Monday, June 16, 2008

Some Things on My Mind!

WSJ and Sen. Shelby

The WSJ today editorially opines on Countrywide making mortgage loans to prominent individuals on favorable terms.

It calls for a Senate investigation of the matter and suggests--since Banking Committee Chairman Senator Chris Dodd (D-Ct.), may be conflicted because his mortgage was provided by Countrywide--that Committee ranking Republican Sen. Dick Shelby (R-Ala.) “will need to take the lead.” (Cue the “William Tell overture,” i.e. music to the “Lone Ranger” riding to save the day.)

Fine, but shouldn’t someone first check with Senator Shelby to make sure that he isn’t beholding in any way to the mortgage lenders or investors that he’s spent the past year pinioning? Which lender financed his residence(s) or other properties he owns? Wouldn’t it be ironic—indeed hypocritical--if Dick Shelby somehow benefited from one of the companies he rails against constantly?

If I was on the WSJ’s editorial board, I would want to make sure that I did not promote someone for chief inquisitor, who might have to refuse the “honor,” because of a business decision he or his representatives made involving a now “damned” lender or even Fannie Mae or Freddie Mac.

Maybe the Journal already has that intelligence and can clear Sen. Shelby from any suggestion that his status as a senior Banking Committee member—and former Chairman--has somehow helped him with commercial or personal real estate financing?

If it has, I hope the Journal can share that information, or if it can’t maybe Mr. Murdoch’s publication should choose a new horse, since using the WSJ’s ethics standard Senator Shelby will have disqualified himself from judging the GSEs.

Jim and Angelo

I am not going to get too much into the Jim Johnson/Countrywide issue because I only know what I have read. I don’t think I’ve spoken to Jim in three years or more and with Angelo it is longer.

But, I will say that Jim Johnson was a superb Chairman/CEO for Fannie Mae. He was the man for his time and took a fine company, which David Maxwell revived and breathed life into, and made it super. Johnson drove Fannie Mae to even greater heights in terms of low income families served, innovation pioneered, and market efficiency introduced.

It’s easy—in these tougher times—to look back and scorn what the GSEs accomplished and imply that anyone could have achieved what Fannie, in the Johnson years, and Freddie did. But that isn’t correct.

When Johnson was Fannie’s Chairman driving major housing initiatives and efforts, everybody sought a piece of Jim and wanted Johnson to be their speaker, show up at their event, testify at their hearing or just talk to them quietly over a diet Coke about the mortgage market.

To members of both political parties—in both chambers--and with financial and mortgage finance interest groups across the continuum, Jim was a “winner,” while leading Fannie, and everyone wanted to be associated with the guy on top.

The same was true with Angelo Mozilo. It was not too long ago that Angelo and Countrywide, which became the nation’s largest mortgage lender, were the gold/platinum standards in the mortgage banking community. No forum or leadership group meeting was complete without Angelo or a Countrywide rep.

Until its recent sale to Bank of America, Countrywide was one of the few remaining independent mortgage companies, not owned or operated by a large bank but by friends and family. The mortgage lending world identified with Angelo’s business success, trumpeted his hard work, and his unique schedule, which was based on rising in California on east coast time. In his halcyon days, Mozilo was a dynamic lender, a sympathetic and knowledgeable industry leader, dedicated to making sure mortgagors got the correct financing for them. Now, he’s viewed as much less.

I am certain that no one single mortgage lender has been asked to testify before Congress more often than Angelo Mozilo or to speak to other related industry groups, not because of his foibles, but because he did so much that was right.

I remember Mozilo recounting how, when he heard too many complaints about Countrywide’s rejecting minority applications, he personally began to go over individual mortgage turndowns and queried his underwriters for their reasoning and often changed their decision, turning “no's” into approvals.

Everybody—including his own employees—knew about the “Friends of Angelo” group, which frankly was not that exclusive, because Angelo liked to “help” people and that was his way.

