Sunday, April 23, 2017

Same-o, Same-o, MBA True Colors

First they came for the Socialists, and I did not speak out—
because I was not a Socialist.
Then they came for the Trade Unionists, and I did not speak out—
because I was not a Trade Unionist.
Then they came for the Jews, and I did not speak out—
because I was not a Jew.
Then they came for me—and there was no one left to speak for me.

Martin Niemöller (1892–1984) was a prominent Protestant pastor who emerged as an outspoken public foe of Adolf Hitler and spent the last seven years of Nazi rule in concentration camps.

GSE Events/Developments

Major GSE activities were absent last week; most community talk was back and forth over the meaning of minuscule movement in the prominent GSE court cases.

In other words, “nothing here folks, move on.”

But we did have the underwhelming unveiling of the Mortgage Bankers Association (MBA) latest “get rid of Fannie Mae and Freddie Mac” proposal.

The MBA’s scheme (see below) is disappointing for several reasons, i.e. the nonsensical and meaningless “bright line” is back, but predictable in others.

Okay, trade associations do this all the time to promote their objectives, but that doesn’t absolve them from the need to explain what and why they are doing it, in this case a new “reform the mortgage system” design.

In talking to MBA folks over the months while this proposal was incubating in its task force meetings, there was some misdirection suggestions of a major “landmark proposal that would keep Fannie and Freddie functioning,” as in “Sure, we really do like the GSEs.”

But when it came time for the task force to “walk the talk,” that possibility disappeared and the trade group produced a predictably limp “wind down the GSEs” plan, with lots of new creations, financing arrangements, and structures—but the federal government still in it reliable position of holding up the whole shebang. (Hey, no possible calamity here, trust us.)

To me, the trade association’s specific details really don’t matter, when the MBA’s task force’s stated objective is the “post GSE period,” meaning Fannie and Freddie gone. Again, for this observer, how you get there is next to irrelevant.

The institutional hyperbole and short memories, too, are revealing.

It’s very disappointing that MBA President and CEO David Stevens and the task force--about which he was most excited given the quality and talent he said its member reflected—once again put out some principles and talking points, directed at the Congress, White House, other stakeholders, and the media.

I’ll let others comb the proposal’s details for its shortcomings, but my analysis “from 30,00 feet”  raises the obvious and continued questions about big bank dominance; free sharing the GSEs platform and resources; the huge additional capital supply needed for sufficient front end/back end mortgage insurance, if the market chooses not to provide it: and exactly how you force the nation’s largest banks to put up more capital when they—with the help of the MBA—are fighting the surviving Dodd-Frank previsions which would require them to do just that—not to mention the same cabal’s rabid opposition to greater financial regulation?

Why didn’t this august group of mortgage lenders, led by the talented Mr. Stevens (whom I am happy to report is enjoying better health, back at work, and ready to engage on MBA’s behalf) just cobble together a very specific legislative proposal, answering the many question their draft raises or even nail down some choices??

MBA: Let Congress Do It

My advice to MBA and David Stevens is jump on Steve Mnuchin’s broad back.

Letting the Congress do it really is not a viable solution to the GSE conundrum, especially when the new Treasury Secretary announces he is working on a plan to restore the GSEs to operational health, using executive authority.

My answer to why the MBA chose this path, in part--maybe giving the MBA task force too much credit--is it ran into the same market reality the Congress faces trying to solve the GSE Gordian knot when what you are trying to replace works better, more efficiently and fairly--for consumers and mortgage professionals alike—than your replacement albatross.

Currently, DC is filled with the carcasses of empty mortgage reform schemes—like Corker.Warner--most of which lay malodorously decomposing around the Urban Institute offices, with cutesy poo headline creating names about “housing paths forward,” etc.

Congress, caught up in their ideological biases and lack of understanding of mortgage market dynamics, stumbles on this same GSE market reality, offering all sorts of excuses and threats, but never saying, “Hmm, maybe there is a lot to like about the current system and possibly--if we fine tune it rather than destroy it--we might have something that will last for another five decades or more.”

