Sunday, February 13, 2011

Great Stuff in Egypt and Some Squirrelly Stuff At Home

Tramp, tramp, tramp the banks are marching, watch them try to gobble all

With help from Timmy G and their PAC money invested in the GOP

The big banks hope the GSEs soon will surrender on the mall


In commenting on the Obama mortgage plan.

"The cost of mortgages is probably going to go up, and homeownership is probably going to go down," said Daniel Mudd**, the former chief executive of Fannie Mae who is now CEO of Fortress Investment Group. "Both of those things arguably could be a good thing."

This Past Week

Some truly amazing events the past several days, which herald both major positives for the world as well as some continued confusion here in the United States.

--EGYPT: Congratulations to the Egyptian people
for their brave campaign, peacefully, to rid themselves of a long time leader they felt no longer was doing the job.

I hope Mubarak’s departure allows his country to discover a true fledgling democracy-- which won’t be an easy process but is a highly desirable one-- and Egypt becomes a beacon for other Middle Eastern autocracies.

: A mini-revolt from conservative House Republicans--regarding contents in a GOP budget alternative--makes me hope these newbies stick to their guns (no pun intended) and insist of greater federal budget savings than either the WH or the Speaker Boehner seeks.

The only way to scale back federal spending is to bite the bullet and cut programs and expenditures which benefit people in congressional district somewhere. Entire congressional districts can't get exempted if the budget cutters take hold.

The new Members have less a vested stake in preserving some of these than their senior colleagues, in both parties--even those that benefit “back home”--and their Tea Party insistence on leaner federal spending could just be what is needed to shake up some of the more hypocritical comfortable congressional spenders.

Although I’ll be less skeptical when I see serious Ag and defense cuts approved by the House GOP Caucus.

: And finally, we had the Obama Administrations long awaited pronouncements on the future of the nation’s mortgage finance system and the fate of Fannie Mae and Freddie Mac. (I could write 10,000 words on the latter topic, but won’t.)

The Obama/Geithner Mortgage Plan

The Obama Administration’s and often delayed policy statement on the future of the mortgage finance system and, parenthetically, Fannie Mae and Freddie Mac.

I guess this finding really cleared things up, right? No, It didn’t.

I am tempted to say the Secretary Geithner labored long and produced a “mouse,” but since there are some alternatives listed in the very brief paper, they are better called mice. Very tiny and predictable looking “mice.”

What an opportunity and what a letdown.

Two groups in this town made happy with this thin gruel are the GOP—who will find something in there they can accept and then say “Obama agrees with us”--and, naturally, the large commercial banks, which once again has been gifted by their blood brother, Tim Geithner.

The new scheme would give the big financial guys access—both by enhancing their charters and reducing Fannie’s and Freddie’s—to the one part of the financial services market for which they long have lusted but never could control, Fannie’s and Freddie’s piece of the secondary mortgage market.

But—as we all know—the Devil is in the details and since the Treasury didn’t leave much behind except the mindless, “We want to get the government out of the housing business and make way for the private market, we will have to wait until a divided Congress, with factions in both parties and both chambers, decides what it is going to do with “Obama Plan.”

Fannie and Freddie Ain’t Leaving Soon

Because of congressional conflicts, elections, real estate market reality, and the existence of a few ideological foes confronting this “lay down,” I feel confident that Fannie Mae and Freddie Mac—as poorly as they are being run by the Treasury and their regulator, the Federal Housing Finance Agency (FHFA)—still will be with us, maybe for as long as six or seven years.

This Congress doesn’t have the market understanding, confidence, and deftness of touch to make major structural changes without producing a real estate crash that would fall on all of their “I hope to get re-elected” heads.

So, they will—as the Treasury did—punt to ball to future congressional session for a final solution. Ironically, every year they diddle will only make a better regulated Fannie and Freddie look like a stronger option.

That doesn’t mean they won’t be a plethora of congressional hearings, resurrecting the GSE carcasses and beating them up again, hoisting the same old lies and canards that have been around for years and —and mostly shot down.

We’ll see fresh, but not insightful, harsh rhetoric and hyperbole, preening for networks and cable for back home consumption, yawn, and yawn.

The simple fact is that the two entities they want to kill still are providing 90% of all conventional finance and there is no current viable alternative, and no certainty that which they might legislate can do the job, starting with even giving the large banks everything which they are seeking and that is a lot.

The Big Banks Still Want More

In case you’ve missed it, the banks have been lobbying for a newly created federal reinsurance program to cover mortgage related losses they can’t; a definition of “qualified residential mortgage,” with a very nigh down payment, meaning those loans without big down payments will cost borrowers far, far more; a significant cut in the size loan which Fannie and Freddie can buy, and giving the banks exclusive statutory access to funding those “non-conforming” loans.

The White House and Congress both already are lining up to give those things away. The only good news is that the banks have decided to wait a few weeks before seeking the “partridge in a pear tree,” which was on their original wish list.

Have We Become Ostriches and Fearful?

What might disturbs me the most and should rankle the public is the Administration’s hand wringing (add the Washington Post Sunday editorial, both written by folks who already have nice homes) and moaning about too much federal support for homeownership.

