Sunday, May 19, 2013

Mortgages and Stuff




When in Doubt, Whack Federal Housing Programs
No Matter How Hypocritical that Makes You Look

And the Return of the Hebrew Hammer, Blasting Away!!
 


I don't know David Stevens, President/CEO of the Mortgage Banker's Association MBA); don't believe I ever met him.

But all reports are that he's a smart guy and good guy (not all trade heads are). So with those two qualities in mind, it was both ironic and sad that he made the case for “more private capital in the mortgage market” at the expense of hobbling of Fannie, Freddie, the FHA and ultimately ultimately consumers.

The MBA once was hip joined with Fannie and Freddie, as well as the FHA and its securitizer Ginnie Mae. But then the group got greedy had and has conflicting interests among big and small companies about  surviving and making money.

A few years ago, the MBA overreached and bought a new Washington headquarters within spitting distance of the White House. But—most embarrassingly—had to unload it under financial duress and become..oh perish the thought...a commercial renter!

They Only Are Mortgage Companies

MBA's members are not commercial banks—despite their love of the generic “bank” name-- they are mortgage companies, which exclusively make mortgage loans, nothing more, and sell every loan they make to some investor somewhere.

They made their historical mark, almost 75 years ago, in 1939, when they leaped to originate the newly created Federal Housing Administration (FHA) 30 fixed rate, government insured mortgages, created by Franklin Roosevelt in the same legislation which gave bith to the original Fannie Mae as a government agency mode.

The old Fannie Mae—little changed until 1970-- bought those new loans (mostly from the mortgage companies), replenishing lender capital to make additional mortgages and held the mortgage loans in its government funded portfolio.

Mortgage banking flourished, especially after two and a half million servicemen and women returned after WWII and used their GI benefits on FHA and VA loans—then sold to Fannie Mae-- since those were easy tickets to homeownership.

It hard to argue that the MBA and its members owe their business lives to the federal government and continue to thrive from it.

(Prior to that Fannie execution, the mortgage companies would travel to New England selling their mortgages--with the back up docs--to insurance companies whose cash flow needs aligned with the monthly mortgage payments they bought from the lenders.)

Stevens Decides to Scorch Federal Supporters

Now David Stevens comes along, bemoans that Fannie and Freddie are crowding out the ”private capital” (presumably from those federally subsidized banks......think about that descriptor?) and sending tons of money to the Treasury.

Except, David, who/what is bringing that business to Fannie and Freddie...um commercial banks and their mortgage banking subs, since the two mortgage investors can't originate their own loans. Some lender, somewhere is making mortgage loans with their own “private capital” and seeking F&F help to securitize them.

Most mortgage bankers are subsidiaries of large banks, having been vacuumed up by the depository institutions, leaving a miniscule number of “independent mortgage bankers/companies” in existence.

That's in part why the MBA is riven.

The MBA now parrots the big banks and want less Fannie and Freddie and “more private capital,” as if F&F somehow are stopping mortgage companies and their bank parents from originating mortgage loans.

Twenty years ago, with F&F flourishing, it was a foot dragging MBA which railed against automated underwriting—because it squeezed cost from the system—cost which the mortgage companies used to extract from uninformed borrowers.

"Bright Line"

The MBA, for years, also argued for a “bright line” separating Fannie and Freddie in their limited secondary mortgage market space from the MBA members in the primary market space, from which F&F were barred by law.

This absurd campaign, again about money, was ludicrous because F&F never wanted or gave signals that it was hot to originate mortgages. They had squadrons of mortgage bankers doing it for them.
Mortgage loans require prioritization, ie. turning individual loans into mortgage backed bonds to make easy for investors to purchase and trade them. Creating those securities is what Fannie and Freddie now do.

But They Created and Sold Subprime, Unleashing Poison!!

Stevens calls for a common or single securities system and for using the “private sector’s systems development” expertise to shape the common platform, not exclusively using Fannie and Freddie technical skills.

David, most mortgage investors can remember back 7 or so years, which was the last bout of big time private label mortgage securitization (meaning banks skipping F&F involvement)--that was called the subprime era—and many investors still bear the scars and losses from broken bank promises, bank deceit and misrepresentation.

Fix that David, as in “Physician heal....”, and your other arguments might get traction.

But thundering against the federal government when virtually all of your industry's revenue comes from Fannie, Freddie, and the Federal Housing Administration robs you of credibility.

