Saturday, May 25, 2013

If The GOP Doesn't Want Uncle Sam in the Mortgage Market,
Apparently Sen. Bob Corker (R-Tenn) Didn't Get The Memo

Unhappy Senate GOP sources leak provisions of draft Corker Bill to transfer Fannie and Freddie liabilities to Treasury and create new federal government re-insurer in their place

A veteran mortgage analyst, declaring his information "comes right from a dismayed Senate Republican source," told me Sen. Bob Corker (R-Tenn), senior Banking Committee Republican, is drafting a bill to replace Fannie and Freddie with a new federal mortgage insurer mainly to serve mortgage origination from the TBTF large commercial banks.
The Corker proposal also would direct "all existing single-family mortgage guaranty operations of each enterprise (F&F) transferred to the United States Treasury."
Further,the source says Corker's proposal declares that, "The full faith and credit of the United States is pledged to the payment of all amounts which may be required to be paid under any guaranty obligation assumed by the US Treasury pursuant to the transfer above.">
In a nutshell the report says, Corker, a conservative member of the Senate minority--which argues it wants Uncle Sam out of the mortgage market— plans to disassemble Fannie and Freddie, have Treasury put all of F&F's mortgage loan liability on the federal budget
and pick up the tab for any mortgage losses the big banks incur under Corker's new federal insurance/reinsurance arrangement.
What was not reported tot he individual who contacted me is the time frame for tearing down the old and constructing the new.
Does that sound to anyone like an infusion of private capital? If accurate, it appears to me that Corker's new private capital infusion has Uncle Sam's DNA all over it.
But, I wish I was a big bank!
Wait until the Tea Party gets hold of this news or the small community lenders, the Homebuilders, the Realtors and anyone else who thinks the nation's primary and secondary mortgage markets should not be controlled by the big banks who would receive additional federal subsidies.
Is Corker Betraying GOP Principles and Policy??

I have no idea, somebody should ask him him or his staff.

Corker might also be asked about all of those professed GOP skinflints? What became of that Republican outrage over bailouts for the wealthy Wall Street banks and investment banks?
If all of this surprising info holds true and the wing nuts start saying “Aha” to Corker, will he do a head fake, try and preempt the sputtering right wing anger, and say, “This is nothing but a discussion draft. My long term goal really is to..blah, blah, blah, blah, blah, blah.”
Oh, yeah!!!

Let me repeat, this is a report from an excellent source, hearing from disgruntled GOP interests in the Senate, who claim Senator Corker (R-Tenn), who has been talking for weeks with Democrats and other Republicans proposing legislation to demolish Fannie and Freddie, is near to finalizing his draft bill and expects to carve out a significant role for the federal government in it.
Stay tuned!!
(Anyone reading the blog and having questions this matter, don’t call me since everything I know is spelled out above. Check with the congressional office mentioned and the lobbyists around town.)

Maloni, 5-26-2013


Anonymous said...

Anything that isn't a reconstituted GSE is somehow a sop to the big banks. (What about Ginnie Mae?)

Is it surprising that a member of Congress wants to overhaul the secondary market while preserving the TBA market? Is it surprising that a member of Congress wants to do this without reconstituting the GSEs? And is it surprising that someone who opposes any overhaul of the GSEs would misrepresent or oversimplify the proposal?

Bill Maloni said...

Well, what about Ginnie Mae? Who uses it most, mortgage companies--most of which are owned by banks or bank holding companies--and to an extent the big banks themselves.

If I am the person you're referring to in your last line, you've misperceived me.

I have noted I would support some GSE overhaul if they were revived and identified two major changes
which already are in place, making them more safe.

If you understand the mortgage world then you must understand that the little guys are fearful of being gobbled up by the bigger banks.

The (big) banks which I never would call "private" because of their significant federal subsidies and advantages, now want the federal government to provides insurance on their private label mbs losses.

How is that progress and bringing in "private capital?"

They're just pigs looking for a bigger ration of slop.

How can you be so confident that this new reinsurance authority or whatever Corker might have in his bill won't encourage the banks to do exactly what they did with PLS subprime just a few years ago.

Neither of us knows if that will happen, but do you really want to sign up the taxpayer for that possibility?

I don't.

I believe you can have a better and more fair national

Robert Mae said...

So much preposterousness. From the treasury's already bloated balance sheet to the word "transference", eg, outright theft, to nothing changing except the sub-insurer, and that with concerns of any change bringing risk to a fragile housing sector, to the common shares doubling on this supposed proposal.

Question: Does your contact drink, Bill? Maybe heavily?

Bill Maloni said...

I think he does. I don't, though.

The US business community is so heavily enmeshed with the federal government's largesse that I can't imagine any practical form of disengagement.

You saw many in the GOP balk when proposed federal budget cuts were going to occur in their congressional districts and states, meaning their constituents, commercial interests, and contributors..

What's you plan to get from your (legitimate) righteous indignation to your better world??

Robert Mae said...

So doesn't that opinion, which I agree with, BTW, insure that whatever Corky proposes - as extreme as your contact suggests - will be ignored?

He wants to add $6t to our deficit, continue the govt's policy of lender of last resort, and trample all over the 5th amendment?

I don't think so, but nice try Corky!

Personally, I don't care what this guy says. I think he's a pion trying to make rank and is as disingenuous as that jap auto plant in TN proves him to be.

Bill Maloni said...

To be fair to Corker, I reiterated the source of the information and its nature; if what i was told was accurate, he could change it tomorrow and easily say what I wrote was BS.

