The other day, I bumped into a man who “knows his way around Washington,” a big time lawyer, who spends a lot of time with other big time lawyers, doing what big time lawyers do—discussing the day’s big time Washington legal issues, especially those where lots of money is involved. (Sorry, counselors!!)
This fellow, who has the sublime taste and judgment to read my blogs, said to me, “Harumph (all big time lawyers say ‘harumph’), you know I’m almost certain that OFHEO doesn’t even have the legal authority to put investment limits on Freddie Mac and Fannie Mae.”
I swore that I saw dollar signs in his eyes.
I said, “Well that may or may not be the case, sir, but you need to have some lawyers test that fact in court, don’t you?”
He smiled back, wolfishly, “Lawyers, we have plenty of lawyers!”
This brief exchange came back to me as I read several stories about Senate Banking Committee Chairman Dodd’s understandable agitation over OFHEO’s rejection of lifting the GSE investment caps and the Administration’s standard GSE intransigence. (Not smart, the man is the “Chairman” and also a presidential candidate.) There also was Senator Schumer’s very predictable umbrage and stated intention to introduce legislation, in September, to jettison the caps (and do God knows what else to OFHEO).
I suspect both Senators and their colleagues are upset that the Administration/OFHEO really has done nothing concrete to address the rocky residential mortgage markets, since the White House can’t take credit for the Fed’s actions.
House Financial Services Committee Chairman Barney Frank was exercised at OFHEO, as well, and made that clear in interviews last week.
Legislation will be hard to pull off this year, since either political party can kill what the other wants. (Someone should tell that to Secretary Paulson and President Bush, the latter thunders as if he still, independently, has some political clout to move bills).
Assuming the White House continues to be “housing tone deaf,” are there alternative actions available?
This is where the big time lawyer’s observation comes into play.
What if a close examination--by the counsels on the Senate Banking and House Financial Services committees--produces some reasonable doubt in their minds about what powers OFHEO has to impose sanctions?
Indeed, if the congressional lawyers agree and believe that OFHEO doesn’t have the statutory authority it claims--and which the agency already has exercised to cap the GSEs investment portfolios—the Hill lawyers would have to make that clear to OFHEO (and the Justice Department, too) and seek some redress or accommodation
Legally, OFHEO has overreached before. It lost a court battle with former Freddie Mac Chairman Leland Brendsel and other Freddie Mac senior managers, over compensation granted to the mortgage officials under legal contracts entered between them and the Freddie board.
The court decided that OFHEO did not have the authority it claimed and the agency was stopped from trying to recover the compensation it sought.
That’s one major precedent, if anyone is looking to see how solid the legal ground is under OFHEO’s portfolio cap determination or if OFHEO lawyers are prone to read more power into the agency’s safety and soundness authority than the Congress gave them or the courts might believe.
A congressional legal opinion challenging and agency action alone wouldn’t shake mountains, but it might get some “downtown officials” to think less punitively about the GSEs and maybe show even some “love” to Fannie and Freddie, as well as the nation’s dizzy mortgage markets. Backing off would be an agile Administration move, if for no other reason than they might be able to avoid a spirited debate over the boundaries of OFHEO’s legal authority, an exchange which might upset their neat apple cart.
It’s not as if this Administration lacks a track record for interpreting the law expansively, when it wants to do something weird, especially something Congress may not want it to do or that Congress didn’t contemplate when the original statutes were written. The Democrats say the Bush Administration operates egregiously in that regard.
It’s probably just wishful thinking that OFHEO and its White House bosses would change their minds just because someone on the Hill disagrees with them over what the OFHEO charter may mean, since difference of opinion (legal and otherwise) is what drives this town. Hopefully, the mere suggestion won’t panic OFHEO’s GC to begin purging his files, getting rid of any memos which support the opinion of our mysterious “man about town.” Besides, purging your files is so wrong, so “Scooter Libbily,” or so “Karl Rovie.” (There is a “Wade” joke somewhere in that “Rovie” line!)
If OFHEO is given a strong congressional legal opinion that it does not have the power to cap the GSEs portfolio investment capacity, would this Administration suddenly show some flexibility and grant both companies greater authority to provide the markets with much needed liquidity, as those committee leading congressional Democrats, major housing and mortgage finance industry groups, and Fannie and Freddie have asked?
You never know unless you try, but—If I was in this White House and my team was losing the media battle over responsibility for credit woes, as badly as the Bush team is—I would be looking for every conceivable way to work with Hill Democrats, as well as try and appear sensitive to the problems of the broad middle class.
Agreeing to allow Fannie and Freddie some more capacity to put mortgage loans in their portfolios really is a tiny step and it would be good Administration policy and politics, if it weren’t for all of those years claiming that the two companies exemplify “systemic risk.” If anything, this past six weeks turned that phony assertion upside down, as almost everyone in the mortgage business but Fannie and Freddie seem to be the cause of systemic risk in the subprime and jumbo markets. While Fannie and Freddie and their lender networks were working smoothly and not missing any beats in their mortgage segment niche.
Of course it’s easier for Congress to discuss legislation than take on the role as an “amicus” in a legal battle over whether the Administration has locked the GSEs in the mortgage world “
OFHEO should find a way to accommodate Dodd, Schumer, and Frank on the investment limits. They are the people who hold OFHEO’s legislative fate in their hands. All of the huffing and puffing by the Administration can’t do squat to move a bill, if these guys don’t want one.
In the meantime, there are scads of lawyers around town who would love to explain to Congress why a careful reading of the 1992 law would show that “Emperor Lockie” and OFHEO may be a garment or two short, with regard to GSE portfolio investment limits.