Monday, December 2, 2013


Now You Have It, Now You Don’t

Temporary FHFA Loan Limit Flinch?

Baseline National Conforming Loan Limit  

In determining 2014 loan limits under the terms of the Housing and Economic Recovery Act (HERA), FHFA did not change the baseline maximum conforming loan limit for the United States. The baseline limit, $417,000 for one-unit properties in the contiguous U.S., was left unchanged based on historical index values for FHFA’s monthly and quarterly House Price Index (HPI).  

HERA requires that the baseline loan limit be adjusted each year to reflect changes in the national average home price. 


Nobody worked harder than the Realtors (NAR) and the Mortgage Bankers (MBA) to rally support and communicate to Director Ed DeMarco and Federal Housing Finance Agency (FHFA) their opposition to the agency’s announced plans to lower the Fannie/Freddie mortgage ceilings.  

Yay, them! 

Industry “high fives” were exchanged when FHFA announced last Tuesday that, for now, the loan limits would stay at their $417K for most areas and up to $625K in “‘high cost” communities. 

Only Short Term?

But one trenchant mortgage finance observer--who seldom is wrong--speculated with me that FHFA’s announcement came while wearing its HERA “safety and soundness hat,” but FHFA dons it’s “conservatorship” helmet,” it still could reach a different conclusion and announce some cuts below those maximum mortgage numbers, beginning on May 1, 2014—a development this very smart guy felt still was likely. 

Would that be something Ed DeMarco tries as he exits? If so, I would think it also would be something Mel Watt, if the Senate votes him into the FHFA Director’s job, would endeavor to block since it would sour his takeover. 

If the agency tries that kind of “pig in a poke” move, watch the Hill oppose it vigorously, at the behest of the same groups who initially inveigled FHFA not to make changes? 

I can write those congressional/industry scripts right now, in advance of their actual need.

--“Dear Mr. Director--It’s way too soon to upset this mortgage limit apple cart, just set it six months ago by your predecessor. The market still is accommodating other new regulatory requirements.” 

“Dear Mr. Director--its way too late in the business year to make those cuts, since most lenders lend ‘forward,’ making borrowers commitments long before the loan is created.” 

“Dear Mr. Director—“The minimal changes you seek generates unnecessary confusion for consumers and businesses in the mortgage finance community,  blah, blah, blah.”  (And, BTW, this is an election year!) 

Did the Big Banks Write Corker-Warner?

Many Senators and Congressmen turn to industry groups for “advice” when drafting legislation which impacts their businesses. 

There has been a rumor for a while that the Corker-Warner (Bob Corker, R-Tenn. and Mark Warner, D-Va.) bill bears the imprint of the TBTF banks because the legislation abolishes Fannie Mae and Freddie Mac.  

For me, a willing consumer of bank villainy, I have doubts and a different perspective. 

The conspiracy theorists have to remember that C-W looks a lot like the recommendations of the Bipartisan Commission, which issued a major housing report early this year. 

Banks make tons of money partnering with F&F and —I suspect—many depositories enjoy the comfort of having the big mortgage entities alive and nearby to soak up any conforming mortgage risk inherent in bank originated home loans.

There is a far more savory and delicious C-W provision that big banks want more, especially if you check their legislative wish lists, and that is a new federal government guarantee on bank created mortgage backed securities to cover any extreme losses. 

Yes, there likely will be hundreds of billions (depending on which Senate sponsor you hear) in future “private mortgage insurance” sandwiched between any bond loss and the federal guarantee, but if C-W becomes law as written, the banks will crow that for the first time Uncle Sam stand behind their conventional mortgage securities. 

That’s not a claim they could make six years ago, during the private label subprime zenith in 2006 and 2007, when the commercial banks and their investment banking allies went gaga and issued a multi trillion dollar mass of toxic mortgage securities.  

The US mortgage backed security guarantee is the equivalent of the bankers finding the Holy Grail. 

Killing off F&F may appeal to many bankers, but it pales next to getting Uncle Sam’s imprimatur on bank mortgage paper.

Drop in Fannie Delinquency Rate

An interesting report-- and an evolving old fiscal/budget matter--suggests always unique implications for Fannie Mae (and Freddie Mac). 

Fannie’s Serious Delinquency rate declined in October to 2.48% from 2.55% in September. The serious delinquency rate is down from 3.35% in October 2012, and this is the lowest level since December 2008.


A few things jump out. 

First, Fannie’s rate is twice as good as the overall MBA member rate and trending down

The “trending down” has something to say about how long FHFA can force the company (and Freddie, too) to hold onto to the overly large loan loss reserves the regulatory agency has insisted upon? 