There is nothing that I can add to all of those bromides about hindsight being 20-20, but I sense that most of the snarky negative comments last week about Johnson and Mozilo were made by people—unlike Johnson and Mozilo--who never took big steps, never took big risks, never dreamed large dreams, or never produced major successes.

Both men may have made mistakes, as we all do, but their good works should never be lost in the rush to belittle them.

Tim Russert

I did not know Tim Russert, personally, although I occasionally saw him in the street. The NBC headquarters and studio were fairly close to Fannie Mae and when I’d see him on Wisconsin Avenue and shout “Hi Tim,” as if we were old buddies, he always would smile or respond.

He simply was the best political interviewer I have ever seen. No matter who he was questioning, Russert would bear down and follow up so they couldn't wriggle away. He wasn’t smarmy or negative, just substantive and comprehensive. He made “Meet the Press” a Sunday must see (or must listen, if you were traveling and could only hear the broadcast) and won’t easily be replaced.

Two people whom I would love to see NBC consider as Russert successors are Jon Stewart and Harold Ford, Jr. The latter is a hugely brainy politician, with great charisma and appeal. The former masquerades as a comedian but he possesses a very bright, inquisitive mind, someone who could adapt easily to becoming a charming political junkie, like Russert.

Tim Russert didn’t go to work last Friday expecting to have a fatal heart attack and never see his family, again. It’s a lesson to all of us about how fragile our existence is and why “tomorrow isn’t promised to anybody.” So, don’t hold back. Live your dreams with gusto and extend love and affection to the people around you. If you’re fortunate, you’ll even reap what your sow.

Maloni 6-16-2008

Monday, June 9, 2008


Are the Democrats being conned in their own legislative con game?

The D’s, bless their souls, clearly want to get some immediate help to those families stuck with unaffordable subprime loans, made over the past three years, and get them into more affordable FHA fixed rate loans. They’re written legislation in the House and Senate to do so.

Democrats believe, rightly, that the more people they can help quickly, the better the federal response and the public policy. Delay hurts their effort.

Separately, the House also has approved a GSE regulatory reform bill.

White House: You Must Hurt the GSEs First

The White House, despite its rhetoric, isn’t as accommodating or willing to support the subprime mortgagors (the standard GOP line is that they entered the deals with their eyes wide-open and helping them would be a “bail out”), but the Bushies will do anything to screw Fannie Mae and Freddie Mac.

The Senate D answer to the White House FHA opposition has been to “marry” the two legislative efforts--into one bill--and try and the force the Admin to help the needy, by paying the Republicans off with the GSE hobbling proposals. If it becomes law, history likely will record this as the “Dodd-Frank Act,” in honor of committee chairmen Chris Dodd (D-Ct.) and Barney Frank (D-Mass.), but with no reference to the real author, Dick Shelby (R-Ala.).

Each day brings some Administration spokesman complaining about “problems” with the housing bill. Today it was FHA’s Brian Montgomery. Last week it was secretary Paulson saying the housing bill needs fine tuning, but their real intent is more angina for the GSEs

The Senate and House D’s keep ponying up additional GSE blood (and mortgage market efficiency and lower costs) to buy the Bush Administration’s backing for doing the right thing. The Democrats are paying a dear price to bribe the Administration to help people who deserve prompt government support.

There will be a post-subprime era, mortgage markets will return, and consumers will need familiar institutions doing familiar things at reasonable prices. Those familiar companies and processes might not be there or there in the same way, if the Senate bill becomes law. But the ever hovering large commercial banks will be. Democrats shouldn’t be so quick to poison the GSE mortgage finance well.

