(*A subject I used to give my regular corporate memos, when they contained a smorgasbord of unrelated business, industry, and political developments on Capitol Hill and in
Independent credit is due Fannie Mae and Freddie Mac senior managers for putting their companies on track, early, for regular financial reporting. To achieve that objective, the GSEs overcame their accounting problems, system and resource shortfalls, and the ongoing political challenges from their business and ideological opponents.
Last week’s separate company announcements does beg the question, “What weaknesses still concern OFHEO and Director James Lockhart, to require Fannie Mae and Freddie Mac to continue holding the 30% capital “add on? Lockhart mandated the extra protection many months ago, when he was concerned about GSE operational issues?
Methinks that “Two Gun” is well aware of the business drag represented by unnecessary capital and is in no hurry to back off. Maybe he just needs some encouragement?
It almost makes you want to see bumper stickers, calling on Lockhart to, “Free the GSE Add Ons.”
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Belated congratulations to my friend and former Fannie Mae colleague, Bob Zoellick, nominated by President Bush to be President of the World Bank.
Zoellick did two stints at Fannie Mae. When I came in 1983, he already was Chairman David Maxwell’s top assistant. Zoellick left the company to join Jim Baker, in the Reagan Administration. Bob returned to Fannie, several years later when Jim Johnson was Chairman, to run the legal, affordable housing, and government and industry relations groups.
Zoellick is brilliant, extremely able, and a task master, who always stayed on top of every issue in his domain, employing near microscopic hand printed notes. He would use the previous week’s “jots and tittles” to set the agenda for the coming week’s senior staff meeting, virtually insuring that all of his direct reports would be able to answer any of his many questions about their progress on the tasks he sometimes knew better than they.
When you worked for him, as I did in his second Fannie incarnation, you didn’t want to disappoint Zoellick, so you made sure that you were up on everything in your business portfolio.
But, who knows what he will wear to insure World Bank efficiency?
Here's wishing much success to “Z!”
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The subprime “clean up” business will put lots of fixed rate loans into the Fannie Mae and Freddie Mac portfolios, which is good for both the companies and the families refinancing into monthly mortgage payment certainly. It begs the question, though, why those brokers/lenders couldn’t have offered the safer products to some of the credit flawed borrowers the first time around, saving heartache for so many families. Some estimates are that 50% of those SP borrowers could have qualified for the fixed rate loans at “A” quality interest rates, but didn’t know and never were told by the lenders.
The answer, obviously, is that sticking them with an ARM meant more profit for the broker and more volume, often attracting the lesser credit borrowers with teaser rates. Steering the naive into adjustable rate loans, which they soon would be unable to afford, was great for the brokers/lenders and real bad for the borrowers.
Why do we have to learn and re-learn the same painful lessons, over and over? There always will be unscrupulous operators in the mortgage finance business, willing to take advantage of poor and under/uninformed borrowers, who desperately want to own a home, whether they are ready for it or not.
This current subprime dilemma will get fixed, with Fannie and Freddie in the forefront helping. But, many of the same bad actors, who caused the mess, will hide for a bit and then pop up, again to try some other mortgage hustle.
Federal and state officials should root out the wrongdoers and make them “pay,” in fines and jail time. But, the mortgage finance industry is best positioned to do more and keep these “crooks” out of the lending community.
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I hope that lots of folks read the Wall Street’s Journal’s interview, this week, with former Fed Governor, Ed Gramlich, and saw his comments which suggested Alan Greenspan, strongly opposed Gramlich’s personal importuning, back in 2000, that the Fed move more aggressively on bank holding company subsidiaries, which were involved in large amounts of questionable subprime lending.
Greenspan’s opposition or indifference is not a surprise to those who watched him closely. When the issue was not monetary policy, but more narrow housing issues, Greenspan either was indifferent or toxic.
“Housers” will be the first to acknowledge that their business needs economic stability and Greenspan can lay claim to credit for some of that. But, when it came to the more specific housing matters, AG and his Fed were part of the problem, not part of the solution.
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“The Hill” newspaper runs a set of pictures suggesting, in their opinion, which MoCs are look-alikes for various movie stars and other well known personalities.
Here’s my related contribution, Governor Mitt Romney and former lobbyist/trade association exec Micah Green.
(I haven’t figured out how to put pictures in my blog to prove my “twins separated at birth” point)
If Mitt ever needs a stunt double, in my opinion, Micah is the man.