Also, blaming F&F for raising their G-fees is silly, when you know all of those decisions are made by their regulator or the US Treasury. If you don't realize that, maybe the MBA settled short on exec talent?

But the hoariest (word chosen carefully) explanation of Stevens rant is his bitching about the element which allowed his industry to thrive--federal housing support—he calls for reducing Uncle Sam's presence (it's all mortgage banker code) so the big banks and their commercial kids can charge consumers more.

What chutzpah!
 
Despite his talk Stevens displays a disregard for the home buying public, who are his members' customers.

The standardization, efficiency, transparency, and accessibility—which still exists in Fannie/Freddie operations—isn't there when big banks do their own thing, nor is the competitive pricing that benefits borrowers.

The good news is that most smart mortgage market observers see through the Stevens charade and realize that the MBA is just a version of “Big Bank Lite.”

The bad news for Mr. Stevens and the MBA is that some of his membership might not like where he wants to lead his group and could seek a more useful organization elsewhere.

The Hebrew Hammer Goes “Yard,” Twice This Past Week

In baseball parlance, “going yard,” means hammering a home run, that most glorious of batting efforts.

Well, my friend David Fiderer “went yard” twice last week, putting welts on the bodies of Fannie/Freddie critics, dissecting the “agreement” reached by “”Fannie Mae (not really, just the Federal Hostage Finance Agency on behalf of Fannie Mae), KPMG, Fannie's former auditor, and Judge Richard Leon.

Fiderer, a researcher supreme, whose pen is sharp, cuts into the agreement” (which still needs the Judge's blessing) and finds some fascinating linkages to prior Fannie/Freddie's regulatory office miscreants.

That link is below and is a tantalizing morsel of Fiderer's skills. Those individuals mentioned in his work might want to add to their insurance coverage or buy a protective helmet.




Last Friday, a more button downed Fiderer work appeared in the American Banker. This was a three decade clinical review of Fannie Mae mortgage lending, about which more lies have been than Wilt Chamberlain’s sex life. (A refresher: Wilt reportedly slept with more than 20,000 different women).

Fiderer cites Fannie lending data for three decades and sources it, pointing out who out there has misrepresenting the data to whip up political anger and why that spurious effort should be ignored unless you regularly wear a tiny tri-corner hat or are in the Tea Party.

Some Bank....

I received a bank notice and, promptly, two days later a check, from the large domestic bank on the east coast, which includes “bank” and “America” in its corporate title.

That bank—just like in the game Monopoly—had ”made an error in my favor” card, when it screwed up my refi some time ago (since refied, again, with another bank, which already has sold my loan to another servicer. And I would be the beneficiary of some of that bank's cash.

Thank you Mr. Bank and the federal government for making that happen.

(Bought some milk, bagels, and fruit, with the proceeds from that “error.”)


Bill's Book Corner

I want to tout two new books to you, written by people I like greatly.

John Buckley

Veteran novelist John Buckley and I bonded at Fannie Mae, years ago, when he ran Communications and I oversaw Government Relations. John's latest book is “The Geography Lesson.”

The Geography Lesson” tells the story of a botched 1968 expedition in which a National Geographic writer and photographer discover a magnificent Anasazi ruin in Southern Utah. Yet between the moment they make their discovery and their return some weeks later with U.S. government officials, the site is ransacked, and all its most valuable artifacts looted, creating a Washington kerfuffle that brings shame on the National Geographic Society.

Now, flash forward 40 years when Tim Prescott sees an artifact he last saw 4 decades previously and...you are into “The Geography Lesson.”

Anthony Marra

Anthony “Hal” Marra (Jr.), not only is the son of my neighbor and former Fannie Mae colleagues (Tony Sr.) and  his wife Mary, but I also was Hal’s street hockey coach, clearly seeing in his rugged play a talented young man headed for the Iowa Writers Workshop and with a well received and hot selling first book, likely—as I assured myself--because I took him under my wing and showed him how to throw a hip check on a tennis court street hockey pitch!

A Constellation of Vital Phenomena” is a love story set in war ravaged Chechnya and is a deep tome and riveting for such a yougn author.

Hal's book, just out, already has earned excellent reviews in the Washington Post and New York Times, with the latter calling him a “young Joseph Heller.” (I didn’t know Heller played street hockey.)

