Sunday, September 22, 2013

Let the Diplomats Worry About Syria

Mortgages Only Mortgages, No Syria Talk


Several items caught my attention this week.

First was a question about the Corker-Warner bill asked by a reader and answered in my blog comment section, in which I suggested that the legislation’s requiring private mortgage insurance as the primary source of loss coverage meant that industry—which likely will grow with more companies than the handful now there—would have to raise $100 Billion or more in new capital to cover a $1 Trillion US mortgage market. (In 2012, I believe the markets’ size was north of $2.5 Trillion dollars, but you get the idea. It’s a ton of money to raise.) 

Additionally, I noted in that answer that insurance companies are state regulated. I am assuming that many in Congress—if they turn the primary and secondary mortgage markets over the big banks and the MI’s--will want to regulate the insurers in Washington, not 50 state capitals, which historically have been  amazingly friendly/easy with the broader industry. 

Is Senator Corker and his GOP “states’ rights” allies ready for major fight on McCarron-Ferguson (decade’s old federal statute which sets up state insurance regulation)?


Reducing F&F Mortgage Ceilings

Also this week, the Federal Housing Finance Agency (FHFA’s) F&F regulator announced is a plan to reduce the size loan which F&F can securitize or otherwise support. 

I assumed, in part, this was an to achieve to get “more private capital  into the marketplace” (a BS phrase used by D’s and R’s alike deaf to the reality that any new money coming from banks  results from the current federal deposit insurance subsidy that banks and other depositories enjoy). 

But, imagine my surprise when HUD Secretary Shaun Donovan announced that his FHA looked forward to getting a chunk of those loans. 

Wait, if loans go from Fannie and Freddie, to the FHA—by virtue of the FHA federal guaranty lenders can exercise—how does that represent new private capital, if Uncle Sam stands behind those loans?

With all of the bitching and moaning about the need to get rid of F&F because they dominate the market and are too big, blah, blah, blah, the C-W advocates may be missing some big the trees (which will grow more)  while staring at the forest. 

I came across what I believe are the 2012 mortgage market segment numbers for Wells Fargo Bank, the nation’s largest mortgage lender. 

I won’t quote the exact numbers but will note that in each of 5 major categories:  FHA/VA lending; correspondent lending; second lien lending; originations and loan servicing, Wells share seems to run from 25% to the mid-40% in those segments, meaning a fourth to almost a half of the total dollars in each of those categories last year. Those numbers could change, but the pattern is there.

This is before the C-W bill gift wraps and hands to the nation’s big banks the primary and secondary mortgage markets, when it abolishes F&F.  

I wonder what those market share/domination numbers will look like when C-W finally puts the TBTF financial institutions in the driver’s seat, naturally with Uncle Sam still on the hook at the tail end of any losses experienced by the Federal Mortgage Insurance Corporation (FMIC), C-W’s major legislative creation. 

Corker-Warner’s advocates will rush out with a bunch of answer to these challenges, but—as suggested last week—somebody better get a “Mortgagefax” from C-W, because most of these issues raise troubling questions for which there are no current answers (including why no securitization limits for the major TBTF banks?).

That doesn’t seem to trouble those who want to build a new mortgage finance system by deconstructing the old and discarding the best or maybe just expropriating them from Fannie and Freddie. 

This is an excellent juncture to introduce a superb column by nationally syndicated financial columnist Barry Ritholz, whose work appeared in papers over this weekend.

Ritholz’s material begs the question why must this Congress, indeed any Congress or Administration, need to relearn lessons which should be fresh in their memories? 


Speaking of History…

Some of my Republican friends complain that I am too hard on the major banks and should cut them some slack.

My standard response is that the big guys are not reliable stewards of the nation’s housing mortgage loan market and given the option will run from it, especially when needed most. 

(See Nick Timiraos’ commentary below on what large banks do when rates rise.)


However, while I believe the banks are crucial to the economy and vitally necessary, they have benefited handsomely from Washington and should offer the nation a much higher level of probity and consumer service than they do now, given that taxpayers (and feeble federal regulation) have given them so much. 

But, I am hardly original in my suspicion of bank behavior.

"Gentlemen, I have had men watching you for a long time and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves."
- Andrew Jackson
… or
"The system of banking is a blot left in all our Constitutions, which, if not covered, will end in their destruction. I sincerely believe that banking institutions are more dangerous than standing armies; and that the principle of spending money to be paid by posterity is but swindling futurity on a large scale." - Thomas Jefferson
And, finally, from the often insightful (but occasionally irritating), Barney Frank, there’s this.