Punitive Senate Bill

The Senate Banking Committee approved a much more stringent anti-GSE package than passed the House. The Committee constructed their FHA plans, thanks to Sen. Shelby, by having the GSEs pick up the inevitable FHA red ink (see Montgomery’s comments from today). The Senate wrote language calling on the regulators to forbid the GSEs from raising any of their business costs to pay for this new $500 million per year effort. They also insisted on more stringent regulatory interference in the GSEs day-to-day business operations, much higher capitals requirements determined by the new regulator, "systemic risk" as a cause for regulatory action, and some additional housing mission work.

Right now, the Senate Democrats remind me of the guy at the neighborhood sale who keeps bidding against a phantom buyer. The seller says,“He just was here and is coming back and offered twice what you want to pay.” Finally, the naïve buyer succumbs to the bluff and pays three times more than anyone else would.

If the Senate Democratic leadership had any guts, they would call out the Administration, pass the FHA bill and dare the WH to veto it, an action which I believe would cost the GOP House and Senate seats in the fall elections.

D’s Benefit Politically from a Veto and Possibly Could Override It

It’s easy to envision the congressional Democrats October/November campaigns against the “heartless Republicans, who will bail out Wall Street but not the poor home owners of Main Street.” Skittish Republicans can hear it, too.

Helping subprime families is the near term need, not turning upside down the secondary mortgage market. The proposed damage done to the GSE business operations is far too high a price to pay for getting recalcitrant Republicans on board to assist people who were swept into unwise mortgage products by brokers and their Wall Street puppet masters.

The GSEs issues are not crucial, despite what the Wall Street Journal and other conservative voices claim. The current regulator now has cut back on the additional GSE capital requirements he once imposed and could re-impose them, if people really think the GSE really are risky. Like everything in the new Banking Committee bill that will cost consumers more and be reflected in future mortgage financing prices. Those factoids never get mentioned by those shaping the GSE legislation.

Democrats Being Used?

Before it is too late, will any powerful Democrat comprehend the interplay of market, profits, supply and demand, with that GSE math--specifically the additional demands each the Senate is making on the GSEs and grasp that the proverbial last straw may have been added by “my good friend, the senior Senator from the great state of….?” The Republicans and their allies are chortling at the irony of Democrats doing their dirty work and paving the way for growing commercial bank markets.

Killing the Golden Goose

Everyone claims the GSEs are the only game in the market and statistics seem to underscore that view. Yet the Senate legislation expects the GSEs to stand up and carry out their (same?) mission; buy this new loan and that new loan, yet don’t put it in your portfolio; bail out the FHA losses, give money to state housing finance agencies for rental units, but you can’t increase your costs to pay for these two items; fix this problem and that problem; post higher capital, do so with more day to day regulatory interference; and don’t run yourself as a business, even though you have shareholders who have every right to expect profits.

Democrats in the House and Senate who will go to “conference” and put together this deal obviously don’t understand how the GSEs operate or the mortgage market works.

You are doing damage, not fiddling at the margins. You are making substantive changes in how mortgage finanace is delivered to your constituents and it's not for the better.

Forget the White House. It doesn’t care about Fannie Mae and Freddie Mac because the GOP priority, since the Reagan era, just has been to hobble the two mortgage giants and this legislative package—blessed by Democrats--could well do that.

Call the GOP’s Bluff

The Democrats should prioritize these matters and promptly send a subprime relief bill to the White House ignoring the President’s threats and see what happens.

If it gets rejected and can’t be overridden, sweetening it with raw GSE meat to satisfy conservatives won’t help the broader public or future conventional mortgage financing. Eventually, it ill make matters worse.

Democrats would be better off waiting for an Obama Administration and trying to fix agreed upon problems then, without a howling Administration mob demanding GSE blood.

It’s important to remember that bad legislation—housing or otherwise--can’t happen without Democrat support.

Maloni 6-9-2008

Monday, June 2, 2008

The Sounds of Silence. Are the GSEs Beaten or Triumphant?

Hello darkness, my old friend,
I’ve come to talk with you again,
Because a vision softly creeping,
Left its seeds while I was sleeping,
And the vision that was planted in my brain
Still remains
Within the sound of silence.

