Thursday, July 25, 2013

Summer Musings


 Advice For Watt, If He Gets Senate Nod 

Reportedly, the nomination of Rep. Mel Watt (D-SC) to become the Director of the Federal Housing Finance Board (FHFA), the Fannie/Freddie safety and soundness regulator, may come to the Senate floor next week. I don’t know if the R’s will force a 60 vote approval or Majority Leader Harry Reid (D-Nev.) can negotiate the easier “majority”—51 votes--treatment he got for Michael Cordray to head the Consumer Financial Protection Board (CFPB). 

Watt wins the vote with the lesser standard, but likely won’t get his new SW 7th Street job, if he needs the greater total.

I’ve written this before, but let me reiterate, I liked Watt when I lobbied him and thought he was an intelligent, good Congressman (meaning responsible). None of that marks the 20 year House Financial Services Committee veteran as a mortgage finance and securities expert/manager, able to analyze policy tradeoffs and competing industry interests.

Mel Watt will have to grow into that person, but—using traditional DC standards--the deficit doesn’t disqualify him.

If he’s started to educate himself in those ways, more power to him because it will reduce his inevitable uncertainty and policy groping. 

Suggestion to Heed 

When/If he secures the position, I strongly suggest that Mr. Watt arm himself with the finest, mortgage finance and a securities deputy he can find and quickly hire that person.

(With all due respect to Cher, “It ain’t me, Babe!”)

Sure, Congressman, bring your Hill office assistant with you, but I doubt if anyone on your current staff or on the Financial Services Committee has the myriad requisite skills you will need in a specialist/deputy. Look possibly toward Wall Street.

Once at FHFA, a smart deputy can help Watt avoid “capture” by either the White House—which appointed him and to whom he is somewhat beholding—or the FHFA staff, whom he can’t trust because (I suspect) part of their agenda not only isn’t his but isn’t in “conserving the two companies,” as their agency charter reads.

Watt could assume some White House independence, as Ed DeMarco consistently proved, meaning Watt occasionally can make his own calls, if he displays a tough enough demeanor and chooses, occasionally, to bring his own mind and heart to bare on policy calls not what he hears from the Treasury or the WH.

Lastly, if the Senate smiles on Watt’s appointment, he might have to worry about Ed DeMarco possibly returning to FHFA, which DeMarco’s civil service status permits. That would create major issues and staff schisms for any new Director.

But, DeMarco, if he’s as intelligent as I think he is, should just run to the nearest conservative think tank.

Congressman Watt might well expand his educational horizons by reading my blog to alert him to historic games played by OFHEO/FHFA before he ever considered the job and how they got away with it. Some of those officials still are there, now burrowed into the very protective civil service woodwork. He should add the “Restore Fannie Mae” site to his reading list, too.

Just because the material won’t always agree with the White House and/or orthodox thinking doesn’t mean it holds no value for a new Director. Both sides might alert him to issues/ perspectives his team won’t.

This job—if the “Congressman” (they never lose the title) secures it--won’t be a sinecure and, as I’ve often counseled those heading into raging combat, Watt should strap on his “big boy pads!”

Fun and Games With Media Stalwart

A reporter whom I greatly admire has engaged in some political/industry byplay with me, on one issue, and a related one with some friends who brought me into the reporter’s “quiz.” 

Most recently the reporter suggested that F&F advocates needed to explain, “Why most countries with solid homeownership rates didn’t rely on a government related secondary mortgage market execution for most of their mortgage financing?” 

My answer was quick, “Because most countries’ commercial banks are not as larcenous as those in the United States, which have the sorry track record to prove it.” 

And I am not referring just to their PLS garbage securities escapade five years ago. 

The second part of my answer is that few of those countries have a history of long term fixed rate financing, which Fannie (and later Freddie) have provided, since the late 1930’s. 

Back to bank perfidy. Look recently at the variety of US regulatory fines the banks have paid and for what gross offenses, which violation allegations still are pending, and you tell me if you feel confident--as many on Capitol Hill do---at handing over the nation’s primary and secondary mortgage markets to the large commercial banking industry? 

Mortgage violations left and right among big banks, tilting the London Interbank Borrowing Rate (LIBOR) on which many adjustable rate mortgages were indexed, laundering drug money for Mexican gangs, and doing business with Muslim extremists are just a few government allegations against the nation’s largest financial depositories.

Is Congress %#$@&* serious?

Here is a good place to link two articles on recent bank behavior, the first from David Kocieniewski in the New York Times and the second in the Washington Post by Harold Myerson. 


Less cosmic, but quite revealing, was exclusive the exchange I had with the reporter when I expressed my concern over Senators Bob Corker(R-Tenn.)  and Mark Warner (D-Va.) and their major new mortgage finance proposal. Most observers know the Senators want to dissolve Fannie Mae and Freddie Mac and replace them with a newer federal agency the Federal Mortgage Insurance Corporation (FMIC). 

I suggested to the media person that the two Senators weren’t well enough versed in mortgage finance and securities markets to understand their own bill or the manifold impacts on related industries, mortgage prices, the TBA market, MBS history, and the general need for a strong guiding hand that F&F always presented, save their PLS acquisition mistakes (mistakes that current regulation prohibit and which cannot occur, save change to their regulator). 

His quick response, slightly paraphrased, was, “How many in Congress do you know who do?” 

He had me. I couldn’t name any, which also is a scary thought. 

Final note. I still am waiting for someone to explain why the C-W’s FMIC needs a crushed F&F to move forward, considering the two could easily repay the Treasury (as they soon will) and just become another securitizer using the FMIC. 

I wonder if the answer is that the two represent “scalps,” which C-W and others need to parade before the naïve settlers to show them Congress really does hate those “Indians?”

What Others are Saying? 

I came across this column after I finished the above blog. I am linking it for you because the author--PIMCO’s Scott Simon--agrees with many of the things I’ve written in the past, although not totally on Corker-Warner. 

Writing this week in the WSJ, Nick Timiraos produced an excellent article laying out the sides and the stakes in the current mortgage debate.


Maloni, 7-25-2013


Bill Maloni said...

My bad!! "Richard " Cordray, not "Michael."

Bill Maloni said...

The Timiraos WSJ link wasn't connecting readers to the article, so I added a new one and hope it works.

Robert Mae said...

Good stuff as usual, Bill. Keep up the fight.

Bill Maloni said...

Bad guys are in action; newspaper editorial and an op-ed in today's Washington Post welcoming the Hensarling and C-W bills.

I'll print my lucid response to the newspaper's editorial in the next blog.

F&F opponents are so amazingly short sighted and now are displaying near disdain for fixed rate mortgages, as if the big banks willingly would make them or fairly price them, if competition didn't force them to do so.

It continues to stun me that congressional advocates can't see that, strongly suggesting that the Hill just doesn't understand how mortgages are originated or priced.

The people who want self amortizing 15-30 FRMs overwhelmingly are the general public!

Hello! The banks want everyone to have an adjustable arte mortgage(ARM), because the interest rate, inherent in all loans, risk to their institutions is lower for ARMs than FRMs.

Bill Maloni said...

Ooops, modifier in wrong location.

Should read, "The interest rate risk, inherent in all loans, is lower for ARMs than fixed rates."