Oh and I wouldn’t forgive myself, if I didn’t include this Huffington Post article for your pleasure.

Maloni, 3-22-2013


Wayne Olson said...

"Additionally, I noted in that answer that insurance companies are state regulated. I am assuming that many in Congress—if they turn the primary and secondary mortgage markets over the big banks and the MI’s--will want to regulate the insurers in Washington, not 50 state capitals, which historically have been amazingly friendly/easy with the broader industry."

NOT only that, but insurance companies are statutorily protected from any Federal antitrust oversight whatsoever. So, good luck getting any federal insurance regulation going, lol. What good is having mortgage insurance as a backstop as they are likely to have inadequate regulatory oversight, not unlike the pre-FHFA regulation.

Wayne Olson said...

Backup for my previous post.
Insurance Immunities
McCarran-Ferguson Act, 15 U.S.C. §§ 1011-15. This act exempts from
the antitrust laws the “business of insurance” to the extent “regulated
by state law.” The Sherman Act continues to be applicable to all
agreements or acts by those engaged in the “business of insurance” to
boycott, coerce, or intimidate.

Wayne Olson said...

One final note. I overstated the case re "no Federal oversight whatsoever," but the basic point I made still stands--state regulation is unlikely to be as effective as FHFA in constraining the mortgage insurers.

Bill Maloni said...

Well, I appreciate the agreement, Wayne.

I can see the "traditionalists," mostly GOP, not wanting any changes, while many D's insist on federal control.
But, that's a detail that should be thrashed out in advance of congressional approval to deconstruct the current system.

It won't be because nobody wants to introduce as ugly ideological/"states rights" issue amid all of the good feeling, happy talk of destroying Fannie and Freddie.

The logical approach--as part of this monster-- would be to put the MI business under federal control, but as we've discussed "logic" and Capitol Hill" often don't go hand in hand.

Robert Mae said...

I have to admit that I don't understand this issue with insurers. They already are regulated and, I would assume, regulated with basically the same rules - same capital requirements - regardless of what their regulating state may be. So the FHFA demands determined capital levels for selling/holding MBS, and the state regulatory bodies follow it, and Ins. co's follow in tune.

What am I missing?

Barney Frank, still at it. No, Barney, high level salaries which equate to .001% of revenues did not cause the great recession, nor is it evidence that banks are doing great. Although evidence that you didn't know what the hell you were doing still abound.

Nick Timiraos gets it.

Matt Hill said...

Sorry Bill. A little late on this comment. Belongs in the previous post...

You forgot to include the official MortgageFax slogan:

"Trying to expropriate a multi-trillion dollar business? Don't do a Half-Fannie job, make sure you get the MortgageFax!"

Bill Maloni said...

Two responses.

Thanks Matt, but it's your creativity, add it when you use "Mortgagefax," with my total permission.

Robert, state regulation is not consistent, because....there are 50 states.

Historically--and likely even now--most state Insurance Commissioners come from the industry and tend to be very forgiving and easy, citing "financial and economic implications."

Translation: That's code for they make it easy for the insurer, whatever the insurance line, to screw consumers.

Just a few years ago, there internecine split was a split between he property and casualty guys and the life guys, with some wanting to trade state regulation--with its implied benefits/unevenness--for consistent federal regulation. But, it never happened.

I consider this a major issue in C-W. But, those who are wary of the federal government won't like it and, today, that's most of the congressional GOP.

Robert Mae said...

"Robert, state regulation is not consistent, because....there are 50 states."

Well aware, although I doubt capital levels, which is all the FHFA would be concerned with for now, deviate much between the States.

All the FED's need require is a separate ledger for MBS, insuring proper capitalization of it alone, with no concern of capital needed to meet State's demands.

Simple minds think simply.

Bill Maloni said...

I don't disagree but, don't underestimate the congressional opposition to homogenizing state regulation.

of course, we'll know if and when someone proposes doing just that.

Richard Wince said...

Would love to hear your updated opinion on the pending lawsuits

Bill Maloni said...

I've tried prying info out of two of the law firms involved and have gotten shut out.

I'll share anything I get, but note, there is very little discussion of any kind.