Sunday, March 17, 2013

Fannie Earnings

Lots of Fannie Mae Stuff Last Week;
Earnings, plus Mel Watt in, ED Out?

To the surprise of absolutely nobody, Congressman Paul Ryan's new budget contains very little that's is new, regarding fiscal or spending policies. It does contain the predictable  attack on “Obamacare;” proposes massive individual tax cuts for the wealthy; and seeks the end to Fannie Mae and Freddie Mac.

Ho hum!

If Ryan thinks this weightless document is going to give him 2016 GOP presidential nod, I can say with little fear, Paul Ryan will not be the next President when Barack Obama finishes his second term.

That belief has nothing to do with his desire to rid the world of Fannie and Freddie—the most predictable of the predictable GOP positions--but more about his philosophy, which easily is discerned in straining though his FY2014 budget document. It's the same positions and platform which buried Mitt Romney. Did Ryan learn nothign abotu the American people in that exercise?

It's is last November's losing manifesto, minus some explicit reference to “47%.”.

I've harped about one element of his platform but he repeats it in his current offering, no thoughtful
or creative aproach to restructuring the nation's mortageg finance system.

The GOP—whether it's Ryan, his AEI fellow travelers, or others starboard siders--has no viable plan to replace Fannie Mae and Freddie Mac with a market mechanism which works better, is more fair, more transparent, more consumer friendly, and more market acceptable (for mortgagors, lenders, investors, etc. etc).

The Grand Old Party can scream “private capital” and “get the federal government out, and let the banks do more,”but until there is any evidence that a new Republican mortgage finance policy amalgam could work, Ryan, Hensarling, et al are mouthing platitudes and fueling partisan anger not offering policy.

Maloni Speculation: Fannie Earnings and the Big Mystery

Last Thursday was to have been when Fannie Mae announced (substantial!) year end 2012 earnings-with a ton of signals from the market that the earnings would have been frothy and rich.

But, at the last minute the announcement was pulled and instead, the company issued a reassuring press statement that the earnings announcement was being delayed until the company could review related matters.

BOOM, the rumors then flew all around Washington and the conjecture began.

The best of them (maybe not the most accurate, but certainly the juiciest) was that Fannie had intended to take advantage of tax and accounting laws--specifically, it's deferred tax asset (DFA) account --and report a accrued $60 Billion item, which would have turned upside down all of the current thinking about the company's limited viability and capacity to repay money to the Treasury. (Some variation on the latter, involving $70 Billion in Fannie loan loss reserves also was brooded about.)

Utilizing that approach--for calendar year 2012-- also would have triggered a major “10% dividend payment” to the US Treasury, since for 2013 and beyond there is no dividend payments, just total a total sweep of all F&F revenue to Treasury, save a tiny margin for capital.

Even though, under a bizarre accounting arrangement reportedly hatched by Hank Paulson in 2008, nothing which Fannie (and Freddie) repays, reportedly, can reduce on Uncle Sam's books the amount the two “borrowed” borrowed from the Treasury.

But, observers were quick to point out that this possible one time $60 Billion matter, when added to Fannie's projected 2013 and 2014 earnings could be spun by some (many?) as wiping out the company’s Treasury debt in two years or justification for viewing F&F more positively.

Reportedly, last week's “skunk at the picnic” who stopped all things, was FHFA  Director Ed DeMarco. But no reason was given why DeMarco would want Fannie NOT to ship big dollars to Treasury's General Fund?

More will come out on this tantalizing mystery soon. (Tom Lawler, my former Fannie Mae colleague, produced a comprehensive and well written--meaning we laymen can understand it-- explanation of what policy matters may have caused Fannie to hold up.)

Unfortunately, Tom's work--in his Friday, March 13 daily newsletter--is a “for sale publication” and not on the Internet. But, if you find Tom’s work, read it and you'll be smarter for doing so.

FHFA Stops Fannie From Trying to Cut Borrower Costs

Speaking of Ed DeMarco, he's lost some lustre in my eyes when--a few weeks ago--he put a spike into a Fannie/Freddie plan to permit a consortium of insurance companies offer a new form of down payment protection, which most reports said would save consumers $600 or more annually.

What was that all about Ed? The only losers could have been one set of mortgage insurers losing some income to another set, who would have charged mortgagors less??
How does that weaken the entities you regulate?

It's almost as if some folks do not want to promote anything which makes Fannie Mae or Freddie Mac look too good in the eyes of the world. And behind that fear could be policy/partisan concerns about their resurrection.

But, let's be clear.

Fannie and Freddie, per se, are not what their opponents fear the most, in fact most could find an accomodative way to work with the two (as they do now).
The "fearful's" paramount fear would be the broad recognition for the federal government to play an active role in the nation's mortgage finance system.
That's what gives the bad guys “shpilkis” (Yiddish for nervous stomach or nerves.)

Is DeMarco Headed Out as FHFA Director?

Also at week's end, a viable story emerged—which was not denied by the Obama Administration--that the White House might be looking to replace “acting FHFA Director” Ed DeMarco with 20 year congressional veteran Rep. Mel Watt (D-NC), a long time House Financial Services Committee member.
Watt has enjoys a reputation as a good guy and smart Congressman, but has never been known as a mortgage finance solon or someone with a regulatory bent.

While the White House, before, has run names past Congress as DeMarco successors, Senate resistance generally has doomed those candidacies, since the Senate R's like Ed, while the WH would like to see him elsewhere in a different job or agency.

As someone pointed out to me, DeMarco is “acting” and he has civil service status. If Watt somehow got the big job, Ed might just slide down to become FHFA's #2, which I believe would be intolerable for any new Director but which would keep DeMarco laboring still at FHFA, where the GOP wants him.

Not Dick Cheney, Who Would Have Thought It?

According to  George W. Bush senior speech writer David Frum's new book, before the Saddam Hussein war 10 years ago, Vice President Dick Cheney “had his eye” on all that Iraqi oil.

Does anyone think the outsized role Cheney played in agitating for that 2003 Iraq war may have anything to do with Cheney's business/heritage/cultural ties with the US oil industry, including the latter's beneficiaries and benefactors?

Maybe some AEI  foreign policy types could review that Cheney's personality component and see how it fit with that useless Iraqi war that Cheney and his neo-Con friends helped start?
You remember the one which cost so much in lost American lives, national treasure and international integrity?

Could Dick Cheney's Middle Eastern oil fascination have driven the Bush Administration to start a phony war?

IMO, that investigation/research would be an excellent use of AEI's resources.

Maloni, 3-18-2013


Bill Maloni said...

The "Mel Watt to FHFA" story emerged last Friday, after WSJ reporters Nick Timiraos and Alan Zibel got onto it.

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