But, that would take statesmen legislators with insight and a sense of history, not foppish characters who might have profited, surreptitiously, from trading in GSE securities.

And to the MBA and the world, all of your poppycock about ending the risk to the taxpayers goes right out the window, the moment you have—as the MBA proposes--Uncle Sam on the line insuring the single family and multi-family securities in your “get rid of Fannie and Freddie” ideas, especially when all of the bank players—many of which have non-banks subsidiaries--have reduced capital and most enjoy FDIC insurance for which they’ve not adequately paid because of that hidden federal subsidy.

The task force. absent virtue, prattles about reduced risk to the taxpayer, when its goal is a system which produces voluminous amounts of fixed rate financing. Our history shows only the federal government’s presence or backing can guarantee that result

That fact isn’t allayed by all of the plan’s admonitions for strong “capital supervision and regulation” and “minimize transition risks to avoid market disruptions.”

Let me repeat the nation’s biggest, strongest banks are right now fighting greater regulation and capital demands but is the MBA--a big bank-centric trade group--suggesting the behemoths will stop all of that because the MBA throws out this mortgage mélange?

The MBA implicitly demeans the existing system—which, yes, could use some slight changes—and ignores the copious amount of fixed rate financing Fannie and Freddie currently produce with only a marginal connection to the federal government, and calls for a clone but with the big banks and their brethren playing the traditional GSE role.

The current GSE federal protection could be even less chancy if the government would allow Fannie and Freddie to keep some of those $260 Billion in GSE profits the Treasury has sucked in—or excuse me “swept in”—since 2012. (I guess I missed the MBA’s discussion and opposition to that little item which, by itself, would help reform the nation’s mortgage markets without any legislative help, since the latter just becomes interference. Also missing was any discussion of the last time “big un” banks were give carte blanche to issue PLS.)

Why, MBA??

However a deeper question for me aimed at the MBA and its task force is why do you have to destroy that which works and has worked for your industry for almost 50 years? It can’t be all of those nifty task force meetings held in posh places, no doubt, free meals etc. etc?

Top MBA staffers understand the chaos, dislocation, confusion, increased costs, loss of efficiencies, and uncertainty inherent in any change the magnitude of which the task force proposes. In their opening principles, the MBA offers the forlorn wish that Congress and the White House will lessen the inevitable mortgage bedlam, with what…more regulations and do’s and don’ts? Will the big lenders listen?

So why make all of these recommendations, when tweaks not sledge hammers are available?

The big banks still are making money hand over fist and still complaining about excessive federal regulation and capital requirements. The mortgage banking sector of the economy has done well for the past few years. So exactly what needs fixed?

What parts of the Fannie/Freddie operations doesn't the MBA like and for what reasons?

Fannie and Freddie are regulated (excessively) by several hundred people at the Federal Housing Finance Agency (FHFA). How many more will be needed when/if your task force proposal law and a new regulator or the new regulatory employees at the existing agencies decide to flex their muscles?

How about some mortgage banking industry candor? (Even though the American Bankers Association and the Financial Services Roundtable will be happy, you know the small lenders and the community groups will oppose. And there is even some possibility that your current Herculean effort might not gain the support of the other big housing trades in town, because of the obvious consumer costs, bank giveaways, and embedded uncertainty which never is good for business.)

I am still back to my old wish/suggestion to see if all MBA members—especially the non-big bank shops--support your task force recommendations?

Poll them on whether they truly desire Fannie and Freddie wiped out with your task force recommendations’ resulting systemic financial disorder, before the inevitable big bank take over occurs of both the primary market and the GSE secondary mortgage market. (It won’t surprise me if the MBA demurs because of the old wisdom, “Never ask direction from somebody to whom you must listen.”)
I’d love to see America’s consumer weigh on that question, too.


POTUS Trump, his First Hundred Days

(I am going to limit my Trump commentary this week to offering various links to media others produced. I especially liked the George Will and David Shapiro columns.)

George Will

David Shapiro

100 Days Report

Russian election plan

Trevor Noah on O’Reilly

O’Reilly, Redux

What goes around….Judge Curiel

Maloni, 4-23-2017