Unrequited Love??
I am quite jealous.
I admit it.
Ed Pinto of the
American Enterprise Institute (AEI) has been in the mortgage news a
lot recently (when isn't he?). Recently, he worried that demands to
loosen underwriting standards on federally related montages will lead
to a return of major housing finance problems, additional government
losses, and God forbid, possible resurrection of Fannie Mae and
Freddie Mac, the two mortgage entities which suddenly have become
valuable national and Treasury cash cows.
Ed has a huge
audience and a well honed PR machine, which includes the AEI's
communications apparatus and his own blog, so recently I politely
asked him—in an email—if he would consider putting some of my
prose on the AEI blog, just to give his posse another perspective.
I haven’t heard
back from Ed, but I am assuming that means his answer is “no.”
If Ed
had accepted my offer, here is much of what I would tell his AEI
audience (and him).
Maloni to Ed and
Peter's AEI audience
If the AEI, Ed Pinto and Peter
Wallison succeed in convincing Congress to excise the federal
government totally from the nation's mortgage finance system. I am
not as confident as they are that the surviving mortgage market would be
as fair, efficient, and accessible to most Americans as is the
current one.
Let's be honest, if there were no
Fannie Mae, Freddie Mac, and FHA, the mortgage market would be
controlled by the nation's largest banks and their investment banking
subsidiaries. There might be a few other survivors but none of any
size or clout to compete with the big six or seven bank holding
companies.
Great for the banks, but bad for
consumers.
When left to their own devices,
large banks lie, cheat, bully, and obfuscate. For proof, see $10.5
billion of bank regulatory fines paid in 2012; $9 billion in
mortgage settlements made with Fannie and Freddie, with much more of
the latter still pending in 2013; none of latter includes New York
state now taking out after two large banks for mortgage misfeasance.
That’s a ton of bank law
breaking and fine paying in a fairly compressed period. And most
seasoned observers understand that's just leakage from dodgy
operations.
If you can remember back less than 10
years, you can get a glimpse of what the Pinto-Wallison ideal
future mortgage lending machine looks like.
That was when most large
banks--largely left to their own devices by the “hear no evil/see
no evil” George W. Bush financial regulatory brigade--ignored sound
but exacting Fannie and Freddie automated underwriting systems, and
originated mortgage loans through bank-owned brokerage systems, which
employed lackluster bank underwriting standards, and produced
nearly a trillion dollars of worthless private label mortgage backed
securities” (PLS) and synthetic derivatives based on the same PLS.
The banks and their
minions—attaching inflated ratings from overworked and conflicted
rating agencies-- sold those worthless mortgage backed bonds all over
the world, infecting mortgage investors in every nation.
That simply is why the 2008
financial debacle was international, as a majority of those minimally
underwritten mortgages soon failed producing record losses across the
globe.
Now, Ed and Peter have told their
audiences that Fannie and Freddie failures caused the 2008 financial
Armageddon, a tale rejected by many credible sources in and out of
DC who showed that F&F's loans did not fail them, but their Wall
Street PLS investment did.
New managers at Fannie (and
others at Freddie)--beginning in 2005—rashly sought to recapture
“lost” market share and earnings by putting copious amounts of
“private label” mortgage backed securities in their portfolios,
composed of mortgage loans their own underwriter systems wouldn't
approve.
Ed, Peter, and I will disagree,
but what my adversaries can't rebut or ignore—as they try and foist
blame on the former GSEs--is that Fannie Mae mortgages (they seem to
enjoy railing at Fannie more than Freddie) and mbs, processed through
its proprietary underwriting system,
enjoyed minimal loan losses, measured in the fractions of a
percentage point, from 1990 through 2005.
All of that lending data is
public and filed with Fannie's safety and soundness regulator, HUD,
the SEC, the Fed, Wall Street investors, and appropriate
congressional committees.
I need to repeat for the
“government is evil and banks are great” AEI audience, that
sophisticated institutional mortgage investors worldwide heavily
bought PLS subprime, underwritten, created, and sold by those same
banks to which Ed and Peter now want to turn over the entire US
mortgage business.