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Flying under the radar scope as the GSE regulatory legislation, just passed in the House, moves to the Senate are the Federal Home Loan Banks.
Along with Fannie Mae and Freddie Mac, the Bank System will be included under the new regulator’s jurisdiction. But, while Fannie and Freddie have seen much discussion about how they do business and what—if any—changes should occur in their mission, very little, if anything, has been discussed about whether to change how the Home Loan Banks work or--in fact—if they still are necessary?
But, the problem is that these Bank System members now lend for everything, not just mortgages. That means the same GSE borrowing that so many opponents claim is bad--when Fannie and Freddie do it for mortgages--becomes loans for cars, businesses, vacations, etc--all things non-housing--when Bank System member intuitions re-lend their System advances (loans) for those purposes.
I’ll let Congress wrestle with the virtue of that one.
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I loved this past Sunday’s final episode of the “Sopranos.”
There are those, deep into “Sopranomania,” who will tell you that the strange ending really meant Tony was bumped off and the “just no more, cut to nothing,” final scene was reflective of death. There also is lots of Soprano fan mumbo jumbo about the number three and who the mystery diners were in the restaurant, where Tony, his wife and kids had dinner.
Fuggedabotit!
As Dr. Freud said, “Sometimes a cigar is just a cigar.”
If you didn’t see Tony get killed, then he ain’t dead!
The moralists may disagree, but I think that Tony and his two enjoyed a fairy tale ending ("happily ever.."). Plus, if Tony had gotten killed, there would be no “Sopranos, the Movie” in two or three years.
Maloni 6-13-07
3 comments:
Lots of astute observations as always, but I have the uncomfortable feeling you sometimes forget that the GSEs' political enemies are from time to time also their counterparties.
I'd love to hear your thoughts on the Paulson (hedgie) vs Bear (investment bank) cage match going on, today on page 1 of the WSJ. Those equity tranches and CDOs are supporting a lot, including much of F&F's AAA book. Has it ever occurred to you that OFHEO's analysts might be genuinely concerned with that aspect of the story as they estimate GSE capital needs?
If I knew, for certain, that this was "John from Cincinatti" and not my other colleague "John," I first would ask you how you serf 5 feet over the water. I want to learn that one.
You are dead on. Many of Fannie's business enemies, over the years, have been the people with whom they do business, the Mortagge Bankers being the obvious example. Wall Street is high up there
(Oh, the stories I could tell) and
the large banks still are selling loans to the GSEs.
The simple issue was/is whatever money the "GSE counterparties" were making being partners with Fannie was not sufficient and they wanted more. They think they can calibrate the damage to Fannie, but the legislative and regulatory process is not that fine. Congress and the feds use bludgeon's not scalpels, so the bad guys historically have overreached, as some would suggest is happening currently.
My toughts on OFHEO, much as I view its Director, is that the agency would love to run roughshod over the two companies and "squeeze the life out of them" (a phrase I used in my last blog).
But, the agency now is in the spotlight, almost more than the companies, because of the proposed legislative restructuring and because of Lockhart's rather obvious public statements.
I'll "noodle" the Paulson/Bear matter, perse, and share my thoughts.
Paulson/Bear
John I am not sure where you see Fannie or Freddie in this, save that it is probably their "high quality" bonds that Bear is selling to balance against their losses on the subprime stuff. Nothing was suggested in the articles I read or the people with whom I talked that Bear was in trouble, because of its subprime woes.
Subprime itself is only a small segment of a much larger "A" mortgage market. The amount of money involved isn't the kind of thing to cause multiple companies (subprime bond hedge funds) to fall and cause a broader problem.
And, I am not sure how F/F portfolios of "A" mortgage and securities are threatened, even if you assume that the subprime mess is a prelude to some type of real estate bubble bursting (which most people don't)?
One of my favorites movie moments is the scene in "Princess Bride" (Billy Crystal, Andre the Giant, et al), when the clever "Sicilian"--who has been offered wine--by the hero, Wesley, argues logic and tries to deduce into which glass the hero put the poison, ultimately outsmarting himself, when it turned out both glasses had poison.
Bear is the Sicilian ("I can hedge this security by doing this, and hedge the hedge by doing that, or hedge the insurance that I bought to hedge the first hedge by doing this and 'Arrgh!'))and I find Paulson's complaint almost whiny. But, what do I know?
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