Sunday, September 15, 2013

Show Me the “Mortgagefax ”


There are any number of ideas out there to do away with Fannie Mae and Freddie Mac and “reform” the nation’s mortgage finance system, which I contend needs tweaks, not major surgery.

Senate hearings last week didn’t produce any revelations save some inside the Beltway chatter, which I memorialized—in sarcastic faux form--for a major media source which chose not to cover the genial event. My email reported the following highlights… 

"Blah, blah, I want to thank the Chairman and the ranking minority member for holding these important hearings.....the American people, want, need, and expect fixed rate may be untested but it's time to do something different and break up this system which creates private benefit and public risk....Don't forget the poor and those who can't afford to buy mansions.....I once lived in a house...let's, too, thank Chairman Hensarling for suggesting the US step backwards 80 years, his input is important, without leaders like him.......and don't forget my Little League coach, as well as my Aunt Sally and the ‘little people’ of my state.” 


Here are the current "replace F&F ideas," with their primary interest group sponsors where they exist: Corker (R-Tenn.), Warner (D-Va.), Bipartisan Commission; Hensarling (R-Tex), Flat Earth Society (sic); Maxine Waters (D-Cal.) bill, unknown; Senators Johnson (D-SD)-Crapo (R-Idaho), C-W lite; and Obama Administration (um, er, ah, “Mulligan, please”). 

But all are short one major component. None has a “Mortgagefax.*” (*Maloni’s self-invented, ripoff of the famous Carfax report, named for the corporation which provides a comprehensive automobile history review for the use of used car buyers, dealers, and others in the automobile marketplace. For many, an unblemished Carfax report is an extremely positive sign.)

Absent a Mortgagefax or the equivalent, these ideas are just wishes, hopes, and dreams. Don’t confuse advocate’s rhetoric for observable fact or history. 

There is no easily obtainable, verifiable operational history for these replacement systemic models. No reliable data on when and how they performed or if they even will work. 

A Fannie and Freddie “Mortgagefax” exists, in their years of recorded history. People have a very good idea how they operate and what they can do and what a possible future for them as revived private companies might look like, based on performance and regulation today.  

Again, there is a narrative account—grandeur and success, as well as warts--which is why recent GSE regulation and productivity bodes so well for the public and the Congress. And, importantly, it’s there for all to see.  

Look at the competing models and try and answer these questions, with specificity?

How would the principal elements in any of the above mortgage system ideas provide consumer benefits or interact with other market participants? What is their systemic division of labor and the cost for same? Who will provide what “necessary/desired services” and what “desired services” won’t be offered? If it’s all based on a beefed up MI industry, where will the capital come from and who will federally regulate these crucial insurers, since MI now is regulated by the 50 different states? 

Beyond, “trust us, it will be just as good,” none of this is available for any of the enumerated pretenders, because everything being proposed is based on speculation and hope.


An “Abolish F&F” Analogy


To keep the comparison topical, those who would “get rid of Fannie and Freddie and substitute ____ (fill in the blank)” are touting the mortgage system equivalent of Vladimir Putin’s Bashar Assad proposal for Syria to turn over its WMD for “outside control.”  It sounds good, but they are no details, hard timetable, or straight answers to vexing questions.

The only thing that the sponsors and supporters of the destroy F&F proposals can do is first vilify and then theorize about their own schemes.

Hey you on Capitol Hill, interested in a devil that you don’t know instead of a not so devilish one you do? Do I have a few deals for you! 

None of the poser advocates will say many good things about Fannie (despite its 70 years in the mortgage world) and Freddie, even how a limited, but revived F&F might also serve.

My old Fannie colleague and friend Barry Zigas--himself a Corker-Warner advocate and a former member of the Bipartisan Commission which produced the report which led to the Senate bill—showered lots of blog praise on Fannie when he damned recent interest in the maintenance or revival of the two. 

While he strongly supports C-W, Barry also offered many positive comments about Fannie systemic successes, operations in which he toiled tirelessly for years, primarily to make the company’s low income mission a grand success. 

He, too, finds himself advocating for something which lacks precise operational details, but whose champions start with smashing keystone mortgage systems that have their “Mortgagefax” on display for all to see and all to compare. 

In truth, whether it’s Corker-Warner, Hensarling, or any of the newer bills. There is very little “there” there” to them.

The dynamism of our mortgage market means anti-F&F proponents have difficulty truly projecting their plans five years into the future and offering specific details of their replacement mortgage schemes, which means you can’t really get a fair comparison of apple to apples.

Can you say, “Pig in a poke, boys and girls.” 

Non-Conforming Market Develops


There have been several recent articles about growth in the non-Fannie/Freddie conventional market, also called “Jumbo” or “non-conforming” markets). 

This segment will expand further when the Federal Housing Finance Agency (FHFA) decides to implement announced reductions in the mortgage size F&F can securitize, opening an even larger real estate financing bloc exclusively to the big bank lenders. 