My wife and about 225 others showed up last week to DC's Politics and Prose book store to listen Hal's discuss his book  and to buy copies of  “A Constellation of Vital Phenomena.

Get both books, sit back and enjoy them.


Maloni, 5-20-2013




















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David Stevens said...

Bill, I think you are missing our message. We recognize these guys cannot stay in conservatorship. The path under the PSP is a wind down. Our plan calls for a system with explicit guarantees behind a mortgage backed security. We are advocating to begin that transition now....perpetual conservatorship is not an option.

Rob Zimmer said...

Community Mortgage Lenders of America has a GSE Reform plan that will shrink the GSEs but keep them intact to protect small lenders in the marketplace.

These mortgage bankers are also concerned about creating "scrambled eggs" in the US markets while not improving default/delinquency numbers overall.

See more: http://thecmla.com/pub/uploads/recent_efforts/CMLA_Task_Force_Paper_05302012.pdf

Bill Maloni said...

David--Thanks for responding.

I know the large banks have asked Congress to provide insurance or guarantees on their future MBS losses.

But, exactly, how does that get Uncle Sam out of the mortgage business, which is the big complaint from the Right?

If you are going to strengthen the federal presence in the market, why give those additional subsidies to the TBTF banks?

They did launch the assembly line subprime facade a few years ago--and, yes, F&F bought a ton of it, as did many investors worldwide-- but the big guys cannot be trusted to do anything but maximize profit, which is why they exist.


I also question the suggestion that F&F are keeping PLS securities, i.e "private capital, from the market. To not recognize other factors--including banks using F&F heavily generating those F&F profits--is somewhat disingenuous.


Given the querulous nature of this Congress and the fact, likely, that it won't change until one party controls the WH, as well as both congressional chambers, I think it would easier to use F&F's huge near term income potential to restructure/revitalize them--after they repay the Treasury--and allow F&F to serve as they once did, again with soem limitations.

That mortagge model really served everyone quite well and stood in the way of TBTF domination of the nation's primary and secondary mortgage markets.

I also think that idea might have more appeal to a majority of your members than other schemes.

Robert Mae said...

'Tons of it'

There you go again, Bill :)

Very good post and links today. Kudos!

Bill Maloni said...

Agreed, since I've stated/written it many times, but I don't believe those purchases can happen again under the current regulatory regime (part of the reason their books of business are so solid) and "that 2004 management" made grievous errors.

But, those problems have been fixed and now they should be permitted--with some operational changes--to get back to their business.

BTW, I rooted so hard for cooler weather for you that I lost my mojo in the final 30 seconds of last night's Pittsburgh-Ottawa hockey game, causing my Penguins to lose in overtime.

I hope you appreciate my sacarfice.

Robert Mae said...

B's vs Pen's to make you feel better. looking that way, anyway.

Bill Maloni said...

Grew up in Pittsburgh, but last night's loss was hard to take given they were up, had the man advantage and gave up a "shorty" with 30 seconds left.

I hope you are right about the Eastern championship.

Superb game tonight between Wings and Hawks.

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Robert Mae said...

I love PA, Bill. Born and raised in Boston, but a PA resident for 6 years. Now in TX getting more comfortable listening to Waylon Jennings channel on Pandora. Yep, I'm a real cowboy, I am - heh.

Bill Maloni said...

I always thought of Houston as "40 square miles of kitty litter" and Dallas and its people as "uppity
nouveau riche" and that was the good news!


When does your sentence end?


Seriously, I mett and worked with several sharp political operators from Texas, which soon should see a revival of the D's in that state

as black and brown voters begin to throw around their registration weight.

But, Boston ain't bad.

Does look like the Pens and B's in the eastern championship series.

Robert Mae said...

Houston is a dive, and a nasty, muggy, crime infested one at that. I'm in East Texas' dry heat for a couple of years. Here with the cowboys and gals. The largest fracking success on record started up 2 years ago and this place is overflowing with cash. It's like Bernanke's America with jobs!

Fannie and Freddie!

Robert Mae said...

West Texas

Bill Maloni said...

You and North Dakota.

Fracking may be a substitute for the great job creation public works plan, which everyone talks about but that's all they do.

Grew up in Pittsbrugh and went too long before tryign to buy some shale rich acreage (West Virginia and New York)...it's all under contract.

So many "wealthy" young folks--including two nephews--who are making great lease income from their "hunting camps" and still can go there and shoot.

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