Saturday, December 21, 2013


Pre-Christmas Observations


Kudos Mel Watt
(See segment's final paragraph) 

In the middle of last week a number of reports suggested that Fannie and Freddie took actions to drive up the cost of mortgage finance with a loan level pricing (LLP) fee increase which most expect  lenders will pass on to borrowers.

Accurate as far as it goes, but it wasn’t Fannie and Freddie doing this. Once again it was actions driven by their regulator who mandated the boost. 

This was another dictate from on high from the outgoing DeMarco regime and his posse, still holding senior Federal Housing Finance Agency (FHFA) jobs. 

It’s been written about--and all but verified--that Ed DeMarco was conflicted by his role as “conservator,” under the 2008 HERA legislation, and as F&F’s regulatory overseer. 

His HERA assignment was to “conserve” and to resuscitate F&F and preserve/foster their assets; but his second job—the one apparently closer to his heart where he could exercise discretion—was working with his team, divining ways he could wind down Fannie and Freddie and limit their capacity to gain strength and generate revenue, all in the guise of “bringing more private capital into the mortgage market.” (Hey, nobody can be against that, right?) 

But, he  failed there, as succeeded wonderfully, supported the nation’s mortgage finance system and  became burgeoning cash cows, to the point—as most everyone knows---that in a few short weeks, when 4Q 2013 earnings are announced, Fannie and Freddie will have more than paid back the money the taxpayers invested in them. 

Anyone who talks to officials at Fannie and Freddie know the two are being told what to do; F&F senior execs are not managing their companies and making any significant decisions. 

They are automatons, taking and implementing orders from FHFA and, occasionally, from Treasury. 

There is hope among some that Mel Watt, once he is sworn in, will breathe life into the two’s historic mortgage finance role and have them initiate—Shh, can I say compete?—and pass on those benefits to US home buyers and the mortgage finance system broadly.

But, to be effective, Watt should root out FHFA reactionaries, who support the DeMarco approach. 

He should bring in a strong “Watt team,” who truly understand the mortgage and securities markets and how the principals interact. They have to total allegiance to Watt and no fidelity—until it’s earned under fire--to the carryover FHFA staff, who likely will have little love for a new Director more inclined to help mortgagors.

I’ll repeat what I’ve written before, after being sworn in new Director Watt might find them comfortable, but I doubt Watt can find anyone working on Capitol Hill who has the requisite skills he’ll need at his right hand. 

In the meantime, industry groups are pushing the Hill to push FHFA (Watt) to roll back the loan level pricing adjustments and I hope he does. 

(The preceding segment was written on Friday afternoon, Dec. 20.  On Friday night, Mr. Watt announced that he would delay the fee increases until he could review their impact. Congrats industry groups and others who pushed for that decision.)


 AEI Looks Overseas and Sees??? 


Last week, I noted that Ed Pinto will head a new American Enterprise Institute (AEI) international housing finance operation.

Here is there press announcement and a brief AEI produced description of Ed’s new shop.



“Today, the American Enterprise Institute (AEI) launches a new initiative to help temper the destructive boom/bust cycles in housing markets: the AEI International Center on Housing Risk (ICHR). The ICHR will equip borrowers, investors, analysts, regulators, politicians, and lenders with new indices designed to provide transparent measures of housing market risks and the means to mitigate these risks and instill market discipline.  It will be staffed by nearly two dozen experts, many of whom warned of the crisis from which we are still recovering.”

But, what can the nation—and the world—look for in this new project? I hope the work is a lot better than the last time that Ed and Peter Wallison, his AEI colleague, got on their “research” tear.

That was when they produced and huckstered Ed’s distorted funky finding that Fannie Mae bought mostly subprime loans in the 1990's, which provided the Rightwing movement plenty of grist for their mantra that "Fannie and Freddie caused the 2008 financial meltdown.”

But it was a hollow theory which serious researchers panned and one which got rejected across the board by many government and private reviewers. 

Most egregious was Peter Wallison attempt to flog Pinto’s work—when Peter Wallison served as a member of  President Obama’s  Financial Inquiry Commission, most egregious was PW’s effort to flog Pinto’s work to the Commission staff and mislead some in Congress about how Pinto’s product was received. (Hint; the FCIC staff dumped all over it, as did the Federal Reserve staff in a special report to the FCIC. In short order, so did a Nobel prize economist, several national financial writers, and our friend and colleague, David Fiderer.)

So, as kind of a “welcome back to the research world Ed Pinto,” let’s revisit what some people said the last time Ed and Peter wrapped their names around some of Ed’s personal research. 

Here is a 2011 story from the Daily Kos.

Here is David Min’s superb and substantive rejection of the AEI line.

Bob Kuttner in the American Prospect.

Here is Paul Krugman’s work in the NYT.

Here is a New York Times blog book review  of the Gretchen Morgenson and Josh Rosner’s book, which relied heavily on Pinto’s research.

This Huffington Post link contains the most detailed description of what reportedly was in the Fed memo sent to the FCIC, as well as Wallison’s admission of leaking it to Pinto.



“Read this piece by David Fiderer, who calls out the American Enterprise Institute’s Edward Pinto, who along with Peter Wallison, has been the primary force behind the Big Lie, noting how he has recently taken in The New York Times, the Los Angeles Times, and others with misleading claims about the Federal Housing Administration.” 


--Mike Konczal, a fellow with the Roosevelt Institute


Wonkblog: No, Marco Rubio, government did not cause the housing crisis



(Maloni note: Konczal's piece also references previous rejections of the AEI/Pinto/Wallison charges.)


--Jesse Eisinger


--Barry Ritholz    

--Paul Krugman  


--Ken Harney


Nick Timiraos, WSJ

Mortgages, Ed Pinto, and a vast conspiracy of silence …“Check out that first chart. Hilarious stuff.”



The world needs to remember Ed Pinto’s and AEI’s first major foray into housing research and keep it in mind, if similar fetid analysis—with an international flavor--pours from the AEI well.



“Fool me once, shame on you; fool me twice, shame on me!”



2013 and 2014

I wish you and yours, all, a healthy, happy holiday season and an equally healthy, happy and productive New Year.

May the saner minds in Congress and in the financial services world emerge and shine in 2014


Maloni, 12-21-2013


Unknown said...

A Happy New Year to you as well.
Thank you for all your help, insight, links, perspective.

Unknown said...

A Happy New Year to you as well.
Thank you all your insight, perspective and links.

Unknown said...

Bill I can't find an email for you ...
you can reach me at ....

I'll be watching for something from you