Monday, October 7, 2013

Debt Limit Drama

Cats and Dogs

There is not much happening in the mortgage world, as all of the air has been sucked out of Washington by the government shutdown and the GOP’s mad dash to trash our sovereign debt rating and risk catastrophe,  broad and unprecedented financial disaster.

The government shutdown now has morphed into the debt limit debate, because the bad guys now believe that the nation will get by if large parts of the federal government don’t work for a few weeks, although no more than a few will admit to that opinion, but everyone is worried about the debt limit's fate.

The Tea Party berserkers, having failed to de-fund Obamacare, now are now are ready confront the President they despise (listen to their rhetoric) using the federal government's credit rating.

And they will bet their chips on stopping a debt ceiling increase because they realize that most of the world, as well as the White House, congressional D's, mainstream media, and lots of others are indeed fearful about risking our nation's ability to borrow.


Bitching about Obamacare lost its luster as the R’s kept getting reminded that the “Affordable Care Act” is the law of the land, was a focal point in the 2012 election, survived a Supreme Court challenge, and has begun implementation likely meaning an increase in its popularity. 

So now, the debt ceiling talks produce a bigger audience for their antics. 

Despite bipartisan admonitions, the “Teahadists”—easily the group most deserving of the “does not work/play well with others” label—remind me of kids playing near a red hot stove and knowing that they shouldn’t get too close but scheming on how they are going to touch it without getting burned. 

Ain't happening guys and girls.  

My problem with the GOP crazies--about 75 in the House and maybe a dozen the Senate--is that if you negotiate with them before they reopen the government and increase the debt ceiling,  that’s the first tactic they will employ every time the Senate or  their House colleagues initiate something they oppose. 

Here's #1 rabble rouser in chief, Republican Senator Ted Cruz from Texas, where 24% of the population doesn’t have health insurance, “political chaos is a small price to pay to prevent the enormous harms that Obamacare is inflicting on millions of Americans.” 

Really, Senator? Really? 

The wingnuts control the House Republican Caucus. They drive House Speaker John Boehner (R-Ohio) not the other way around. So, almost nothing Boehner does or says applies to them or the TP thinking, which is why I expressed sorrow for him in my last blog. 

(One rumor circulating last week was that Boehner planned to retire as Speaker and possibly from the House, once he moved a CR on the government shutdown and the debt. The best rebuttal I could get from someone close to Boehner was the comment “it’s too soon.”) 

JB can go on national TV all he wants and declare that he won’t allow the US to default, but he has a 100 loaded GOP guns aimed at his back if he tries to do that. 

If Boehner moves a clean debt ceiling bill--with Democratic votes--he could forfeit his day job as Speaker. 

Procedurally, the Tea Party employs its small but cohesive numbers to stop a lot of things and there seems very little they support except tax cuts and more military spending.  

Although they have tons of pithy headline statements they employ to blame their conservative policy woes on Harry Reid, President Obama, Obamacare, Hollywood, the media, labor unions, the federal government and Washington DC.

You get the picture. 

The “Teahadist” took an oath of office which they seem to ignore and certainly disrespect, acting like a bunch of tricorned hat wearing congressional mullahs.

I wish I was clever enough to coin “Teahadist,” because the TP’s glazed eye zeal, determination to get their way no matter who or what gets hurt, is accurate but very unwelcome in the Congress where the needs of the nation are supposed to be balanced by their elected officials representing diverse communities. 

I have no insight but I suspect, in about 10 days or 2 weeks, this GOP House Caucus embarrassment will end with an extension of the debt ceiling for some shortened period and an Obama promise to “discuss” GOP complaints, or the GOP will not win a majority in the House or Senate--let along secure the presidency--in the foreseeable future. 


Little Lenders Voice C-W Concerns Over  “Biguns”


The Community Mortgage Lenders Association,
correctly in my view, are concerned that the Bob Corker (R-Tenn.) - Mark Warner (D-Va) legislation raises the specter of giving the large lenders a decided advantage over their smaller brethren and in fact doesn’t limit the bigs total business assembled via the new federal mortgage insurance entity which C-W seeks to create, after they abolish Fannie Mae and Freddie Mac. 

(A link is below.)

More C-W Commentary

As one longtime lobbyist has observed "it's not going to fly politically to hand over the mortgage secondary market to the big guys; the optics don't work.  Congress already knows this, and the recent large fines and settlements from the TBTF banks only reinforce this reality.  Plus it makes no sense for 'reform' to simply mean the Treasury takes over the GSE legacy assets and the TBTF banks own the new mortgage secondary--it's all still on the taxpayers and the system isn't demonstrably any safer."
The More Things Change, the More… 

More news that things in the growing non-Fannie/Freddie “jumbo markets” (loans above the limit which F&F can securitize) are not hunky dory and in fact sound a little too “2007-ish” for my tastes; issuers shopping for agency ratings; disparate bond structures; no substantive reps and warranties, and more Where/when have we heard the banks doing that before? 

That sad tale made in into Inside Mortgage Finance last week and should be an early warning to those who think the TBTF banks won’t/can’t engage in mortgage hanky panky ever again.


By Brandon Ivey
Reforms seen in the new era of non-agency jumbo MBS issuance aren’t enough to prompt significant investor participation, according to John Gidman, president of the Association of Institutional Investors. At a hearing this week before the Senate Banking Committee, Gidman and others called for a number of changes to the non-agency market.
“The fundamental structural and process weaknesses for non-agency residential MBS securitization have not been fixed in the current private-label securities market,” Gidman testified. “The issuance process itself is very opaque. Ratings continue to be shopped, issuers are still incentivized to water down representations and warranties, and continued variability in structures and documentation make the market more challenging for investors and raise the costs of funding.”
He acknowledged that new jumbo MBS contain more information and more accurately reflect credit risk than deals issued before the financial crisis.
Still, Gidman noted that investors don’t have access to mortgage documents, quickly adding that such access wouldn’t satisfy investors. For more detailed coverage on the issue, see the new edition of Inside MBS & ABS, available online Friday.

Some Positive GSE News 

Writing last week in his daily, Compass Point’s Issac Boltansky discussed his reactions to a recent conference where he saw some positive vibes about reviving F&F in some workable format.


Maloni, 10-7-2013



Bill Maloni said...

Oops, in my next blog, I'll discuss "The Mortgage Wars," a soon to be published McGraw Hill
book by Tim Howard, Fannie's former CFO who was forced form his job in 2004 by vengeful and false allegations of "securities fraud", which took the courts 8 years to dismiss and vindicate Howard and fellow Fannie officials Frank Raines and Leanne Spencer.

Bill Maloni said...

Yes, I do know that "form" isn't "from," but you'd never know it by reading my stuff!!

Anonymous said...

Hi Bill, I thought you may find interesting the following paper published recently by Mark Zandi (of Moody's Analytics) regarding housing finance reform:

Bill Maloni said...

Anon--Thanks. I've heard about his paper, but not read it.

He was my choice to head FHFA and still don't know why he withdrew his name or why it never went forward.

Substantively, the Admin couldn't have done better than Zandi.