Saturday, November 24, 2012

Summary Judgment

3 Strikes and You’re Out

Summary Judgment, Again

The “Mighty Casey” got three swings and after three strikes he was out, living only as a vague literary memory dragged out occasionally during baseball season.

Part of me wishes that becomes the fate of those remaining people who dislike or hate Fannie Mae, since much of their anger is based on trumped up allegations just now being exposed by the bright light of judicial action.
Last week, Judge Richard Leon (United States District Court for the District of Columbia) figuratively threw a third strike past a different “Mighty Casey” (my metaphorical Fannie haters) when he issued a summary judgment ruling for Leanne Spencer--Fannie Mae’s former Comptroller--removing her from an eight year old shareholders’ lawsuit, alleging Ms. Spencer, CEO Frank Raines, and CFO Tim Howard engaged in accounting and securities fraud.

Weeks before, Judge Leon had dismissed Raines and then Howard, sequentially, from the same suit for the same reasons. (Links to all three decisions are at the blog’s end.)

“Summary Judgment” is the Judge’s conclusion that a reasonable jury could not find sufficient facts or merit in the lawsuit’s thousands of documents, totaling 66 million pages of hearing records, to find the defendants guilty of any of the charges.

While I am most happy for my three former Fannie Mae colleagues, I remain troubled by the amount of systemic chaos the long hanging charges produced--clearly intended by those who manipulated the lawsuit’s existence-- and the fact that so little has been made of the efforts to sully the people charged as well as the place where they worked.

OFHEO Engaged in Politics Not Regulation

This 2004 law suit was based on a tortured finding by Fannie Mae’s safety and soundness regulator, the Office of Financial Enterprise Oversight (OFHEO) as it was known then, but now renamed the Federal Housing Finance Agency (FHFA), that senior company officials had engaged in securities fraud.

The history is, there was respect or love lost between Fannie and its regulator. Fannie believed the agency long was incompetent implementing the new risk based capital (RBC) mandate, called for in the 1992 law that created both the agency and a new capital design.

The statute called on the new regulatory entity to complete that RBC job in two years. OFHEO ultimately took 10 years, making a colossal mess of the project, often asking the two companies it was created to regulate to clean up and correct OFHEO’s technical failings and computer runs.

The “fraud” claim was a frustrated OFHEO’s suggestion that Fannie Mae, intentionally, had violated a new accounting regulation designed to “mark-to-market” asset backed securities, the price of which could fluctuating with interest rates many times during a business day.

But, in reality, the charge represented another clumsy institutional retaliation against Fannie, as well as some agency guerilla tactics, designed to bring Fannie’s management to heel. (In the same era and vein, there was a damming HUD Inspector General’s review critical of OFHEO maneuvering to bring down GSE share prices.)

Helped by SEC

Also in 2004--before the Fannie shareholders brought their suit--OFHEO’s finding was seconded by an even more bogus Securities Exchange Commission (SEC) “corroboration,” when the SEC acted as a vengeful White House political weapon.

Organized Fannie opponents made GSE disdain easier when they “helpfully” (to their cause) suggested to Congress and the media that what OFHEO and the SEC discovered was “Fannie Mae cooking their books and paying themselves millions in bonuses.”

After those incendiary charges hit and with no challenges to them--except from Fannie Mae--public officials ran from 20 years of Fannie and Freddie mission support or joined the lynch mob. Two decades of solid consumer and industry relationships, not to mention bipartisan political backing, quickly drained away from both companies.

Fannie business and ideological opponents used the reports to batter the corporation and—in a bizarre way--set up the crushing event sequence which bankrupted Fannie in 2008. Raines, Howard, and Ms Spencer had been forced out of Fannie Mae by the end of 2004, but--as now is well known--their successors engaged in very risky and questionable investments, buying billions in poorly underwritten Alt A and private label mortgage securities which failed miserably.

Until the recent Leon decisions exposed the hollowness of the OFHEO and SEC regulatory reports, only Fannie Mae--when the reports first were filed--and later Raines, Howard, Spencer and their lawyers battled the charges.

The Congress and even this White House may still have or share flawed GSE memories which fresh facts might disturb. Yet, at some point soon, these same policy makers claim they will make decisions about the future of the nation’s secondary mortgage market, Fannie Mae and Freddie Mac, and that means the continued availability of the 30 year fixed rate loan.

Ironically, with all of the talk of replacing F&F, it’s safe to say that Fannie Mae and Freddie Mac are going to be around awhile because they are needed, witness their heavy usage now even as government facilities.