“Oooh, helping middle income Americans buy houses is a problem, let’s just stop doing that.”
Near sighted, near sighted, near sighted.

Ever think about really serious financial regulation or will Geithner and Bernanke now never crack the whip since they sent Paul Volcker out to pasture?

Did the subprime debacle—with Wall Street in the lead creating, originating, marketing, and selling, poorly underwritten, quick to default private label subprime securities all over the world—really emasculate policy makers and force a conclusion that homeownership is no longer important; that homeownership aspirations should no longer garner broad government support; did it obliterate the fact until recently most people understood that homeowners create neighborhoods, which create communities, which create towns—in which people who own their own homes are more civically active, vote more often, and whose children perform better.

Did the subprime debacle cause us to ignore that this same “housing industry”—sure now to suffer, because banks cannot or will not step up--created millions of jobs, making housing about 20% of our gross national product?

So, are we now going to hand all of that over to the large commercial banks—(just read the Obama and GOP plans, if you doubt me and think I am distorting)—which have no mandate to lend for housing, no mandate to offer 30 fixed rate mortgages, no mandate to serve minorities (don’t anyone say “CRA” the most toothless of fair lending laws), no obligations to lend in times of need, and which abandoned housing mortgage lending and the “jumbo market,” where they had no GSE competitors, when market risks grew?

Needed: Profiles in Courage

This is far less about Fannie and Freddie than what institutions do we, as a nation, trust to provide support to the residential real estate markets. Where are the Democratic descendants of Franklin Roosevelt, Harry Truman, Wright Patman, Sam Rayburn, Lyndon Johnson, who saw banks for what they were?

Tim Geithner and Ben Bernanke, with their trust and belief in big banks. do not speak for me. And where are all of those GOP voices supporting small businesses and opposition to financial conglomerates.

The Obama Administration and the congressional GOP now will move and trust all to the very large banks which—after being filled with taxpayer’s money by the Bush and Obama administration—refused even to lend any of those fresh new funds to small business people or those seeking mortgage loans. (Don’t we ever learn?)

Have the Banks Been Anointed?

Let’s see. According to "The Plan,” the Administration would force Fannie and Freddie--before they are forced to disappear--to raise their costs (see the section of increased F&F guarantee fees) to match what the banks charge consumers? The last time an Administration proposed that--Ronald Reagan in 1983--it was labeled a “homeownership tax” and quickly rejected.

Have all all Democrats fallen down the rabbit hole, with Alice?

Fannie and Freddie—with no real regulatory oversight—kept the banks and other lenders, often bank subsidiaries, honest, introduced efficiencies which kept market costs down, brought new mortgage products to market, and kept 30 year fixed rate mortgages alive.

The powers that be in Washington would leave no such institution or institutions on our real estate national scene.

That is a huge mistake.

I'll ask again, who will stop the banks??

Maloni, 2-14-2011

(**Dan Mudd’s shocking observation that it is OK that the Obama Plan will produce more expense mortgage costs and fewer homeowners was met with a large degree of hostility from former Fannie officials, with whom I spoke. They knew the seminal and disastrous role Mudd played when the company decided to pursue huge investments in Private Label subprime securities (PLS). “Contemptible and callous” were used repeatedly to describe the man who made the decisions which toppled Fannie.)


Anonymous said...

The Treasury's case for federal withdrawal from the broader housing market is that: " would minimize distortions in capital allocation across sectors, reduce moral hazard in mortgage lending and drastically reduce direct taxpayer exposure to private lenders' losses." The WSJ applauds this option because it will allow the private banks to finally occupy the GSE's role. I wonder if the GSE's portfolio investors will allow the government to sell it for 20c on the dollar. Who is calling the chinese ambassador? Ooops

Bill Maloni said...

I have a good friend who is a major "heavy hitter D," who has his own public affairs firm.

He cautioned me not to attribute too much to the "Democrats," since they have "not yet been heard."

Well, the White House has been heard and I certainly haven't discerned any dissenting opinions from House or Senate Democrats.

As I suggested the only ones who stop this train is the Congress fighting over how they should restructure the large banks new market. This legislative action easily could take 5 years or more, what with the congressional and Presidential elections next year and Congress up again in 2014.

Undoing Glass-Steagall took about 30 years of congressional consideration (putting the children of dozens of lobbyists through private schools and and college).

Anonymous said...

Game over:

1. Increased downpayment requirement to 10% can be done by regulation/conservator, no need for legislation.
2. Increased g-fees via higher capital requirements can be done by regulation/conservator, no need for legislation.
3. Lower loan limit, step one to $625,000, will be accomplished by letting current authority expire.
4. The portfolio -- soon to be known as "the bad bank," as owned MBS run off and delinquent loans bought out of MBS continue to be added -- will be wound down. When done, the shareholders can be extinguished and the resulting guaranty business brought into the Federal Government at little cost and without adding to the Federal deficit.

At that point, the Feds can determine how much of a role to let the GSE-like rump play simply by adjusting capital levels.

Game over.

Bill Maloni said...

I think you've discovered the not-so secret plan,