Wednesday, November 13, 2013

Let's Monetize F&F

Let’s Start the F&F Bidding at $25 Billion,
Can I get $35B, OK now $45B, OK $60B….



In a conference call I did this week for a fledgling DC  company, Capitol Forum, I explained to listeners why I was “more optimistic than I’ve been in months” about the possibilities that the future would include some form of Fannie and Freddie, working within the nation’s mortgage finance system as privately owned companies.

I cited Fannie and Freddie’s earnings and the fact that both soon (Freddie already has) will cross the point where they would have paid back more to the Treasury than they received; the occasional positive comments being made about the two systemically; Tim Howard’s forthcoming book (available now to those who ordered it on Amazon), and the book’s likely impact on policy makers, opinion leaders, and the media. (Link to the call is below.) 


Last, I discussed the possibility of a court decision favoring the plaintiffs in the major “Takings” lawsuits. 

Had we waited a day to do that call, I would have included the story which broke publicly today—but has been know privately by many of us—about a group of hedge fund investors which would like to take over F&F, recapitalize them, and run them going forward.


I wonder what old “30-1” former venture capitalist Sen. Mark Warner (D-Va.) thinks about these smart financial people seeing huge value in the business operations that he and his colleague Bob Corker (R-Tenn.) would trash and replace with a new federal agency, carrying its own financial burden and what’s left of Fannie’s and Freddie’s onto the federal budget? 

I wonder what Jeb Hensarling (R-Tex) thinks? He’s anti-federal houser who was so PO’d over F&F earnings talk that he put out a press release saying Fannie and Freddie could not repay the Treasury and other unsavory things. (Source, Inside Mortgage Finance.) This is the same Committee Chair who can’t get a majority House Republicans to endorse his do away with F&F legislation.

Hey Congress guys, fresh eyes and management hands on the business, new private capital, and a new paradigm, what’s not to like here? 

That’s’ what both sides of the aisle and Hill claim you want. 

Yes, this suggestion has been around and been pitched to many in government and media, but it seems to me that it has a far better hope for success than some of the ideas being pushed--ever so slowly indicating little real dedication and commitment--by certain Hill denizens who like the media attention but have trouble thinking outside of a matchbox. 

Congress can’t escape the logical consequences of what you are proposing to write into law.


And About Big Banks, Dudley Says…..


One thing I know is that a certain, thoughtful, handsome, blogger–who celebrates his birthday today--has been saying this very thing for years, especially lately while Congress wrestles with giving the primary and secondary mortgage markets away to the nation’s largest banks. (Do any of them read the news and financial pages?)

Suddenly a major bank regulator is saying what I (and others) have said and, possibly, the observation’s wisdom and validity will get through some hard congressional heads.

What Do These Things Have in Common?

--The Federal Housing Finance Agency (FHFA) requires Fannie Mae and Freddie Mac to boost the guarantee fees they charge lenders (who in turn pass it on to borrowers); G fees have more than doubled since 2008, from @25 basis points to slightly more than 50 basis points. (100 BP in a percentage point).


--The FHFA discussing forcing down the maximum sixe mortgage Fannie and Freddie can securitize (a move being opposed by most housing and lender groups).


--The FHFA busy spending F&F’s money (also known as taxpayers' money) on an unnecessary “common platform” exercise—which presumably will produce something different from the Fannie and Freddie underwriting platforms, both of which are regularly tuned and updated to stay ahead of the technology curve.


The answer? Buehler, Buehler…..?


The answer is that all are designed by FHFA Director Ed DeMarco to channel business away from Fannie and Freddie and into the hands of others (shhhh, read TBTF banks) which will package the loans into their own securities, throw their own guarantees on them, and then sell them.

I am sorry, but didn’t we just try this exercise about seven or eight years ago?
Let’s see, the banks still are the same, but larger and more integrated, and still far more nimble than their regulators.

The regulators still are the same, still slow to see any bank wrongdoing.
The rating agencies still are around and the “hear, see, speak no evil Congress” still does whatever it does.

Why suddenly does anyone think the banks won’t turn to form and seeks ways around whatever operating rules the regulators establish? It’s in the DNA and history.


What Are You Thinking, Ed? 

Is it then unfair for me to suggest, as I have, that Director DeMarco has something in his heart and mind—not consistent with the soul of a conservator—actively trying to get rid of Fannie and Freddie or neuter them while he has the opportunity and the regulatory authority? 

Where has he crossed the line between trying to conserve the companies for their re-entry into the nation’s mortgage market and instead become their jailer/executioner? 

I think that’s a fair question. 

(Oh, for those asking—in the wake of the Mel Watt Senate action which failed to get the needed 60 votes, only garnering 56—unless he chooses to move on, Mr. DeMarco only can be removed for misfeasance or malfeasance.)


Maloni, 11-13-2013


Anonymous said...