(Sorry, California, New York, Boston, you’ve just been screwed via regulatory fiat!) 

Jumbo loans, i.e. loans F&F can’t acquire, recently have displayed rates equal to or below the F&F rate. Historically, jumbos almost always were priced higher than conforming rates. 

But, “Caution Will Robinson,” nothing has occurred recently which revokes fundamental marketplace laws. 

I’d label these lower rates, “teasers,” for now.
At some point, the absence of liquidity (Fannie and Freddie can’t buy them, meaning the investor market is constrained), means prices will have to increase to entice whomever wants to hold those loans.

This is a prescient moment to introduce an excellent reminder of the historic (just six or seven years ago) perils of this particular loan when securitized and guaranteed by the big banks and their subsidiaries. 

This linked article came from the fertile mind of our friend David Fiderer and appeared online in the American Banker. (As you read it, think back to some thoughts I expressed in the previous segment.)



“Russian and Syria are the bad guys. Don’t ever trust the bad guys.” 

Former Israeli military General, quoted in Washington Post, on Israeli reaction to negotiations with Russia and Syria. 

To the certain delight of my blog readers, I just excised 1000 words from this blog of my Syrian commentary and my advice to the President Obama. (True!)
Instead, I’ll swallow my foreign policy bile and anger and devote just a few sentences to it, including a comment about the latest "deal” to have the Syrians provide within a week all of their WMD poison gas detailed information.

Russia is a second rate, trouble making country, run by a dictatorial thug, who lusts for the old days when Russia was a world power.

If you are going to error Mr. President, do so by bombing Syria’s WMD and military fortifications, not in diplomatic delay and chasing the tantalizing lies of Vlad Putin and his posse.

Putin can’t be trusted to do anything in America’s best interest, just his own and Russia’s.

You shouldn’t need me to tell you that Mr. President, but I will. 

A month or two from now, I hope you are not back telling the American people why—despite your honest efforts-- your overtures were rebuffed and we now need to bomb Syria. 


What Others Say about F&F and Big Banks

Thank You, Larry Summers!
(More on this Sunday night development, next time.)


Maloni, 9-15-2013


Bill Maloni said...

If clarity is necessary, I was thanking Larry Summers for withdrawing his name from the list of possible Bernanke successors--if BB is indeed not seeing a renomination (which is totally understandable).

Anonymous said...

This is a superb blog about the GSEs and their future state. You should expand your message to other media formats, may be get invited to Bill Maher's Real Time HBO show?

Bill Maloni said...

Thanks Anon, but I trip myself when walking down the steps.

And, last night, I needed help (from youngest son) to get my blog when the blog site showed me a "new face!"

Robert Mae said...
This comment has been removed by the author.
Bill Maloni said...

Truth is that I seldom watch his show.

But, if that's the standard for "face shooting," there are others I'd nominate first.

Duncan MacLeod said...

mtg fax- consider adding total cost of each program- add the cost of the two pay reduction for 10 years of you eliminate GSE.
Add lower taxes paid to TSY as increased mtg costs increases deductions and lowers TSY income
Add: Cost to set up C-W 100's Billions capital costs.
Add: C-W losses are absolute with GSE - yes they had to re-cap but will not lose a dime.

Robert Mae said...

Not really an advocate of shooting people in the face.

Duncan, first FnF then mortgage interest deduction. Wallison approves.

'let them rent'

Bill Maloni said...

If you assume our mortgage market grows by a Trillion dollars each year--and F&F go south--you would need close to a fresh $100 billion to capitalize the new MI required.

You might also need to do away with state regulation of insurance and try and institute a federal system of insurance regulation to support the new FMIC.

Hmm, as Everett Dirksen reportedly said, "A billion here and a billion there..." (the rest is in dispute, but Ev made his point). It's a lot of money and that assumes no other glitches or costly changes..and for what?

Robert Mae said...

I've argued that Corker is full of poop when he claims FnF wouldn't profit without the Treasury buying MBS. My argument has been that they're a better and just as safe an investment as treasuries, and some CB would have bought what the Treasury did not.

"In July, China increased its holdings of high-grade securities sold by government-sponsored enterprises such as Fannie Mae and Freddie Mac and securities backed by home mortgages guaranteed by the U.S. agencies, by $20.2 billion, according to the Treasury Department data. The purchases broke the previous record of $16.9 billion purchases in April, according to Mr. Lyngen"

Bill Maloni said...

It's the nature of the "Beast" (Members of Congress") to exaggerate, bloviate, and just make up things because so few people are willing to call them on it.

When called out, most Senators/MoC's claim there were misunderstood/misquoted and meant something entirely different.

I've pointed this fact out to a number of folks about the congressional sponsors of C-W and their allies.

All that we can do is to keep doing it and hope someone cares enough to correct the record.

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