Fannie Mae and Freddie Mac bought
the PLS poison, too, with those Wall Street bonds failing up to 10
greater than Fannie's and Freddie's securities of that same period.
Come on Ed and Peter, use your
facile minds to conjure a more acceptable alternative than banks only
running the US mortgage market.
Alas, obviously,
Ed didn't print my mini-tome, above. Maybe, sometime he will relent
and let me offer his readers a different point of view.
Until he does, it's your loss AEI.
Common Lending Platform
Fannie's
and Freddie's regulator, the Federal Housing Finance Agency (FHFA)
has been beavering away on to require to the two entities to give up
years of proprietary data, join and produce a common underwriting
platform.
I
suspect that some F&F officials believe their own system gives
them an edge and don't want the other guy to have what they have or
know what they know.
But
FHFA, either with an eye to merging the two (an idea which may not
warm the cockles of whomever succeeds Ed DeMarco, assuming the Senate
approves any Democrat) might be missing out on a wonderful
opportunity if they pursue this blending project.
The
“old Fannie Mae” constantly looked for tangible ways to cut
mortgagor expenses, earning broad kudos for reducing the actually
cost of getting a mortgage loan.
Well,
here is a Maloni suggestion for FHFA that could save most buyers some
time and $500 or more, earning your agency some much needed
goodwill!
To
the common platform with property information, FHFA is looking to
integrate all sorts of survey and buyer data.
This
new platform would have detailed information on a huge percentage of
all existing loans in the nation.
Given
that technology can massage/manipulate data and
produce very exact results, why couldn't FHFA urge F&F to use
that common mortgage finance data--which likely comprises
“comparables” from virtually every US neighborhood--and offer
consumers a bonafide house appraisal via a F&F seller servicer
for $50 or so.
That's
a lot cheaper than what borrowers pay now and leaves families with
more for a down payment, closing costs, or to pay bills.
There are probably additional overpriced homeownership products/services which constant review of fresh large data stores could uncover.
I am
going to duck my head before the appraisers (and the MI's?) start throwing brick
bats at me.
Maybe
Mel Watt will like it, along with mortgage principal reduction, too, he could make himself a star.
Maloni,
5-8-2013
7 comments:
Not sure if I agree with increasing FnF's footprint, but your point to AEI is perfect.
My point--if rational people ever make a decision here--is that something which looks like a Fannie or a Freddie needs to be in the mix for systemic reasons not
for auld lang syne.
Some housing economists should calculate the costs to the national economy of the current dysfunctional housing finance system. How many potential borrowers with good credit cannot find housing finance to purchase a home?
How much GNP and how many jobs have we lost because of a depressed housing sector?
Let's calculate the costs of doing nothing to restore a well functioning secondary market.
In other words, measure F&F bailout costs versus opportunity costs.
Have the Homebuilders, the Mortgage Bankers and the Realtors all gone to sleep?
Excellent idea.
Whose findings would you believe, the CBO, the Fed, Cato, Brookings, Heritage, the Homebuilders,the Realtors, or AEI??
The problem is that "the other side" likely would reject the findings of any of those institutions because of Washington's poisoned partisan atmosphere.
That's why I think it will take one party control of the Administration and both congressional chambers before anything substantive happens on mortgage finance or a myriad of other issues
Hello are using Wordpress for your blog platform? I'm new to the blog world but I'm
trying to get started and create my own. Do you need any
html coding knowledge to make your own blog?
Any help would be really appreciated!
my blog post: http://www.christkorner.com/Elaine44S
WOW! Fannie is bailing out the federal government!!!
Freddie's earnings and now Fannie's, a day later, not "repay" quickly what they were advance but also help the federal government with deficit reduction, as well as providing Treasury flexibility with budget/spending deadlines.
Those represent merely two of the reasons why nobody is quickly going to dispose of them. It make far more sense to figure out a way to re-engage them as privately managed companies and use them to serve the public.
But, when did logic and rationality ever influence partisan policy makers.
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