cut Some Principal
Geithner Says Fannie, Freddie Should Cut Some Principal
Meera Louis and Clea Benson
March 28, 2012 — 1:47 PM PDT
U.S. Treasury Secretary Timothy F. Geithner told a U.S. Senate panel that he believes Fannie Mae and Freddie
Mac should reduce principal on some home mortgages.
“We’ve been encouraging Fannie and Freddie to take another look at the map, at the economics of the finance
because we think there is a strong case in some circumstances to add principal reduction as part of their
strategies to help maximize return of the taxpayer,” Geithner testified today to a subcommittee of the Senate
Appropriations Committee.
At the end of last year 12.1 percent of mortgages were delinquent or in foreclosure, compared with 12.4
percent a year earlier, according to the U.S. Office of the Comptroller of the Currency.
Fannie Mae and Freddie Mac, the mortgage finance companies under government conservatorship since 2008,
haven’t granted principal reductions because it would cost the taxpayer­funded companies almost $100 billion,
Edward DeMarco, the acting director of the Federal Housing Finance Agency, said in a Jan. 20 letter to
Congress. The agency oversees Fannie Mae and Freddie Mac.
“What Mr. DeMarco has said is that they are taking another look at their numbers, looking at our economic
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case. We are in the process of working through that with him and I hope he is going to be in a position to
indicate what he plans to do in the next several weeks,” Geithner said. “This is an important part of a credible
national strategy that they have been reluctant to move even though they have done a lot of things that are very
very helpful.”
FHFA Study
The FHFA will release a study next month about whether it makes sense to allow forgiveness on underwater
loans guaranteed by Fannie Mae and Freddie Mac, according to DeMarco.
“We are offering a rich array of tools to help borrowers with their mortgage payments,” DeMarco said today on
Bloomberg Television’s “Street Smart” program with Trish Regan.
Three out of four borrowers with GSE loans who owe more than their homes are worth are current on their
mortgages, DeMarco said.
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Some SuperCabs fall short on emission, fuel­economy standards
Both requirements will be more stringent in nine years
Ford Motor Co. executives spared no expense in overhauling the crown jewel of their empire, the F­150. They
gave the truck a new aluminum body, smaller turbocharged engines and a lighter and stronger steel frame ­­ all
with an eye to appease U.S. regulators demanding cleaner vehicles. The initiative took six years and cost Ford
more than $1 billion.
The problem, though, is that some versions of the new F­150 still don’t meet the government’s 2016 emission
and fuel­economy mandates. What’s more, the hurdles get higher from here: By 2025, the targets will be much
more stringent. The stakes for Ford couldn’t be greater. Ford’s F­Series, America’s best­selling truck line,
accounts for 31 percent of the company’s North American sales and half of its profit in the region, according to
Barclays analyst Brian Johnson.
Ford F­150 Raptor
Photographer: Andrew Harrer/Bloomberg
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Ford is trying to safeguard this profit center as global regulators push harder than ever for clean air. In the past
year, Volkswagen AG, Mitsubishi Motors Corp. and Suzuki Motor Corp. admitted to manipulating emissions and
fuel­economy tests. Hyundai Motor Co., Kia Motors Corp. and Ford have had to apologize for misstating fuel
economy on window stickers.
Not An Option
“Not meeting the standards is not really an option, especially on your most profitable product,’’ said Gopal
Duleep, president of H­D Systems, a Washington research company. “On fuel economy, the regulators allow
you to pay a fine if you fall short. But on greenhouse gas, they don’t. You either meet the standard or they shut
you down.’’
Cutting fuel consumption reduces greenhouse gases, so Ford and other manufacturers are racing to
incorporate new technologies in their pickups, including gas­electric hybrids and 10­speed transmissions. They
also may plead for relief during a so­called midterm evaluation of the U.S. requirements beginning this month.
Just retooling the factories that produce the F­150 cost $1.2 billion, according to Ford spokesman Mike Levine.
Ford is scrambling because about 40 percent of its new aluminum­body F­150s don’t comply with the 2016
mandates, according to Duleep. The four­wheel­drive, 3.5­liter SuperCab –­ a high­volume variation ­­ falls 1
mile per gallon short and emits 15 grams of CO2 per mile more than allowed, he said.
Tougher Targets
Since most two­wheel­drive models with smaller engines do comply, the F­150 program as a whole meets the
targets. But by 2025, the MPG requirement for SuperCab­size trucks will have jumped by a third to 33.3 and the
CO2 limit will fall by the same percentage. The fuel­economy numbers refer to test results; real­world driving
and window­sticker displays can be 20 percent lower.
Detroit automakers don’t know if they can comply with the regulations at an acceptable cost to customers and
shareholders, according to people familiar with the situation.
“The question is, do consumers pay for this technology or just get it for free?’’ said Warren Gibbon, a portfolio
manager for Standard Life Investments in Boston, who helps manage $373 billion and sold his holdings in big
Detroit car companies in 2012. “If it’s the latter, it will be tough for automakers to make a good return on their
investment.’’