When the government finally gets around to trying to help deserving cash strapped families, steadily paying on their underwater loans, it will be Fannie and Freddie assisting the Congress and the Administration--assuming the companies FHFA regulator doesn’t continue to oppose those actions--because so many of those mortgage are on Fannie’s and Freddie’s books.

With both companies generating solid revenue, now would be the time to help those underwater mortgagors since the companies could cover any marginal losses.

Read the Leon Decisions and Learn the History

Policy makers should understand the true history of the shareholder lawsuits, why there was little truth in the charges and why they were rejected by Judge Leon.

Knowing those answers should provide insight to those who will struggle mightily with the matter, if they remain clueless and don’t understand modern mortgage finance and/or still see Fannie Mae and Freddie Mac as evil doers.

As most in Washington know, “clueless” is not an uncommon or infrequent circumstance in the Congress (even among Democrats!), since many Members and Senators often are in the dark about issues on which they opine and then vote.

Let me throw a lifeline to those struggling in the waters of doubt and darkness, at least with regard to Judge Leon’s findings and why there exists so little familiarity with them.

One main reason is that DC’s leading newspaper, the Washington Post, has not reported on any of Judge Leon’s three pronouncements.

I’ve asked some of the Post reporters and even their Ombudsmen the reason for the “radio silence” on this positive development—especially since the Post has always been quick to editorialize against most things Fannie Mae—and I have received zero responses from any of them.

The Real Answer for the Minimal Media Coverage is…?

I did get a thoughtful opinion from a good friend who observed:
“From forty thousand feet, the interesting thing about this case is that OFHEO simply made up its fraud accusations for political reasons. All they had to do was to convince the media that their accusations were credible, which wasn't hard. Plaintiffs' lawyers filed their lawsuit thinking what OFHEO had alleged was factual. They had no idea it wasn't until very deep into the case, and by then it was too late for them to do anything other than to come up with the lame sorts of "proofs" that Leon eviscerated in his summary judgment opinions.

“In retrospect, it's no mystery why no one in the media wants to highlight Leon's rulings. The media was the group who got duped the worst by OFHEO's charade.”

Come on you in the national/political media, do you care to take a swing at any of these pitches?

In doing so, you could repair some damage done to people who were personally and professionally maligned and who suffered reputation and human losses.

You also might see the institution in a different light and unmask how much of the ugly tales spun successfully about Fannie Mae and its business operations, before the frantic 2005-2006 subprime purchases, were manufactured.

It’s not too late to fix this flawed understanding.

A falsehood may travel around the world while the truth just is getting its shoes on in the morning, but that doesn’t mean good people still can’t reveal it as a lie.

Maloni 11-25-2012




(Thanks DF for the links.)

Thursday, November 15, 2012

F&F Generate Solid Earnings

Fannie and Freddie and Some Election Leftovers

“Anonymous,” writing in the comments section of my last blog, requested more discussion about Fannie and Freddie.

I also wanted to note a few things which came via the Obama victory and the behavior of voters across the country, involving religion and marijuana.

Fannie's and Freddie's Positive Earnings Mean…..?

If you ask people who follow Fannie Mae and Freddie Mac what the future holds for the two, since both--as wards of the federal government--still dominate the national secondary mortgage market for conventional loans, the answers are many but similar.

“Leave them alone, they are working fine, not bothering anyone and they are paying back the government faster than anyone believed,” is the gist of most.

The federal government, beginning in 2013, will sweep every penny the two earn to repay their  borrowed Treasury funds, estimated at approximately $135 Billion outstanding for both. (Rough numbers: Fannie still owes @$85B and Freddie owes @$45B.)

Fannie’s regulator the Federal Housing Finance Agency (FHFA) estimated that the two entities could probably repay that amount in about 10 years, based on their current very positive earnings and the fact that each has told the government they no longer will require Treasury’s quarterly cash assistance.

Freddie’s 2012 third quarter earnings, after paying the Treasury $1.8 Billion, were a net $2.9 Billion. Fannie, the larger of the two and the greater debtor, netted $1.8 Billion after paying the government $2.9 billion in dividends.

One more quarter remains in 2012, which also should be a money maker, and then all of their profits go to the Treasury. Their 2012 net earnings stay with the companies and act as an additional capital cushion.

Again, discussion with some smart people about F&F’s future, range from nothing will happen because the two are making too much money for Uncle Sam (most), to a redesign F&F in a hybrid model (fewer), to full privatization and reactivation (fewest).

