Thursday, October 25, 2007

Stein and Operation Noriega

Hold onto your under britches, Aunt Gertrude, the world is going to turn upside down because I am about to agree with a Wall Street Journal mortgage editorial. Well, not the entire editorial, just one line or so.

That’s the bad news; the better news is that a far superior writer, economist, and voice of reason said the same thing, but better and earlier in the week. So let me associate myself, first, with that writer’s observation, but in fairness--a commodity not often seen at Mr. Murdoch’s newest toy--let me note that the WSJ said the same thing this week, albeit as part of a far longer diatribe against something useful.

In that context, let me again recommend the work of Ben Stein, writing in last Sunday’s New York Times business section (sorry, don’t have the authority to provide a link), in which he sought to put into perspective what’s happening in our economy and more narrowly in our real estate markets.

Stein argues calmingly that most of today’s familiar housing/mortgage finance problems are manageable. Certainly there will be financial losses, but if they are experienced by right business interests, then the market is working and those companies are big enough to swallow their red ink.

In the case of subprime mortgages, Stein--as did the Wall Street Journal on Wednesday--demanded more focus be put on saving the families stuck in those contracts, not the lenders or the investors.

That’s a perspective with which I agree and which is quite doable, if the lenders and investors have the “cajones” to walk the walk, not just talk the talk.

Angelo Mozilo and Countrywide seem, not surprisingly; to have stood up first and tallest and said that they were going to try and reach 75,000 families and, in helping them stay in their homes, help themselves. I have no problem with that self interest and expect that Countrywide’s effort will produce far more positive developments than those who just want to make an announcement and say “I/We plan to help, too.”

The key to providing assistance is contacting the mortgagors who can be helped (not all fit that description) and walking them through the steps necessary to get into new mortgages. All of those servicers, who the mortgage investors use, should be beseeching those subprime borrowers, now, and alerting them to the options available to them. The trick is that the help available may not be with the companies which made the loans, so somebody is going to have to rise above their selfish interest and point some of these vulnerable creditors to other resources.

The market could do far worse than emulate Mozilo and Countrywide.

Friend Ben Stein is not a big fan of last week’s $80B Paulson/Wall Street announcement, since it’s a Wall Street/big bank sop to…Wall Street and big banks. But you should read Stein’s views yourself regarding that puppy.


The Mortgage Bankers Association tickled me twice in a little over a week.

The first time was when on of their subcommittees, meeting at the annual MBA convention in Boston, argued that Fannie and Freddie should not be allowed to finance jumbo mortgages or those larger than their OFHEO-approved $417,000 single family ceiling.

Flash back a few weeks ago, when MBA leaders and staff were running around Washington beseeching everyone who would listen, about the need to create more jumbo/non-conforming liquidity and urging the GSEs to do just that.

Do you think the membership knew their paid and elected officials were doing what they now say is undesirable? Is someone in MBA being duplicitous or is someone being hypocritical?

The MBA’s public position will last until the next time the commercial bank/Wall Street investors run from the jumbo market and help is needed.

The other MBA generated laugh comes from the trade group’s opposition to Chairman Barney Frank’s legislation requiring mortgage broker registration and brokers to discipline their offerings to the public. Please note that independent brokers are hired by lenders. Brokers get paid to find and underwrite potential borrowers, ”upstreaming” the applications to their lender employers.

It's a faster process. But, it’s a documented fact, even in good times, that broker generated loans perform worse than those produced by in-house employees or underwriters.

The bill was fine for the Mortgage Broker Association, which supported Frank’s legislation, but the Mortgage Bankers bleated about how such an action would change western civilization as we know it, bringing floods, droughts, locusts, whine, whine, whine. (You know the lines.)

How narrow and short sighted.

How can any systemic good come from the subprime experience and meltdown, if those with their fingerprints on the murder weapon can’t be sanctioned or re-directed?

With apologies to old tax writer Senator Russell Long, for marginally corrupting his famous statement about finger pointing when looking to raise revenues, the MBA is suggesting, “Don’t regulate you, don’t regulate me, go regulate the other guy behind the tree!”

Operation Noriega!!

The Bushies don’t do GSE regulation well, but their ideological skull duggery skills are right up there with the best.

There are fresh allegations that the DOJ sent out some political hit man to kneecap a prominent Democrat, just because he wasn’t of their party. But this time, it’s not the DNC, DSCC, DCCC, or some scrunchy liberal labor scalawag uttering those charges.

It’s a member of “the club.”

Look at the testimony this week, before the House Judiciary Committee, by Dick Thornburgh, former Reagan and Bush Attorney General, former GOP Governor of Pennsylvania, and as loyal and rock ribbed Republican as you can find.

Thornburgh is representing a prominent Pittsburgh area Democrat, County Coroner Cyril Wecht. The US Attorney has charged Wecht with a variety of nickel and dime charges, but Thornburg has focused on the timing of the charges and what some could read into that timing.

Wecht has been a 40 year fixture in Western Pennsylvania Democratic politics and is an internationally known forensic pathologist, often employed—privately—in headline making cases. (Dr. Wecht welcomes the limelight and handles it well.)

In his testimony, Thornburgh suggested that Wecht—in my words, not his—got swift boated because he was a “D” and nothing else. The formal charges against Wecht involved mileage reimbursements, use of his official fax machine, etc.

The “blogs,” however, went further and suggested that the indictment was a DOJ effort to help a beleaguered GOP Senator. Republican Sen. Rick Santorum, also from Pittsburgh, was in a tough re-election race (which Santorum lost). The thought was if the US Attorney could indict a prominent local Democrat, it might call into question the entire Democrat organization and help Santorum’s failing campaign.

The entire House hearing this week dealt with a variety of similar charges that the Bush Administration employed political retaliation against political enemies through Cabinet and regulatory agencies.

Other committee witnesses documented that the DOJ, under Bush, has tried to indict five times as many Democrat office holders as Republicans.

To read a little more of the same—but in the world of mortgage finance--check Frank Raines legal filings in his fight with OFHEO and his references to “Operation Noriega,” which was what one Administration participant labeled the effort to find Raines and Fannie guilty of something.

It astounds me, when people claim that this administration would never stoop to the unsavory “hurt the other party” lows, which show up in the Judiciary Committee’s hearings and Raines documents.

But, following all of the Bush “World War lll, Good job Brownie, Bring him on, I’m the decider, weapons of mass destruction, Saddam/Al Queda, I looked into his heart,” plus a daily ration of lying, distortion, misstatements, false statements, duplicitous and self serving statements, how can anyone reasonable person think that the Bush Administration is above character assassination, based on someone’s political differences?

Maloni 10-25-2007


uknowwhoiyam said...

RE: "focus be put on saving the families stuck in those contracts, not the lenders or the investors."

I agree completely, but most of the current proposals: Converting ARMs to a fixed rates, extending the teaser rate or the interest-only period don't help the family sitting in a $300K home with a $400K mortgage.

Any proposal that keeps the borrower in the home without lowering the mortgage BALANCE - and I haven't seen one single proposal that would do that - helps the LENDER.

Third Rail said...

Tune in tonight for out interview with world-renowned forensic pathologist Dr. Cyril Wecht. Feel free to call in and talk to him on air. Check it out at 8 pm EST Wed. Dec. 5th at