Lots of FHFA Action This Week
Some charged developments likely coming this week, including possible Senate approval of Mel Watt to be the new Director of the federal Housing Finance Agency (FHFA), F&F’s regulator.
Most people believe this now is a baked in concrete deal, but there was an interesting wrinkle which came up at the end of the week.
Reportedly, Mr. (Congressman) Watt, who loses the title officially if he takes over the agency but in fact never gives up the honorific, asked Ed DeMarco, the current acting Director, to stay on board awhile in a transition.
I hope that’s not true.
Mel Watt might want the helping hand that a departing DeMarco could offer, but Ed reportedly has “civil service status,” which means he can’t be forced out of the agency and the last thing Watt needs is his predecessor still around with the guy’s former staff paying obeisance to him.
Congressman: Even if it leaves you feeling a little exposed, remove your predecessor ASAP; make the FHA staff understand that there is a new sheriff in town, and just learn on the job, as many of us have in the past when given grander responsibilities.
Better to arm yourself with a solid assistant or two—brought in from the outside (not the Hill), with heavy mortgage finance and securities experience—and look to them, first, before relying on what FHFA officials tell you, until you know enough to trust those you find there.
You don’t have to show off for anyone. You are the boss, you make the rules, and you ramp up at the speed you need, and don’t let anyone — especially inside— measure that pace for you.
Look querulously at any FHFA staffer who starts their sentences with, “What you have to do Mr. Director is…….!”
You are smart enough to know that you have a lot on your plate and while a dose of DeMarco might seem soothing, it’s wiser to lose him as soon as is seemly and get on with your education and administration of the agency.
Frankly, what I don’t know is how much you are going to be your own man, making your own calls on issues that—while you may not understand down to the last comma--you instinctively know are right or wrong.
That’s why you have one or two strong deputies to work over those matters, whose loyalties are to Mel Watt and who won’t spill your business in the FHFA hallways and cafeteria.
It’s going to be difficult for you, but that same logic applies to your keeping at arm’s length your White House sponsors. They chose you. They made the decision, the Senate will have approved it, and now use your brains, skill, and experience you brign through the door.
The Common Securitization Platform (CSP);
“White Elephant” Requiring Major Oversight
Another event possible this week is FHFA and the same Ed DeMarco announcing the name (s) of the individual (s)—there are vacancies for a CEO and President--who will head the Common Securitization Platform (CSP), which I consider an outrageous waste of taxpayers’ money and an expropriation of Fannie and Freddie resources not quite as egregious as the 2008 “takings”--now being litigated in 17 different lawsuits--but, it’s close enough.
The CSP is a new Delaware chartered narrow casted entity, which neither Fannie nor Freddie—who were forced by their regulator to create it--or most lenders want.
However, acting Director DeMarco believes strongly in this unwanted scheme to develop an independent mortgage underwriting platform, which DeMarco gratuitously funds with Fannie and Freddie (taxpayer) revenue.
FHFA has rented Bethesda office space for CSP, is building CSP a boardroom for its yet to be named board, will hire a couple of bigwigs (see above) and then bring in some duplicative worker bees (how many?).
$500 Million, Really??
The rumor is that DeMarco’s eventual cast of CSP merry men and women will blow up to $500 Million on this puppy.
That’s right Congress, $500 Million, which could/should be Treasury-bound and deficit reducing.
This scheme has no independent oversight or design, just a DeMarco mandate to create something which likely already exists in one or both of Fannie and Freddie.
Mel Watt, are you or someone close to you reading this? Make yourself an instant hero, ask the vainglorious (in its own mind and congressional reports) FHFA IG office to investigate the CSP thing, “right #$@&^%*$ now!”
Congress once used the GAO to eviscerate these soft projects, maybe some curious/outraged D or R might ask it to so with this one.
I want it now, whine, and cry!
The common platform has had a quiet evolution and has escaped a lot of outside attention, despite how brazen it is.
Essentially, Ed DeMarco decided that the mortgage banking world—most of which already is attached to one or both of the Fannie Mae or Freddie Mac underwriting platforms--requires a third.
“For whom” is a good question, especially if Congress is going to do away with the two and keep or sell off all of their assets (including their platforms)?
Industry’s public comments didn’t seek this because it realizes some inherent legal risks which lenders don’t need given their other regulatory and judicial concerns.
DeMarco’s judgment is to give this project to the world (he didn’t bother to answer who might pay the taxpayer back for his gift?), no matter the viability and necessity.
Think about it, who but F&F--and maybe one or two banks--have that type of system demanded, which they keep market contemporary?
Where will the CSP, board and employee go for input?
I know, I know, in their hostage’s cupboards!
Clearly this pig, no matter how much lipstick is painted on it, still will look like a sow. When all is said and done—if an intervention can’t be put together—the CSP will use the standards and systems which F&F have developed, remembering these two entities—over which FHFA has conservatorship authority--will continue their automatic improvement.
What is the CSP Going to Seek and Where?
Demarco does not conserve F&F resources and assets with this exercise.
The CPC will harrumph and call for studies and reports, go on field trips, maybe visit overseas, and then take the active information from Fannie and Freddie, dress it up and pretend that it’s a new creation.
There is precedent for this audacious thievery. Since its early days and I suspect still, OFHEO/FHFA would demand detail rich reports from F&F, then some FHFA apparatchik would publish the info, suggesting the research was done, independently by the regulator.
It’s stealing, but gobbling up F&F possessions doesn’t seem to bother Congress.
I suspect, the CSP intellectually will cannibalize some sensitive operational parts of F&F, so some bureaucrat can pretend he/she found out a new way to underwrite loans.
I’ve suggested that FHFA bag the new corporate façade, the titles and expenses, and just name 10 bright people from each entity and a half dozen of their own staff and do the work in house.
If it takes any more than that, then, once again, FHFA is “$%$#@* up!”
Careful Sen. Mark Warner (D-Va.), Mr. 30-1
Weekend report that Republican lobbyist Ed Gillespie might run against you in your next election.
With your constant dissing of them, I am sure the thousands of Freddie Mac employees living and voting in Virginia, as well as their Fannie neighbors who reside there, too, would be happy to put putting their voices, wallets and energies behind Eddie G.
What Others Are Saying/Writing
The WSJ's Nick Timiraos offers his thoughts on what Mel Watt might do at FHFA.
Tim Howard does TV interviews re, “The Mortgage Wars.”
Yahoo looks at Wall Street and ethics.