Bombast Week and Mortgage Gossip
On doing away with Fannie and Freddie.
“Big banks generally fall somewhere in between. They have long viewed Fannie and Freddie as competitors, but they don't want to lose access to a government guarantee that keeps markets functioning smoothly. Banks have profited handsomely over the past two years by collecting fees for refinancing loans that can be sold to Fannie and Freddie.” Nick Timiraos, this weekend’s WSJ.
New Senate GSE Bill??
Rumors are circulating that Chairman of the Senate Banking Committee and its top Republican, Tim Johnson (D-SD) and Mike Crapo (R-Idaho), respectively, are working on a new housing reform bill which could cover Fannie and Freddie issues (ignoring them, abolishing them, wisely keeping them, or something just as wise in the middle?).
While I can joke easily about what I don’t know, the significance is if the two top guys can agree on a common approach, it will give major momentum to that particular bipartisan proposal.
It won’t automatically put their draft over the top, because Senators will want changes, because, well…..they’re Senators.
Again, with no real inside information, it’s likely that whatever the Senators produce, even if the Senate passes it this year or next year?), the House will balk because the legislation won’t be backward looking enough. It would compete with the House Financial Services approved Jeb Hensarling (R-Tex.) bill, which would recreate the mortgage world of the 1930’s, but still hasn’t got a lot of House support.
One thought for Senate staffers working on the reported proposal. Your job should be to come up with something original which keeps the best of what exists today and dumps the worst. If you start with the Corker-Warner bill (as has been rumored), you need to ask the sponsors “why they would abolish F&F,” absent any real justification?
If you are serious about major reform, your task requires a comprehensive understanding of how mortgage markets really work, not just being familiar with the “buzz words”; knowing where and how money for US home loans becomes available; how the TBA securities markets fits into that; why consumers like the availability of fixed rate financing; and exactly how and why the pre-2008 mortgage debacle came about (look at Fannie and Freddie, but make sure you telescope on the $2 Trillion in near worthless private label subprime securities Wall Street and the big banks created, outside of the F&F systems, and sold throughout the world).
There is much more to understanding the past that just those matters, but getting through those points will set you on the right path.
It’s not the “congressional way,” to under do matters. But if you look at the US mortgage market today, pragmatically and realistically, less needs to be done than many suggest. (Please read Nick Timiraos’ entire article in the final blog segment.)
You still can reduce Uncle Sam’s footprint, bring in fresh (commercial bank) money, maintain efficiency and standardization, and preserve the 30 year FRM (and it’s 15 year cousin), with small legislative tweaks to Fannie and Freddie, letting them repay the Treasury and move forward as privately owned companies, heavily regulated—as they are currently--with no ties to the US Treasury—and with curbs to certain asset growth areas.
Fannie and Freddie don't require, demand, or deserve systemic destruction, which could produce far more doubts uncertainty, and financial dislocation.than you now can imagine.
Think "Syria" foreign policy implications, but with domestic US damage spread out over this $10 plus Trillion dollar mortgage market.
Secure it for the nation, don’t unravel it.
Talk to your “usual suspects,” but get outside your congressional comfort box and speak to folks who know the mortgage markets, what works and what may not. (Again, as Timiraos writes, the big banks may surprise you, if you allow them to be candid.)
While we watched some fireworks over Syria in the past several days, the heavy lightning and thunder comes back to town when most of the Congress returns.
Frank Bruni is worth reading on this dangerous topic.
D’s and R’s will display lots of raw emotions and utter virulent statements, but the sad result is that the President still has nothing but no-win options facing him.
I still side with those who say “we lose more by not hitting Assad/Syria than doing so” and I hope those attacks are muscular ones, which send additional messages to our foes beyond the bomb tonnage employed and the various means to deliver them.
What Others Say on Mortgage Matters
Some unwelcome homeownership developments.
Bloomberg’s Lisa Provost, picked up in the NYT. suggests some bad things if F&F are abolished.
Large bank hanky panky?
Big peak at some big bank gender bias. (Yes Senators, let's give the entire mortgage market to them!)
Not about mortgages, but George Will’s thought provoking column, not surprisingly, disdain for Hillary Clinton, but puts down Chris Christie.
A whimsical Christmas gift for the ladies in your lives?