I’m of two minds regarding the deafening GSE silence following approval in the Senate Banking Committee of its version of the House-passed legislation to create a new Fannie Mae and Freddie Mac regulator.

It appears that the bill is tough, illogical, burdensome, and punitive and begs the question of what sins have the companies committed to earn this treatment as they dutifully carried out their national housing missions.

The Committee legislation instructs the regulator to dial up dramatically the oversight of the GSEs, applies heavier capital requirements, intrudes more into business operations, and adds statutory mission obligations (nice phrase for “giveaways”) which do not/cannot earn money for the companies. It also brings back “systemic risk” as a totally subjective regulatory justification to bludgeon the companies.

(Look at all of the Fed-generated “GSE systemic risk noise” for the past five years and it was the Wall Street guys who needed bailed out and who were allowed to grow risky because of Greenspan indifference and lax regulation elsewhere.)

The Banking Committee proposes a new GSE-financed dual purpose “housing fund” first paying for FHA losses and then, in later years, offers entitlements to state housing agencies and non-profits for rentals units. Based on a percentage of their annual business, the Fund could cost the GSEs upwards of a half billion dollars annually. As a further poke in the eye, the Senate tells the regulator to make sure that the GSEs do not raise their prices to pay for the fund. (I guess “market forces” and “profit and loss” don’t matter when you are in charge of fashioning a bipartisan legislative deal.)

Both House and Senate bills represent the first serious structural changes in the company’s oversight since 1992, when their current regulatory regime was created.

I am not close to the GSEs or know exactly what either company is thinking, so I have to deduce the reason for their failure to scream their outrage and go head hunting.

My guesses: It’s either the action of wily foxes-- unwilling to show their glee at developments—or the strangled noise of trapped desperate men, resigned to no help or hope and just wanting the pain to go away.

Which is it, since there is evidence for both interpretations?

Hurt or Faking Pain?

First, the “Maloni dark side interpretation,” the doom and gloom answer.

I see little value and many bad things in the Senate Banking Committee legislation. If it becomes the law and the GSEs face higher costs and more interference, I doubt whether the fettered companies simultaneously can carry out their housing missions, exert managerial discretion, be market responsive, and still generate profits for their shareholders and capital account.

Right now, it looks like a big fat crap sandwich that neither company has the ways or will to defeat.

The GSEs have no consistent Hill or congressional allies to overturn the results and have themselves to blame for letting their historic industry trade allies go hither and yon, occasionally even lobbying against them (see NAHB).

No longer is there a reliable “housing coalition” willing to combat bad GSE legislation. The various housing interests, which often acted in concert and covered each other’s back, now pursue their own agendas and seem to have forgotten that they had better “hang together or will hang separately,” as Ben Franklin eloquently warned Americans more than 200 years ago.

Minority housing aspirations, manifested through the Congressional Black Caucus and the Congressional Hispanic Caucus positions, do not appear paramount nor do the two caucuses seem concerned by the fact that hobbling the GSEs just will make it tougher for many of their constituents to achieve their homeownership needs.

The GSEs current regulator, Office Federal Housing Enterprise Oversight (OFHEO), has successfully limited the GSEs congressional relationship building and GSE docility and acquiescence have aided the agency’s ultimate objective, i.e. insuring there is no willing congressional support now that the GSEs’ fates are on the line.

No major newspaper, magazine, or network thinks Fannie and Freddie do anything of real value. The media are comfortable naively assuming that the GSEs can be replaced by commercial banks, since neither company has conducted an active campaign to change that misperception. Freddie tries, but Fannie seldom even talks to the media, preferring to hide behind the “no comment” approach, which must warm the cockles of OFHEO’s heart.

As hard as it is to accept the lack of congressional support for their statutory housing missions and the new Hill attitude of “let’s treat them as cash cows and take what we can, while we can,” it is the possible dissolution of GSE executive will to continue to fight back that should most concern the companies’ shareholders and their board members. (Read that line carefully.)