Pitching Out Bath Water and the Babies

The two do represent “golden geese” in a town where there ain’t many of those, and except for ideologues, recently, there have been no great calls for them to stop providing the huge financial support to the mortgage market they currently offer.

That might change when returning House and Senate Republicans (fewer in 2013) decide they want to pick a fight with the Obama Administration, but, again, most observers don’t expect that to occur or succeed.

At the other extreme are folks like me  who see the two—with a few legislative alterations—being able to take advantage of their serious and solid regulation and resurrected as purely private entities, raising their own capital with limited or no federal support and bringing fresh “private money” into the mortgage markets.

Given a now profitable Fannie and Freddie no longer borrowing but repaying the government, some see Congress looking at them as a possible “utility,” a candidate for some hybrid role, where the two (and others?) function as government blessed secondary marker principals but with limitations on how much they can buy, securitize, portfolio or earn.

Then there are the diehards who still insist that Fannie and Freddie should be figuratively burned at the stake for perceived transgressions.

Arguments used by the “obliterate them” crowd have been rejected by pretty important mortgage people, including the Federal Reserve Board, the President’s Financial Crisis Inquiry Commission, and a variety of noted economists and publications.

To be fair, with the political world focused on the recent congressional and presidential elections, this subject has not gotten a lot of timely attention, as Fannie and Freddie are further embedded in the day-in-and-day-out process of approving, via automated underwriting, and funding mortgage applications for million of American families.

The question of their fate and resurrection ultimately becomes a political one.

Can the new Congress and Barack Obama, who no longer has to fear reelection, quickly understand and disperse the many myths about Fannie and Freddie and begin to see them as part of a solution not part of the problem?

Ditch the Anger, Choose What Works, and Everyone Can Win

Can their more vociferous ideological enemies swallow some of that bile they hurled for years at Fannie  and Freddie  and grudgingly consider them in a positive light?

Can those same policy makers see the operational pluses that Fannie and Freddie offer and appreciate the systemic virtue of a smooth arrangement that Realtors, homebuilders, large and small community lenders, mortgage insurers, and consumers know and understand—a system which benefits them all currently?

I continue to believe the large commercial banks--which historically have been among Fannie/Freddie opponents--benefit from the model, because it allows lenders to quickly transfer mortgage risk to F&F, investors better able and more willing to manage those.

The F&F system is a familiar one that most mortgage professionals grew up with and work in today. But, for now, that system is financed exclusively by Uncle Sam’s dime and that needs changing.

I’ve read the American Bankers Association policy on this (important because all trade associations are “bound” by their policy statements, until formally changed) and I see no reason why  mortgage system professional  cannot come together-- before the new Congress cranks up in January –and shape a  draft bill which keeps Fannie and Freddie in place, but not as part of the government possibly transitionign from their current role.

The two companies first would have to repay the government or have in place an enforceable repayment agreement (think 15 year mortgage!). Like minded mortgage industry groups then could offer their idea to the Congress as a viable restructuring of the nation’s residential mortgage market.

I believe this can happen with the former GSEs not having any emergency ties or credit lines to the federal government.

General Petraeus

Few of us know much about this man’s personal life except what recently has appeared in the media, but one part of me thinks—after he and Mrs. Petraeus make a decision about their future together or apart—the United States government should find a very useful and valuable role for the General Petraeus’s military skills and expertise.

I still am confused (and likely dazed) over “Ambassador Kelley” and her request for diplomatic protection!!

Mormons and Our Religious Tolerance

Good for us.

After the Romney defeat, I remarked to a solid Romney supporter how impressed and pleased I was that during the Romney/Obama contest, I heard nothing about Romney’s religion or any aspersions cast by Obama allies on Mormons or the Church of the Latter Day Saints (LDS).

He agreed with me and noted there was some of that during the GOP primary, where Evangelicals and other conservative Christians had reservations and, in some cases, active opposition to anyone Mormon. Shame on them.

Maybe this past election did represent a forward step.

Pot's Future?

As both parties fight over fiscal cliff issues, I hope somebody is watching the forest and not missing it for those trees.

We have a rare opportunity to save a gazillion dollars and do the right thing.

For common sense, fiscal, and social policy reasons, I believe now would be a perfect time for the Congress—and the President—to kick the shackles from some backward thinking, follow the leads of Washington state and Colorado and endorse the decriminalization of marijuana, emptying our jail cells of anyone found guilty of a marijuana possession crime and offering a national recreational use plan to regulate and tax the weed.

