Some Look at Corker-Warner, Say “No”
Two "thumbs down" articles--on the new Bob Corker (R-Tenn.)-Mark Warner (D-Va.) legislation, which would abolish Fannie Mae and Freddie Mac and replace them with a new Federal Mortgage Insurance Corporation (FMIC) designed to provide mortgage securities loss insurance after initial red ink gets picked up by lenders and mortgage insurance companies—are linked below.
Despite the fact the first article comes from old friend Alex Pollock at the American Enterprise Institute—which abhors Fannie and Freddie—Alex makes decent arguments about the false assumptions, likely pricing and cost involved in the multi-faceted Corker-Warner proposal, plus what it is and what is isn’t from an insurance perspective. All in contrast to what C-W’s advocates proclaim.
Pollock points out that despite the huge uprooting of core elements of today’s mortgage finance system, i.e. disassembling Fannie and Freddie, C-W doesn’t lessen federal presence in the mortgage market, just replaces two big dogs with a new one of equal or likely greater size.
Let me again add that Congress gets treacherous and goofy when it tries to write omnibus legislation. Attempts to do so often get festooned with lots of little “ornaments” that when time comes to excise them sometimes bring even wackier substitutes or additions.
It’s the legislative process that’s unpredictable more than the legislative issue.
(Pollock’s C-W article.)
In contrast Akhanthos Capital’s Michael Kao argues that the surest method to a smooth working national mortgage finance system is to permit some version of Fannie and Freddie to emerge from their federal penury.
The two would need to return all federal funds invested in them—which should occur in about a year--and continue to serve the conventional residential mortgage market. Compared to C-W, that approach could be the least disruptive systemically and—once much of the F&F disinformation and distortions are explained—would come closest to mortgage model I believe would work well.
Kao does not address the issue, but I think F&F could succeed, with no ties to the federal government, because they have in place the necessary mortgage systems, lender networks, commercial identity, consumer reputations, and the ability to raise capital, if Congress would allow them to evolve as every other financial services institution assisted by the federal government has.
(Kao’s C-W article.)
No substantive Corker-Warner legislative action will occur this year and, in fact, the far simpler and expedient Rep. Michael Capuano (D-Mass.) bill, allowing the former GSEs to repay the government and get on with their business lives is very consistent with what Kao suggests.
(Some vacation and then accompanying grandchildren, returning to the west coast from their time with their Grandma and me, means the blog likely won’t return until late in the week of 7-15-2013.)