Harsh Speculation

There were ugly sub rosa allegations last week about the CEOs of both companies capitulating and having “short timer mentalities.” Critics claimed that Dick Syron and/or Dan Mudd (it’s tough for one to advocate successfully anything the other doesn’t want) no longer opposed the brazen invasions of their corporate treasuries and their management prerogatives. The two GSE officials were described as “tired of conflict” and wanting the legislative exercise just to end quickly. It was whispered that each was looking to leave his job and get on with their lives and careers. They’ve been made quite wealthy by their GSE service but it also had battered them emotionally. It was time to “end the eternal conflict.”

Supposedly the GSEs rejected some offers of Senate political help because the GSEs corporate leadership said the “bill is fine” and/or “we’ll be fine.”

Are Syron, Mudd and the companies just resigned to defeat or are they just very skillful and superb poker players, since there is another possible explanation for their “silence?”

The Glass is Half Filled….

The “Maloni happy analysis” is that the reluctant GSE voices could be wise and sage like, not worn out husks, believing little white political lies to make their sleep come easier.

They see the Senate and House bills as rife with problems yet rich with opportunity, not hemlock cocktails.

While you can’t be happy about excessive regulation, bureaucratic interference, posting much higher capital, and having $500 million per year expropriated from your working funds, you can accept it if most of the following occurs.

First and foremost the legislative assaults end with passage.

The Sen. Dick Shelby (R-Al.) “use Fannie and Freddie to bail out the FHA losses” provision ties the GSEs ever closer to the federal government--moots the “not the full faith and credit of the federal government” charter provision”—and when the companies borrow in the international credit markets, their debt costs narrow and are closer to Treasury rates than they ever have been, which produces huge savings for the GSEs.

(The irony is that Shelby, promoted his FHA fix saying, “I don’t want the tax payers picking up the tab for FHA losses.” But his actions become precisely that, as the market players wink at one another, see the role the new congressional role the GSEs now will play, charge them less for their debt and pay them more for their mortgage securities, because the legislation ties them closer to “full faith and credit.” The markets also remember the Fed’s Bear Stearns mouth-to-mouth exercise.)

Because leaders in both chambers want a GSE mortgage ceiling increase, for back home consumption, they add necessary langauge in conference or on the Senate floor, the legislation ultimately gives both companies, as well as the FHA, permanent authority to finance previously “jumbo” mortgages, as large as $700,000 or more, opening a major expansion of the conventional market to the GSEs, adding to their dominance and income.

Markets being what they are, the US mortgage market comes back and the GSEs resume their old time magic, new rules, new regulator and all.

The superior attraction of Fannie’s and Freddie’s “red, white, and blue” securities—thanks to Sen. Shelby--keeps their growing market shares high and their prices gradually are boosted to pay for all of the new bells and whistles the legislation inflicts on them. Already major corporate federal taxpayers, the companies may pay the government higher “homeownership taxes,” but, at the end of the day, the companies are richer, fatter, and their shareholders better off than before.

It also will take some time—certainly if there is a new Democratic Administration--to settle the new overseer and get out all of the necessary implementation regulations. In the interim, that job could fall to OFHEO, which the Congress’ very actions scream never was up to the job. “Ptooey” on you, OFHEO!!

Maybe that’s why the Fannie and Freddie heads are quiet? They see some managerial grief in the Senate bill but also vibrant growth, not the rusting away of two former corporate housing behemoths.

I hope so. I hope that’s the correct view and that the housing execs have the last laugh, after the Congress has tried so hard to damage the companies.

It would be a shame if the corporate leaders had wanly abandoned their fiduciary and managerial responsibility and given into Administration and congressional thugs stealing the GSEs corporate legacies, their corporate futures, and the American public’s housing dreams.

Maloni 6-2-2008