Sunday, December 15, 2013


Cats and Dogs


Much happening. I’ll try to hit as many as possible and keep the commentary short. 

Conservatives Fear FHFA’s Watt 

The Right seems very upset about Mel Watt’s appointment as the new Director at the Federal Housing Finance Agency (FHFA) succeeding their hero, Ed DeMarco. (Although who knows if, when and where Ed will go, since he does have some Civil Service protection.) 

If you can believe all of the Starboard side worries, the world has come to an end and Watt is going to revive Fannie and Freddie, with doom and pestilence sure to follow. 

Teahadists and friends, it was just coincidence that Watt--in his first day on the job--sought meetings with David Maxwell, Jim Johnson, Frank Raines, Jamie Gorelick and Tom Donilon…..Ah, just teasing! 

But, we know they are partly Right (pun!).

Taxpayers Lost Money on GM 

The US lost money on its investment in GM, which doesn’t mean it wasn’t the right thing to do, but the taxpayers will not lose money on their investment in Fannie and Freddie.


In a few weeks, when the fourth quarter 2013 earnings are reported, the Treasury will realize billions more than it invested in the two mortgage giants and that number only will grow rapidly as 2014 unfolds.

Senators Corker and Warner, along with Ed DeMarco can deride and putdown the financial productivity all they want, but the facts speak for themselves as does Treasury’s coffers.

How much will the taxpayers get over and above the $187 Billion infused in F&F, depends on how long Treasury Secretary Jack Lew insists on collecting 100% of Fannie/Freddie earnings, in addition to their minimum capital requirements. Lew can change that arrangement via regulation and not even bother the Hill. 

(Maybe all of those Rightwing concerns are fearful of Treasury cutting a deal with the F&F preferred investors--who are staring down Treasury’s throat via their 17 “takings” lawsuits--to creatively apply the preferred investments to revive and capitalize the two, with the “new owners” agreeing to provide additional capital?) 

If revitalized and allowed to flourish, Treasury’s 80% senior preferred stockownership—treated as their GM investment (sold off over time)—could produce hundreds of billions for the General Fund.


That makes a lot more sense than tearing up the mortgage market’s fabric with a new federal agency, forcing new business relationships on all of the current participants, raising doubts about future market effectiveness, and guaranteeing that Congress—which never does anything simply or correctly—can succeed in a cobbling a new national primary and secondary mortgage market seamlessly. 

New Job for AEI’s Ed Pinto 

Huzzah, Ed Pinto has been given a new portfolio by the American Enterprise Institute (AEI). He is heading the AEI’s International Center on Housing Risk. 

Although Ed and his posse have chosen to debut their new show Germany, I would hope his new international perspective allows him discover something he and his AEI colleague, Peter Wallison, have apparently overlooked or more than likely ignored because it is so inconvenient.


That’s the more than $2 Trillion in subprime private label securities (PLS) issued by Wall Street and the big banks during 2005-2007, which they vigorously marketed overseas, making the US real estate setback an international debacle, when between 40% and 50% of those bonds failed!


Ed and Peter (the latter as recently as about a month ago in an NAR sponsored conference in San Francisco) pretend that PLS garbage wasn’t created and sold because it ruins their “The federal government and Fannie and Freddie were responsible for the 2008 meltdown” story.



Just check out the numbers guys! 

The “incidence and severity” of PLS defaults and failures were gargantuan compared to F&F MBS losses. 

Look for the right time to admit it, fess up, and then get on with your new international sandbox; hopefully you’ll be more honest with those folks than you have with your fellow US citizens, with your gross distortions of Fannie Mae’s purchase in the 1990’s, which the Federal Reserve staff and the President’s Financial Inquiry Commission—naming you—a conclusion reached by about a dozen other very credible observers.

Gretchen Morgenson, NYT Columnist

Gretchen Morgenson, an AEI Pinto-Wallison acolyte, wrote a deeply flawed book about Fannie Mae lending in the 1990's when Jim Johnson was Fannie's Chairman. 

Thanks to the well-placed mortgage for reminding me what Gretchen wrote in March of 2013, suggesting just how GSE perceptive she is (not!).

Gretchen wrote:

“Let’s begin with the status quo. The taxpayer rescue of Fannie and Freddie in September 2008 has cost $137 billion so far. While this has been paid down from an initial $187.5 billion, taxpayers aren’t likely to get their money back anytime soon. Last fall, the regulator charged with overseeing Fannie and Freddie estimated that the taxpayer bill for the companies could be $200 billion by the end of 2015.”

Wrong Ms. M, the taxpayers are getting paid back, probably in a few short weeks, and the surplus to the Treasury will grow geometrically at that point, barring some change in the “dividend” arrangements (as I noted in the above segment).


Quick Notes


Volcker Rule/Seer?

Before its final regulatory approval last week, almost four years ago in my Feb. 8, 2010 blog, I called for okaying the “Volcker amendment” and identified many of the things the big banks and their allies would do and argue to forestall this logical reaction to their rapacious behavior.

Small Lenders F Fees 

How many times do F&F officials have to hear that they are screwing small lenders, when they charge the little guys higher guaranty fees? 

I know current management can’t act in their own self-interest politically, but the community bankers have been among the most stalwart F&F allies over time inside the Beltway. 

F&F are making money now and they should give some back to the little guys, using whatever rationale needed.  

The small guys require all of the help they can get to withstand being swallowed by their larger competitors (no matter what the ABA’s Wayne Abernathy claims), which also is good for consumers. 

I am sure Director Watt can/will more easily understand that posture.


What Others Are Saying

David Fiderer returns, bigger and bolder than ever. See his latest, including the first link which will appear this week in National Mortgage News and his second, a commentary on PLS bank lawsuits.



NPR transcript on FHFA, F&F

New housing finance regulatory terrain gets discussed on NPR. 

Go for it, Tom!


For the erudite and thoughtful. FDIC Director Thomas Hoenig in Dublin last week, discussing the goal of disassembling behemoth financial conglomerations.

His conclusion: In the quest to improve financial industry stability, behavior and performance, it is unfortunate that we choose complicated administration over structural change.


Let us kiss you, Mel

The Mortgage Bankers Association seems to be “romancing” Mel Watt with its self-serving welcoming, indicating the association’s agenda and for its members and the big banks which own them.


To be read as: “Congratulations Mr. Watt and by the way, now we want and expect…..”

Maloni Kudos to Pope Francis for standing up to your Church’s Neanderthal elitists/reactionaries and displaying your piety for all to see and Speaker John Boehner for calling out the crazies in your party.


Maloni, 12-15-2013


Bill Maloni said...

Recently, I wrote that the F/F mortgage ceilings still could be subject to a scale back in 2014, despite the decision last week to keep them in place.

Today's Inside Mortgage Finance spells out why a reduction still could occur.

Is it the "curse of the departing DeMarco?"

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