Thursday, August 25, 2011
A Future for Fannie and Freddie??
Last week, the Washington Post carried a front page story, by reporter Zach Goldfarb, suggesting that the Obama Administration was moving closer to prioritizing a role for the federal government in the nation’s mortgage finance system.
That development also could mean that Fannie Mae and Freddie Mac might be active future market players, likely with different names and/or business limitations, in a second Obama Administration.
There were no specific details about future GSE activity just the suggestion.
Here is how Bloomberg covered the same story.
“The Obama Administration is working on a proposal to maintain a large government role in mortgage finance, effectively preserving most of the functions of Fannie Mae and Freddie Mac, according to a person with direct knowledge of the effort.”
No sooner had the Post story circulated then the White House media spinners beat down speculation saying no such decision had been reached and the President was not ready yet to choose between previously announced policy options such as doing away with F&F, privatizing them, or something else.
Yet, the Goldfarb story rings true to me and the first reason has nothing to do with Fannie or Freddie, but merely the journalism world.
Over the years, I am sure that the Post has written hundreds of stories like this. Often when an internal working group produces a paper which represents some slight or even dramatic shift from an existing public position—in this case February GSE testimony by HUD/Treasury—and word slips out, accidentally, or is leaked by an advocate or opponent of the new twist.
IMO, if the Goldfarb’s story wasn’t based on good sources and other support, his article wouldn’t have made it to the Post’s front page.
The other more obvious reason is that the White House people working on this issue have concluded that without a federal market presence, the United States will not have a smooth, efficient, standardized, consumer friendly mortgage finance system, guaranteeing the existence of the 30 year fixed rate mortgage.
Many right wing think tanks, congressional Republicans, and lots of Tea Party denizens still believe this is disastrous public policy.
Whatever shortcomings that Fannie and Freddie may have, the conservatives have no proof that anything else will evolve (nor do they seem to care), since their friends the banks are not obliging them with aggressive creative mortgage lending designed to crush Fannie and Freddie with vigorous competition.
The mythical private sector, i.e. large banks, investment banks, others, just have not stepped and actively made mortgage loans except to the best of credits and on the most favorable bank terms.
Everyone knows that Fannie, Freddie and the Federal Housing Administration (FHA)—two years after the first two were taken over-- are conducting about 90% of all of the nation’s mortgage financing.
Big lenders are originating very few loans which they can’t turnaround and shift into Fannie and Freddie securities.
I assume the Goldfarb story is accurate, but it won’t change matters, politically. As most observers believe, no major mortgage market legislative structural changes will emerge until 2013.
However, the news does underscore the following scenario. The Admin polishes its mortgage plan, one which acknowledges the need for a pronounced federal mortgage role and some business future for F&F. If President Obama wins the 2012 election, he will promote it as his primary mortgage market policy option in the following year.
If the GOP wins the White House next November, then the economic problems, including how to manage our nation’s mortgage finance system and real estate markets, become a Republican and—likely—a Tea Party problem.
What Wonderful Irony!
I retired at the end of 2004, but when I was in charge of Fannie Mae’s congressional relations operations I seethed at the incompetence of the Fannie regulator, the Office of Financial Enterprise Oversight (OFHEO), a name since changed to the Federal Housing Finance Agency (FHFA).
Having worked at two different financial regulatory agencies, I knew what good oversight looked like and seldom did I see the same from OFHEO.
Instead, I saw incompetence, lack of mortgage finance industry knowledge, and political shenanigans not befitting serious people but very much the behavior of fools and posers.
It never helped OFHEO/FHFA that the other Washington financial regulators never accorded marginal respect to its Director or senior staff.
One US Senator finally had enough of the “amateur hour” and sought a HUD Inspector General inquiry into charges that the agency was seeking to influence corporate behavior by knocking down Fannie and Freddie stocks prices, through an exercise of issuing negative stories on the eve of major corporate announcements.
The HUD IG’s finding, which never was pursued by the Bush Justice Department, suggested the questionable behavior ran up to the Director’s office.
The purpose of this brief history is to establish why I feel so good hearing that massive chickens now seem to be coming home to roost, with the work of Steve Linick, a career federal prosecutor, named as FHFA’s first Inspector General.
Word is that IG Linick’s work is creating great unhappiness and discomfort among senior FHFA staff as the agency’s top cop seems to be finding precisely the type of incompetence and agency (professional?) shortcomings which many of us lamented for years.
And he is sharing. Linick’s reviews are on the agency's website for all to see.
All that I can say, now, is, “Inspect away General Linick and with great vigor.”
If you have the time, sir, go back eight or so years and look carefully at the “accounting problems,” which OFHEO claimed it found in Fannie’s efforts to comply with, then, major changes instituted by the Financial Accounting Standards Boards (FASB) on how to “mark to market” a GSE securities portfolio.
(While I am not ready to claim I am “visually healthy,” my recovery from surgeries is going well and within the next two to three weeks, I hope to have the final surgery to Solve those problems. Thanks for all of the messages and inquiries.)