Sunday, February 10, 2013

Housing Hearings

The House R's Go After FHA;
Are Fannie and Freddie Next?

New Chairman of the House Financial Services Committee Jeb Hensarling (R-Tex) opened the hearing season with the first of a series of Committee reviews of federal mortgage support programs, kicking off with the media-battered Federal Housing Administration (FHA) programs. A witness panel featured mostly conservative FHA critics, including Ed Pinto from the American Enterprise Institute (AEI) (more on that hearing a bit later).

There also have been whispers and media speculation about future Hensarling hearings on Fannie Mae and Freddie Mac, those old devils we now know weren't such demons, but which many conservatives still hope to atomize and draw more “private capital” into the residential mortgage market,

More House bread and circuses and a colossal waste of time, only a bit of which is because the Senate will buy nothing “Hensarling” this year or maybe any year.

What Fannie and Freddie transgressions will House Republicans and their media and right wing allies claim and argue which they haven’t highlighted before?

Still Doing Business (And Lots)

The Committee should look around and note both shops still are standing, still are functioning, and—once their earnings are announced--both will send billions to the Treasury, suggesting many billions more.

How long will the GOP continue to fool itself that Fannie’s and Freddie's existence is stopping “private capital”--meaning cash from large commercial banks and their investment banking subs--from returning to the mortgage market?

Republicans at least should admit “private capital” largely is a misnomer when discussing US banks because most bank working capital comes from deposit insurance and other federal subsidies.

Chairman Hensarling, sir, you are asking the wrong questions and pointing to the wrong problems.


The US has dozens of commercial banks with rich deposit bases and broad mortgage loan demand, but the lenders only make loans they can sell to Fannie and Freddie, because they want to put those mortgages in safe F&F guaranteed securities for sale or to hold in portfolio.

BTW, Mr. Chairman, that bank behavior is why Fannie and Freddie still enjoy such robust business and will bring billions into the Treasury this year now that all of their net earnings are swept into the General Fund.

Within a few weeks, you'll get a hint of how much that mother load will be. And remember, each quarter their business books mature and produce more net profits.

In a time of budget tightening—as the GOP seeks--how will you replace those multiple billions which the two entities will provide this year and going forward, based on growing high quality business volume and marginal credit losses?

Reminder: Fannie and Freddie do not/cannot originate loans. All of their business is brought to them by banks and other lenders.

So, if you want F&F to shrink and wither away, suggest that the big banks stop using them and instead, hold on their own books every loan they originate, not run them through the the federal mortgage giants, which you continually disparage.

Problem solved, right?

Bank officals: "Harumph, haff kaff, uh, we banks can't do that Mr. Chairman, um, a too much risk. Er, remember the build up to 2008?"

Ask the Banks to Keep the Loans

So, the banks get a free pass and House R's and a few D's, continue to beat on Fannie and Freddie, call them names, repeat phony political analysis, don't read David Fiderer or my blog to get the straight story, and delude themselves that they are debating a viable alternative to the current system, which—with a few tweaks already described in my blog and elsewhere (Jim Millstein, CEO of Millstein Company) you could resurrect a Fannie and Freddie “model.”

Call them A and B, Laurel and Hardy, Ruth and Gehrig or the Steelers and Ravens, but if you clone Fannie and Freddie you would permit  the national mortgage market to sing with efficiency, again, since most of the old business risks have disappeared due to diligent oversight..

Congress has made some decent regulatory improvements. Sit back, understand them, and appreciate your work, before you follow your political instincts and try and disassemble today's operating system.

Oh and a word to the wise Financial Services Committee Members, when you hold your inevitable Fannie/Freddie hearings, save time don't invite anyone from the AEI to berate the two.

Only Francisco Franco is more dead than  AEI's touted/derided Fannie and Freddie research. Those efforts have been crushed by so many credible outside observers and government entities, that they now look like the Washington Generals after the fifth road game drubbing in a week at the hands of the Harlem Globetrotters.

And that won't change no matter how hard the AEI press operation pimps that work.

Pinto, the NAR and the FHA

I won't prattle about  Ed Pinto, except to say that, IMO, he extended a huge helping hand last week to the National Association of Realtors (NAR), when he and they engaged in a mini battle over Pinto's FHA testimony before the Hensarling Committee.

Before the hearing, the NAR put out a dramatic full page ad touting the virtue/value of the FHA's programs for mortgage borrowers with lower credit profiles.

The NAR's advertising was good, but it still was just another issue ad, which in DC come a dime for 13 and most often get overlooked or ignored in the flood.

Not anymore, Citizen Pinto did the NAR a monstrous good turn by lashing out at the ad through the AEI communications network and bringing far greater notice to that advertisement.

With all due respect to my Realtors friends, Pinto gave the NAR far more attention and eyes than their campaign would have gotten. But, take it you wins where you can.

Unlike the Washington Post, I don't hand out “Worst Week in Washington” awards, but for his nonstrategic rejoinder--which called attention to his critics positive FHA arguments--Ed Pinto, I nominate you for......................!

Oops, Caught You (Again) Bankie-Bankie

Another large bank, this one Royal Bank of Scotland (now called RBS), has come a cropper of the feds and is paying a $600 Million fine to US officials for its role in manipulating LIBOR (London Interbank Borrowing Rate).

Exposing aberrant bank behavior may just be the solution to the nation's deficit, if the Justice Department, Treasury and other financial regulators just keep charging these scofflaws mammoth fines.

Nobody should think this is an aberration. “Financial services is a “monkey see. monkey do” business. Banks know which of their peers are making money and how and, inevitably, will clone that behavior.

Most big banks are swifter and more nimble than their federal overseers. The regulators always are catching up to edgy bank revenue schemes, which sometimes are just criminal behavior (laundering Mexican drug cartel cash, facilitating loans and money movement for violent Middle Eastern regimes).

If the Fed, Comptroller and Treasury really cracked down and heavily fined bank transgressions,  they could generate major revenue from bank violations.

Fiderer's Corner

As long as David Fiderer keeps producing interest rich broadsides, I'll highlight, link or re post his work.

Last week, the financial world was agog with news that the Justice Department was moving against prominent rating agency Standard and Poor's (S&P) for creating inflated, distorted, and misleading mortgage backed securities ratings during the height of the subprime bond origination five years ago.

Justice declared those prime S&P ratings were fraudulent, helped obscure the securities poor quality, and cost investors billions.

The link below is to an “Op Ed News” column, discussing dicey rating agency practices and a letter, which Fiderer imagines sending to the Justice Department, almost 18 months before last week's S&P developments.

Fiderer never sent his hypothetical letter to Justice but the column did appear in October 2011.

Did David Fiderer blow a whistle on phony security ratings a year and a half ago to which nobody listened?

Fiderer told me he is writing a book about the rating agencies and their financial meltdown role.

Don't despair GSE fans, DF believes he has uncovered—and soon will publish—some pungent OFHEO skulduggery, which occurred before Ed DeMarco was named Director.

That can't be good news for some people still around town.

Maloni, 2-11-2013


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