Howard book, ordered from Amazon, delivered yesterday.
Publishers should book Howard on the Chris Mathews and Joe Scarborough shows for openers. Intelligent people with an interest in public policy watch these programs. From there he should be booked on other intelligent talk shows.

Qualified Observer said...

Thank you for the continued attention/work/words; FWIW I regularly forward your columns on to friends and family.

Preach on! :)

Bill Maloni said...

I agree, Anon; Tim reports some progress there, but the big shows have a "you can only appear here rule" on publication day.

I believe the inevitable buzz will drive more opportunities.

Some smart MoC should invite him to testify and Raines, to.

My book is due tomorrow, but I had the advantage of seeing the final galleys.

Thanks, QO. I appreciate.

8 1/2 by 11's for holiday giving can be purchased by calling........

More about this later, but a national know hedge fund exec offers to buy two DC area entities, employing over 11,000 local residents, and paying the federal governments $50 billion and change and...wait for it, wait for words about any of it in the Washington Post.

"So, what you are saying Mulder is...."

Bill Maloni said...

"and Raines, too" should bethe end of the previous third paragraph!

Duncan MacLeod said...

"Mr. DeMarco only can be removed for misfeasance or malfeasance"
Could a court ruling on the inappropriate 3rd amendment count as malfeasance?

Bill Maloni said...

That's more on Treasury and the names of Geithner and others (Lew?) likely come up first.

Wayne Olson said...

"Mr. DeMarco only can be removed for misfeasance or malfeasance."

This is not true. An Acting Director can be replaced with another Acting Director. The Act that sets up the "rules of the road" on this is kinda restrictive in that he can be replaced only with one of four people who have certain job titles. But, the Administration could replace DeMarco with someone else, albeit from a small pool of potential candidates.

Anonymous said...

Bill, glad that you are "advising" Tim. Hard to break lifetime habits!
The parties interested in an effective secondary market and national housing policy should persuade one or more senior members of the House Financial Services Committee to push for the restoration and sale of F&F.
With a bill introduced by such a party, then hearings and a dialogue about the future of F&F could begin with Howard, Raines and others testifying.
Are the Homebuilders, Realtors and Mortgage Bankers all still asleep?
Let us begin the dialogue in the public policy arena.

Wayne Olson said...

Ok. Here's the language from the statue, Section 1101

(f) Acting Director. In the event of the death, resignation, sickness, or absence of the Director, the President shall designate either the Deputy Director of the Division of Enterprise Regulation, the Deputy Director of the Division of Federal Home Loan Bank Regulation, or the Deputy Director for Housing Mission and Goals, to serve as acting Director until the return of the Director, or the appointment of a successor pursuant to subsection (b).

Bill Maloni said...

Sure, if Ed dies, he can be replaced; if he succumbs to some serious medical condition which threatens his life and causes him to miss long bouts of work and weakens his desire to serve, he could be replaced; and naturally, if he leaves of his own volition, he can be replaced.

But the first two are extremes, assuming continued good health and if he has no desire to work elsewhere, DeMarco can't be forced to leave.

I do believe that ED's current top Deputy is Sandra Thompson, who is Deputy Director for Housing Mission and Goals and therefore could qualify as a "acting" successor.

I don't know her but was told she spent possibly 20 years working at FDIC before coming to FHFA.

Anonymous said...

300 billion dollars in potential share value vs. Edward DeMarco. If the government were to do some second level thinking on this they would realize that by giving the GSE's back to the market that they gain up to 100 billion dollars in capital gains tax revenue. Ackman is an activist shareholder. Senator Reid the Senate Majority Leader has publically stated that he is in favor of keeping them intact.

Senator Warren just recently said during a hearing that they aren't to blame for the housing crisis. Their book of business is insanely good. Average credit scores of something like 740. Loan to value ratio average of 70 percent. Lawsuit settlements of 10 billion,5 billion and 15 more banks to go approx before that is all said and done.

They've doubled the guarantee fees throughout what was easily the worst housing enviornment and overall economic enviornment since the Great Depression, and housing prices have posted doubled didget increases in almost every major market.

It's like that documentary "Fat,Sick, and Nearly Dead". They went from 500 pound monsters sitting on the bench to becoming Scotty Pipin and Micheal Jordan.

Lean mean 10.1 billion dollar quarterly profit making machines.

We should be kissing their feet. If Fannie Mae and Freddie Mac were not there it might have been Armagedeon.

What is the political message Washington is sending us? Wind Them Down. They have never been run better.

There are 17 lawsuits for a reason. Congress has a 9 percent approval rating. You think people really care at all or even understand the GSE's. No they don't really care. They just want a 30 year mortgage.

Bill Maloni said...

I'll hop on some of your points tomorrow in my next blog, Anon. But--in the meantime--I couldn't have said it better than you.

Nobody is pushing the Congress for the right answers and to do the hard, scut work necessary to dig into these issues, decide what works and what doesn't.and then act accordingly.