Thursday, September 10, 2009


A few days ago, the Mortgage Bankers Association (MBA) unveiled its plan for the future of Fannie Mae and Freddie Mac. The trade association would turn Fannie and Freddie into smaller privately owned organizations which would issue not private but federally backed mortgage guarantees on conventional mortgage pools.


Private entities don’t issue federal guarantees, which is why they are called “private.”
But a “federal guaranty” on a pool of “conventional” (not explicitly backed by the government such as FHA or VA loans) would sure be attractive for the issuer, meaning the mortgage bankers, virtually of all which today are owned by large commercial banks.

Simply stated, the mortgage companies and their “always with their hands out” large bank owners just want another sweetheart financial arrangement, using Fannie and Freddie and taking Uncle Sam’s money.

I’ve noted that the MBA should long ago have been taken in by the American Bankers Association (ABA), since “independent” mortgage banks ceased to exist when the large banks bought up all of the large mortgage companies.

MBA is a faux branch of the ABA and I hope most congressional policy makers realize that fact. Those Members and Senators—and their staffs--should make it a practice to ask “who owns you” to every visiting mortgage company exec, to see the reality of who is seeking what.

For years the MBA worked in league with Fannie and Freddie, but most of that stopped when the two major mortgage investors began introducing automated underwriting and massive systemic efficiencies, which were wonderful for consumers, but deadly for lenders who often found ways to charge unknowing mortgage borrowers for market inefficiencies.

When Fannie and Freddie started agreeing to buy lender loans within days and hours of being presented with the loan package, lenders—because of a competitive primary home mortgage market—couldn’t load junk fees onto borrowers, or the mortgagors would take their business elsewhere.

When that reality hit the mortgage market, the MBA suddenly found reasons to oppose Fannie Mae and Freddie Mac for all sorts of reasons.

The reality was that lots of mortgage bankers hungered for the old days when they could run up the cost of mortgage originations and make a ton of money on junk fees and other costs. But, the “new Fannie/Freddie mortgage technology world" turned ended that world.

To me, what is maddening about this latest suggestion is that the mortgage banker/commercial banker owners are looking for more tax payer financial support, to the billions they collectively have been given already.

Yet, they have largely failed at the one major mission which the Obama Administration gave them: restructuring or otherwise refinancing a few million underwater, upside down, and or otherwise salvageable mortgage loans.

I know why the mortgage companies and the banks don’t want to expedite this work. It’s not easy and it’s not profitable. Forget that many of these institutions—and their parents—already have been paid in TARP funds to do this one job, but it seems to escape their collective skills.

Which raises for me the same question I’ve asked before in this blog?

Why is the Obama Administration so accommodating of the large banks and their mortgage banking subsidiaries

I’ll repeat my “old West” solution to this vexing problem, since banks only respect regulatory power (which they constantly try and dilute).

Tim Geithner and Ben Bernanke need to begin chopping heads among TARP Fund recipient bank CEO’s and other senior financial institutions officials, who fail to move quickly enough on healing their share of this national mortgage problem.Set an enforceable goal of loans per month that the larger institutions need to restructure and then fire those TARP recipient CEO’s who repeatedly miss their respective goals.

The banks and their minions always will be first in line when Uncle Sam is giving out cash, but they hunker down somewhere—issuing press releases—when real work benefiting others is needed.

As I noted, the banks already have been paid by the federal government and likely will get more, so what’s wrong with our government demanding some accountability and insuring consequences when that minimal success isn’t forthcoming?


Jim Lockhart, the former Fannie and Freddie regulaor was quoted last week as saying the Congress failed to pass legislation needed to fix the two companies.

Typical GOP ass-covering.

Let me remind Mr. Lockhart that the most significant Fannie and Freddie problems—which occurred when Mr. Lockhart was the primary GSE regulator in 2006--were the massive purchases by both institutions of billions in poorly underwritten Alt A and private label subprime mortgages, which later heaved red ink.

Gee Jim, all of that mess happened during the Bush Administration, on your watch and, apparently, with your blessing. You objected to none of those acquisitions.When you were Fannie’s and Freddie’s regulator, you did enough damage to them. Don’t muddy the waters, further, with self serving falsehoods aimed at indicting congressional Democrats for your shortcomings and those of other Bush financial regulators.

Maloni 9-10-2009


John M said...

Hi Bill,

You must be feeling better. The above is a rousing rant :-)

I'm looking forward to the advent of all those little "Fragmies"

With the Fed's enormous portfolio of MBS, does that make them a GSE? Think FHFA is up to regulating Ben's flying circus?

Bill Maloni said...

I am feeling better, but not completely back to form physically.

And "No," certainly not with Ed DeMarco running FHFA.

Anonymous said...

The Motley Fool CAPS is giving thumbs up to the GSE's stock, even as they post massive losses. The reasoning is that the government has given indications that it will not let them go out of business, so odds of stock price going up are higher than going down. Besides the traders opinions, do you think that this could be a positive indication of the government plans coming up on February?
-Blue Agent

Bill Maloni said...

BA--Two things argue against that timetable, but not some form of Fannie/Freddie resurrection down the road.

2010 is a congressiopnal election year and Congress will be very slow to do anything dramatic with the former GSEs--despite the need--or possibly anything at all in the mortgage finance arena.

Many D's Congress--for the most part--engaged in the "demonizing the GSEs," most of them not knowing what the hell they were discussing, but not wanting to miss the opportunity to issue their vitriolic press releases--and it will be tough for those public officials to eat their words (many of which should be swallowed) and turn around--when they are going before their constituents in November--and say, "Now I have it right; we need some form of Fannie and Freddie."
The Administration would almost ahve to make this their #1 prioityin 2010 for it to happen.

With Afghanistan, Iraq, whatever is left of the healthcare fight, the growth of federal spending, energy policies, etc. etc., I can't see F&F becoming Obama's top congressional "ask."

But, that's what it going to take in 2010 to restructure F&F or even re-create new versions of the former, an exercise at which you would see Congress at its worst.

Before Barney Frank brought some sense and dignity to he House Financial Service Committee's proceedings, those hearings used to be called "the best free circus in town," because of the gaffes, gall and ignorance of a great many of its Members, on either side of the aisle.

Mnay of them got on Financial Services, not understanding squat about the jurisdiction(s) or how to hide their ignorance, but because you could raise a ton of cash from the financial and real estate interests whose business is heavily governed by Committee actions.

That hasn't changed.

It will take a major and spirited leading effort by the Obama folks, in 2010, to get some action of GSE renewal, or whatever they chose to call it.

Expect a lot of hearings, talk and some vague proposals discussed through 2010 and 2011, but pretty soon it will be 2012 a congressional and a presidential election year, when little grand succeeds legislatively.

Oh, on the valuation of F&F, read/google the stuff by John Hempton (an Australian) of Bronte Capital.

(Sorry to be so wordy!!)

Derek Pilecki said...


Wrote a rebuttal to KBW's report claiming the GSEs are worthless. Thought you might want to read it.