Cleaning marijuana offenders from our penal instituions would save billions in local and federal dollars. Stopping the criminal pursuit of pot users and suppliers (with some caveats regarding the latter) will allow our police to concentrate on serious crimes and also save money. It could moot a huge portion of the Mexican and South American drug production problem, by substituting approved legal US domestic cultivation and sales, which be  supervised.

Regulating and taxing "grass" will boost Treasury revenues by untold billions and finish the farcical and delusional efforts to replicate alcohol prohibition of the 1930’s—which also failed.

This federal windfall will be welcome deficit reduction and allow for thoughtful health care for those—not unlike some alcoholics—who over indulge in smoking pot.

One Final Thought

Don’t sweat the “fiscal cliff.” The President sand Congress will reach an acceptable accommodation that won’t all be about CYA.

Maloni, 11-15-2012

Friday, November 9, 2012

Obama Wins

Nobody Messes With Big Bird,
Donald Trump Tweeted What,
And Karl Rove Argued What?

Barack Obama Gets Re-Elected

Barack Obama won the big job, again, to the chagrin of about half of America, who really aren’t losers. They’ll grit their teeth, move forward and benefit with the rest of the nation when leaders in both parties decide to act as adults and start addressing serious national matters, a process which begins soon.

For the good of the nation, there were lots of losers in this campaign, not just Mitt Romney. It will be interesting to see if their wasted efforts produce any tune changes.


Donald Trump may have succeeded in doing something anatomically impossible when his election night tweets about starting a revolution and marching on Washington, made himself an even bigger ass than he’s been in the past.

Karl Rove looking like a simpering toddler--who just wasted $300 to $400 Million of someone else’s money--whined on Fox News that it was too early to call Ohio for Obama (when there still were at least 14 or so votes yet to be counted).

Poor Karl. Can you please just go away and hope that folks won’t remember your near emotional breakdown or your empty prediction that Romney would get 300 Electoral College votes?

The Koch brothers wasted a lot of money, but they have a lot to waste and they never will be poor or voiceless in DC, as long as there are mercenaries for hire. My only wish here is that President Obama has a good memory and is prepared to go medieval on the people like the K sibs who tried to buy this election for Mitt.

Sheldon Adelson, I care less about, because he is a 150 years old, has orange hair; soon six Elvis impersonators or 4 really strong showgirls will be carrying him by the handles out of a Las Vegas funeral parlor. (Don’t forget it was Adelson who paid for the 30 minute attack video on Bain Capital, with which Newt pummeled Romney in the Primary and the D’s milked for use in the general election. With friends like him….?)

Recalculating their political approaches applies to several major industries and their trade associations. They know very well who they are, as does the Obama Administration.

If you are going to poison the King, you better kill him because payback is a bitch!


Besides President Obama and the American people, let me note an unsung hero who many Obama voters should thank for his early contribution which helped produce the Romney defeat, and that’s James Carter IV.

President Jimmy Carter’s grandson was the oppo researcher instrumental in getting Mother Jones reporter Jim Corn together with the individual who had taped Mitt Romney patronizingly dumping on the “47% percent of Americans.”  The people Governor Romney disdainfully said relied on the federal government for their existences and wouldn’t change that status if they could.

Corn’s story--when the video went viral--allowed America to hear Mitt Romney’s actual candid assessment of individuals and families not born wealthy but who earned or needed some of Uncle Sam’s help.

That gibe spoke broadly of the candidate and his party and they reinforced that bias throughout the campaign.

When the GOP Candidate realized that he dissed millions of senior citizens, injured veterans, college students and other voting constituencies, whose support he needed to knock off a sitting president, Romney tried and failed to walk back his remarks.

Thank you Jimmy 4 for helping bell Mitt Romney with the “47%” insult!

You’ve Read and Heard This, But…

In the wake of Romney’s defeat, you still have some prominent R’s claiming no changes are needed in their party, just a better get out the vote effort. They say the party of “no” still has winning ideas and principals, if not principles.

But, I don’t buy it.

Republican and Democrats alike will offer dozens of reasons for the GOP loss, including Romney’s shortcomings, Hurricane Sandy, whackos making idiotic comments about rape and abortion, and much more. And to some extent they all will be right.

But today’s GOP—unless dramatically reconstituted and ”darkened”—will lose lots of future races until it recognizes where the demographics of this country are headed.

It’s no secret, our nation is fast becoming black, brown, and less white and any political party which largely stays white is not going to prevail, except in smaller bits of geography where Caucasian voters might be a majority.

And while Marco Rubio, the GOP’s, great Hispanic hope is a shade darker than most R’s, he is Cuban by heritage, and may not connect with millions of non-Cuban Hispanic families they need to woo. (Sshh, don’t that to Reince Priebus--once named “Klaatu”--who thinks all Hispanics are alike.)