At some point, GAAP will force that revenue to the bottom line, paying back taxpayers all the faster. 

And that leads into my second observation, which is near term—as profitable financial institutions sending revenue to the Treasury—nobody at the Treasury and White House is going to want to tip over that apple cart, especially as the Administration still is engaged with congressional Republicans on budget matters, a fight that merely was kicked down the road until mid January 2014—and could be kicked even further as we approach an election year. 

A Wise Congress Keeps F&F


I’ve often suggested that many big banks like F&F in the market, because it allows them to hand off their mortgage risk and go on and make money as giant mortgage bankers, living off fees and servicing income and enjoying very low risk. 

In fact, if Congress were wise, they would kept a smaller Fannie and Freddie around so the former GSEs, too, could use the Corker-Warner FMIC facility and pay a fee like every other utilizing lender. 

That may be too sophisticated for these guys and it does it whack the C-W rhetorical attacks which often start with, “We need to end private profits and public losses,” which Bob Corker (R-Tenn.) repeated just days ago during a hearing, taking aim at F&F. 

(I wish he would explain in specific detail to what he is referring?) 

Under Corker-Warner, who does Corker think will make the profits and who will take the losses if Uncle Sam’s name is on that new federal guarantee which Congress confers confer? 

Oh, I am certain he will point to those hundreds of billions in private mortgage insurance policies which he and Warner hope will materialize. 

What if those investments don’t magically appear?

That, alone, could be one reason to keep Fannie and Freddie around.

Congress should take it’s time, confront all of the C-W questions and challenges and be open and honest about what it hopes to achieve with C-W and any other plan.


Cue the sarcasm, it’s only an $11 Trillion segment of our nation’s economy and somewhere around 16% (or more) of our annual GDP.


What Others Say



(Happy birthday, Jason Wynn Maloni, our first born. I love you, Babe!)



Maloni, 12-1-2013





jwnoblethree said...
This comment has been removed by the author.
jwnoblethree said...

Hi Bill,
Happy holidays and congrats on the new family member.

I have been thinking about the mechanics of Quantitative Easing and the critical importance of a huge liquid MBS market to be in place for the non-traditional monetary policy to be effective. Effective for QE expansion and eventual tapering. Good reading for a peek into the Feds playbook (Bernanke authored). This is part of the reason the MBS purchases have been so large in a non-conventional policy mode by our Fed. I suspect Yellen will follow closely as well.

the salient points are noteworthy regarding what the economy is working through since 2007-2008. We are far from being in the clear.

When do you think the FED and TSY will weigh in on what the mortgage market future will be?

Bill Maloni said...

JW--Thank you, but son Jason (oldest of four adult males, turned 44 today), but your thought is warmly received.

Short answer--although there is constant discussion between the two officials--on MBS policy per se, that's Yellen's call and will be. She's not going to cede much to Jack Lew, guy who will be out of office in a few years.

For some of the reasons I've already mentioned, most notably congressional and presidential elections in 2014 and 2016, I think Jack Lew will be slow to accidentally counter the Fed's punch bowl, nor should he until unemployment stops being so stubborn and falls.

Anonymous said...

Seems like Tim Howard is making the rounds on the business channels...just saw him on Bloomberg this morning. Makes an interesting arguement against the anti-GSE'ers. However, the media seems to continue the attack against these two...even despite a true insider with actual knowledge. I'm surprised (not really) that these folks show almost total unwillingness to listen to the other side. The mere suggestion that wall st. PLS may have actually been a major factor is beyond me. Has the bashing just gone on for so long that practically nothing will reverse the course on these things??

Anonymous said...

What I meant above re: PLS is that the 'media' seems to believe that the TBTF banks had a minor (if any) role in blowing up housing via PLS issuance.

Bill Maloni said...

Yes, Tim's book came out officially on Dec. 2 and that when McGraw Hill permitted interviews, etc.

Ironically, in an email last night to one of the primary carriers of the "what PLS in 2006 and 2007," I challenged him to merely acknowledge the historical point.

I haven't heard back and don't expect to.

It suggest how high the mountains of lies are.

Some weeks ago, Tim asked me for names of F&F congressional supporters?

I had to tell him that there aren't any, at least who publicly admit it.

It's depressing, but maybe his book and the occasional article supporting the F&F mortgage finance role will open some eyes and minds.

Anonymous said...

Ego is a bad thing.

Just like when your beloved stock goes major on the red and it becomes impossible to admit one has been wrong.

Congressmen cannot and will not accept they have made a bad assessment. Or they will be telling the world their monkey brains are the size of a pea.

Ego is a bad thing.

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