There is, however, plenty of word that he's been working both sides of the aisle on F&F legislation, with Virginia Democratis Senator Mark Warner's name mentioned as primary co-sponsor.

Then this all could be a Corker ploy to get more status in his own party's inevitable debate about this issue, since he stands third in line behind Mike Crapo (R-Utah) and Dick Shelby(R-Ala.) on the Banking Committee and may be proposing something outlandish just to get additional attention.

Something like putting all F&F obligations on budget would certainly fit that category.

We'll see; nothing about F&F occurs quickly in this town and
it will take a lot to move something, since so many conflicting interests seem to have "stopping power."

(Did the rain help your Texas weather or just make it worse?)

Anonymous said...

In the 2013 "congressional justification" to Congress titled "Housing & GSEs" Treasury stated that the funding commitment was specifically designed to prevent mandatory receivership. Why in the world would a member of Congress now push legislation to do just that when there is no longer need for any funding commitment therefore no circumstances conducive to receivership? It is not insanity. It is an anachrony altogether!

Corker should have written this bill back in 08'.

Back then, Treasury did not want receivership... and he thinks now they will want it?

Robert Mae said...

Not surprised Warner is involved. Corky, he and Warren are all peas in a pod. Luckily no one cares what they think.

"Treasury stated that the funding commitment was specifically designed to prevent mandatory receivership". I'd like to see that language because as far as I know, the funding commitment was specifically designed to calm investors of MBS.

It's rained once since I've been here - last night when I was sleeping. Liking this joint.

Robert Mae said...

You never really speak of the preferreds or common, but for that one day when you would like to let me save you some time.

Anonymous said...

@ R Mae

The function of the PSPAs is to enhance market stability by providing holders of Fannie Mae and Freddie Mac securities with additional confidence that the GSEs will remain viable entities. This leads to increased mortgage affordability. This commitment also eliminates any mandatory triggering of receivership. To this end, the PSPAs are an effective means of averting systemic risk while at the same time protecting the taxpayer.

Robert Mae said...

Yes, I remember that language. It's not quite "specifically designed to prevent mandatory receivership" though. It is addressing investors of MBS, so, if it was preferred at that time or later (though not now, it's too late) that FnF enter into receivership instead, that's where they would be today.

Bill Maloni said...

Until a few weeks ago, there wasn't a lot of buyer interest in either the common or the junior preferred (Treasury holding the "senior"), but that has changed.

The entire "greater earnings"--as I predicted--is causing far greater investor interest, as well as all sorts of congressional consternation, on both sides of the aisle and Hill, and just adds to the speculation.

I continue to believe nothing of substance--certainly not major restructuring--will occur for three or more years, when the chance that 2016 elections could produce one party controlling both congressional chambers and the White House.

Robert Mae said...

I continue to believe that nothing of substance will ever be enacted, but I'm beginning to waver on the status of FnF stakeholders during the process. I use to think we were dead in the water until legislation decided something, now I'm not so sure.

Assuming Freddie applies its DTA's this year, in step with Fannie, it will have paid the treasury in full before Xmas, Fannie one quarter later. At that point, something will change. There's hardly a rationale for the conservatorship today, and there certainly won't be one then. I think this is something buyers of FNMAT (30% of face) are predicting as well.

We'll have a 4th amended PSPA this year.

Bill Maloni said...

If you look carefully at what I've written, despite the "low balled" official estimates, I agree with you on Fannie.

They have the option, by virtue of their earnings and unbundling excessive loan loss reserves, to repay the Treasury--or, as I like to address it, "that which is technically impossible, but practically possible--in this calendar year.

But, that reality still needs one political "horse" to announce that he or she--my choices would beBanking Committee Senators Schumer (D-NY) or Warren (D-Mass)-- will support some form of F&F revitalization to give it real traction.

Robert Mae said...

I think revitalization can be justified by addressing FnF's weak capital bases. Now that they aren't drawing from the treasury, and mostly because of that their draw allowance is actually shrinking (Fannie's now $83.9b), shouldn't there be a growing concern in the MBS market - especially if the FED is pulling its $45b - that they're undercapitalized?

The only way to bolster their capital bases is to rewrite the archaic 3rd amendment.

Bill Maloni said...

Think about that F&F mbs contingent financial obligation on the federal Budget, if Corker's bill succeeds.

We'll need to clone a second China from which to borrow!

Anonymous said...

What's the big deal with admitting some form of revitalization? Government will still be the largest shareholder and could still regulate further or partially reform not only the GSEs but also the mortgage market. Just replacing the sweep for a market yield for the Srs. will allow for trickling down any excess profits to retained earnings. Then, how could they not pay dividends to Jrs.? It will really be outrageous to continue to pounce on preferred shareholders who only helped funding the companies at times of distress (FNMAT).

Anonymous said...

What a great kick in the balls buyers of FNMAT received.

IPO'd in 5/08, $0.75 and 4 months later others bought it for $2 and change.

Bill Maloni said...

We (myself included) are doing a lot of projecting and speculating here about what the rush of new profits means for everyone involved

in the mortgage finance world, including the Treasury, preferred and common stock holders.

Many of us could sketch in delightful scenarios where our favorite interests, including the nation's consumers and lenders, succeed quite nicely.

But, everyone needs to remember that nothing changes the status quo until the White House (a different Prez in 2017?) or the Congress wills it and then makes it happen. Until that time, it all will be ad hoc.