Concerns about the standards ­­ and the head start Alphabet Inc.’s Google unit has grabbed in technologies
such as self­driving ­­ have helped depress auto stocks. While F­Series sales have risen this year and Ford
reported record profits, its shares fell 8 percent through June 15. General Motors Co. sagged 15 percent and
Toyota Motor Corp. dropped 27 percent.
Technology Assessment
All this increases the importance of the standards evaluation. President Barack Obama agreed to it in July 2011
when he announced a 54 percent increase in the corporate average fuel­economy requirement ­­ to 54.5 mpg
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in 2025 from 35.5 in 2016. He also mandated a cut in average greenhouse­gas emissions to 163 grams of CO2
per mile from 250. The first step in the evaluation is a technology assessment the Environmental Protection
Agency, National Highway Traffic Safety Administration and California Air Resources Board are scheduled to
publish this month.
Progress on clean air has stalled because low gasoline prices boosted the popularity of pickups, minivans and
sport utility vehicles, which tend to pollute more than cars. As a result, average greenhouse­gas emissions from
new models were six percentage points higher in March than in August 2014, and the fuel economy of models
sold in May was down 0.4 mpg from the same month, according to the University of Michigan Transportation
Research Institute.
Inherent Disadvantages
Pickups face inherent disadvantages: Towing, payload and off­road capabilities customers want mean they
weigh 12 percent to 15 percent more than comparable cars, plus they have the aerodynamic efficiency of
bricks, Duleep said.
Mary Nichols, chairman of the California board, said regulators were caught off guard by the truck surge and
now need to push manufacturers to equip them with the same fuel­saving technologies as cars, including
aerodynamic designs and more gas­electric hybrids, especially in small trucks used for personal transportation.
Sergio Marchionne, chief executive officer of Fiat Chrysler Automobiles NV, has said his 2018 model Ram will
save fuel with a bigger battery that lets the engine shut off at stoplights
Hybrid Pickup
Thirty percent of Ford’s F­150s already have this type of battery, and the share will rise to 60 percent next year.
By 2020, Ford will have a hybrid pickup with batteries powerful enough for daily driving, CEO Mark Fields has
said.
Ford also is testing a diesel­powered F­150, according to a video posted on Autoblog.com, and may add a 4­
cylinder engine for the first time in the U.S., a person familiar with the plans said. That may be a hard sell on the
farms and construction sites where Ford has championed big, powerful V­8s for decades.
“Every upgrade we made to F­150 is to improve how customers use their truck,” Ford’s Levine said. “Lighter
materials help F­150 tow and haul more than any other light­duty truck, while also providing best­in­class
gasoline fuel efficiency.”
GM ­­ which is bashing the durability of F­150 aluminum beds in new ads ­­ will be forced to join Ford in using
more aluminum to save weight in components including engine blocks, transmission cases, fenders and doors,
said Mark Stevens, a retired GM vice president for engineering and manufacturing.
Higher Costs
The new technologies save fuel but add thousands in consumer costs, including for features such as 360­
degree cameras. Between 2011 and May 2016, the average price of full­size pickups jumped 24 percent ­­
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almost triple the pace for all new vehicles ­­ to $41,606, according to J.D. Power & Associates.
Regulators measure fuel economy and emissions by setting separate car and truck targets for each size
vehicle, then using sales­weighted formulas to determine a corporate average. They give credits for eco­
friendly technologies, including aerodynamic design, then fine companies whose fuel­economy average is still
too low.
Uphill Battle
Detroit faces an uphill battle for pickup relief because it already extracted a huge compromise: Obama agreed
in 2011 to keep SuperCab­size truck mandates relatively flat for a decade and then accelerate them as fast as
those for cars.
Automakers now want more time to reach the 2025 targets, even if they can’t change the direction regulators
are heading. Within nine years, the U.S., European Union, China and Japan are scheduled to require fuel
economy of 45.9 mpg or more and CO2 emissions of 122 grams per kilometer or less. Hitting the CO2 target in
the U.S. means a 53 percent reduction since 2000, according to the International Council on Clean
Transportation.
Automakers also are pressing U.S. regulators to expand credits for eco­friendly technologies, the people
familiar with the situation say. These include more for self­driving vehicles, which could save fuel by improving
traffic flow, and for big vans like Ford’s Transit, which can haul a dozen or more passengers.
Regulators express limited appetite for more compromise.
“Increased fuel efficiency costs consumers much less than the savings they get over the life of the vehicle,’’ said
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Dan Sperling, a California air­board member and professor of civil engineering and environmental science at
the University of California at Davis. In 2012, the EPA and NHTSA projected buyers would spend $1,800 to meet
the new standards but save at least $5,700 on gasoline during their vehicle’s lifetime.
“This is one of the smartest and best things our country can be doing for the economy and the climate,’’
Sperling said.
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