It’s not just “color,” it’s the GOP's institutional appeal. The GOP for generations has stood by the “wealthy” and the “haves.” For it to matter nationally, it has be more ethnically inviting and willing literally and figuratively to spread that wealth in more than just a public relations sense or the Republicans risk achieving "electoral runt" status.

That was true on Tuesday and it will be truer in two years when the Congress and Senate run again. And, it will be truer still in 2016, when Hillary Clinton might decide to grab for the brass ring.

A more moderate GOP doesn’t need to be a Democrat-lite facsimile. It could hold onto historic smaller government and greater entrepreneurial discretion doctrines, which might make each side work harder for the votes they get because the choice wouldn’t be so stark and ideas and principles would matter.

Going into this election the public was hurting with the economic dislocation which President Obama’s polices did not solve for enough people.

Democrat and Republican families were angry, confused and ripe to support whatever was necessary to improve their situations including voting for the Republican presidential candidate.

GOP's $$$$$$=Nothing

The GOP had more money than Midas and a SCOTUS ruling which allowed all of those corporate giants and industry groups to feed major anonymous money to their candidates and their causes, but it produced nada.

After a Primary featuring a variety of Lilliputians, they settled on a multimillionaire, who was willing to take both sides of any issue pretending he never flipped, and a man --despite his best efforts--who could not connect with those most suffering.

His party’s platform didn’t make that task much easier.

The Republicans uttered God’s name—blaspheming, aimed at Democrats--more often than a thousand southern cheer leading squads praying for a big game win.

God answered with “Hurricane Sandy.”

The voter dogs--including millions of GOP voters who had gone to the polls in 2010, but stayed away this week-- just weren’t eating the Republican’s electoral dog food and won’t until the GOP leaders change the flavor, the portions, and the content.

The “Cliff”

I had to laugh—ruefully since my retirement funds took a hit—at the stock market’s Nov. 7 reaction to the Obama win.

The market drops 300 plus points and 100 more the day after, as apologists cited fears of the “fiscal cliff.”

Bull dung!

The fiscal cliff has been around for most of this year—with everyone knowing that a premeditated “after the election” fix was planned--yet the market did pretty well before the election with that resolution just pending.

The loss just was the moneyed interests wetting their collective pants over the President’s win.

Maybe Wall Street just realized the implication of throwing all of that money into GOP coffers and betting big against an Obama second term?

Oh, maybe the specter of Sen. Sherrod Brown D-Ohio) and Sen. Elizabeth Warren (D-Mass.) as twin voices for financial reform and consumer protection just represents heartache for the big guys, when inevitably those two get to work on the Senate Financial Services Committee.

My Hope for Speaker John Boehner

Don’t worry boys, the fiscal cliff will be avoided, with program/spending cuts and new revenues leavened with the realization that you can’t cut federal spending too much before private investment really kicks in.

Maybe—just maybe—the White House, Senate, and the House crazies (as they have to be labeled for now) will build on that agreement to grapple with some other serious issues facing the nation, including job creation through the private sector and tax reform.

I believe that John Boehner will step up and lead the GOP in doing its necessary share to make sure there are no major cliff casualties.

My advice to both parties is let the Bush tax cuts die at the end of the year and go back to the Simpson-Bowles recommendations for domestic and military cuts.

Who knows what good, minds unburdened from trying to defeat Obama, can do once they cooperate to solve issues which vex Americans in both parties. They may even come up with some good ideas about Fannie Mae.

Maloni, 11-9-2012

Wednesday, November 7, 2012


New post-Obama victory blog in the works!!

Monday, November 5, 2012

Romney’s Taxes (redux)

(addendum to 11-4-2012 Blog)

Sunday, November 4, 2012

Some Recent Stories & Columns
As You Choose Your Candidate

I’ve previously noted my intention to vote for President Obama, but I have selected  a potpourri of recent media items, if others want to read/see them before they go to the polls on Tuesday.

No Matters Who Wins; Party Splintering in the Offing

Mitt Insults Voters

Katy Perry Campaigns for Obama

A White Man for President

Women Should Be Concerned Over Romney Win

Chrysler Exec Nails “the Donald” (and Mitt)

Mayor Bloomberg Endorse Obama

Hill Republicans Try and Shut Down Critical CRS Tax Report

Paul Krugman on GOP Blackmailing the Nation

Chris Christie Lauds Obama for “Sandy” Response

Maloni, 11-4-2012