Mortgage Reform and Stuff
Lobbyists Give The Hill Legislation? (Is there gambling at Rick’s?)
I shocked some readers with my last blog, when I mentioned that large parts of Johnson-Crapo statutory language (and Corker-Warner before it) were supplied by the industries affected by and backing the statutory proposals.
Again, nothing nefarious there and the practice has been around forever (and yes, we/I did it at Fannie Mae)—even though both congressional chambers have their own legislative drafting offices to provide what the lobbyists willingly provide—often because the industries and institutions filling staff requests to supply language know their businesses better than the Hill and know what existing laws come into play when policy and product changes suddenly are on the table. It is understandable that the “interests” prefer certitude in the statute rather than unintended consequences or vagaries which permit too much regulatory discretion.
If there is process sin here, it with the congressional offices unapologetically taking proffered language, not amending or changing it to accommodate how their “boss” sees the issue or how their principals want to be portrayed. The interest group’s legislative objectives—not to mention the voluminous campaign support which precedes or follows the official’s acceptance--often enthuse and motivate the Senators or Congressmen, not the other way around.
As various outside sources and media parse the statutory language (not just the accompanying prose), right now is the time to “stress test” the CWJC provisions, and identify potential problems, which might be tomorrow’s trigger for a repeat of 2008’s financial collapse.
If done properly, policy makers still will make changes when shown possible land mines or errors in what they’ve accepted. And, as I pointed out in earlier blogs, CWJC sponsors will change this bill as they hear from more people they want as allies, most of those possible advocates have a statutory “price” for that support.
Why So Much for the Banks?
One early analysis notes the major advantages it appears to give the TBTF banks, including no limits on the amounts of FMIC business they or their subsidiaries can conduct.
Hopefully that issue will play itself out over the next several weeks, when enough Senators say, “What the Hell are we doing here?”
But how ironic is it that the Committee which sweat blood over Dodd-Frank got criticized by the big banks before and after the bill became law—for a package which really doesn’t inflict much pain on the big guys—now turns around and plays sweet nursing Nanny to the same institutions?
Do you think non-stop bank D-F whining begat these bennies? Maloni's answer: Do bears use the woods as a lavatory?
It is so much easier for Senators and Congressmen to talk the tough pro-consumer/little guy talk than walk the tough pro-consumer/little guy walk.
Bank Holding Companies
Bank holding companies (BHCs) have subsidiaries and a near infinite capacity to create new ones.
A TBTF bank already can possess subs which offer mortgage lending, private mortgage insurance, securities insurance, securitizing and securities sales. Why not appraisal, home sales and more? In other words, why couldn’t a vertically integrated BHC provide near everything the new FMIC legislation offers the commercial world?
If BHC double dipping occurs—multiple units of the bank using the FMIC’s services and subsidies--does CWJC have the right limitations in place or capital demands which can’t get passed around the BHC like a hot potato so the regulators lose sight of what sub inside the big shell needs it and who is holding it?
Can more than one subsidiary claim the same capital, if BHC management gives it different labels?
The big financial institutions' litany of violations is there for all to see and read (assuming the Senate solons have the time and capacity). How did all of the financial products/services manipulation and chicanery—which one would think would anger elected public officials—instead earn the behemoths so much Senate Banking Committee succor?
Insurance Regulation, A Problem?
CWJC likely will see an increase in the current handful (seven or so) private mortgage insurance companies which will need to ramp up, mightily in capital and possibly numbers, if they are going to fill the legislation’s insurance demands.
The economic opportunities might also stimulate more companies seeking insurance charters to take advantage of the $11 Trillion U.S. housing market.
Insurers are chartered and regulated at the state level under the McCarran-Ferguson law (bars most federal regulation).
Historically, state insurance regulation has been lax (that’s a nice phrase for "industry captives"), with most state insurance officials coming right from the companies they have to regulate. Are the various state Insurance Commissioners up to the task of regulating the new chartered and regulated entities which CWJC produces—or will they trip over one another to display safe havens for a new wave of insurers, plus the existing ones?
Lenders Complaining Already?
In camouflaged terms--which sound so thoughtful but reflect selfish interests--some banks and mortgage companies already are expressing concern that CWJC’s 10% first tier private capital requirement--to protect taxpayers from lender losses—may be “too steep for____________.” (Fill in the blank with your own public policy rationale, but you would be closer to the truth those lenders are expressing, if you supplied, “Because it won’t allow us to make as much money!”)
Voters don’t like “Barry?”
President Obama last week ruminated that Democrats “get clobbered” in midterm elections.
But in 2014's mid terms, this President will contribute political spice to that losing sauce and be a major reason for what now looks like to be a crushing GOP Tsunami of congressional wins, including possible loss of the Democrat Senate.
It should not have been that way, given the number of Senate/House Republican reactionaries who could have been quarantined and ousted in November, if the President and his congressional allies showed the political skills to isolate and expose the “Teapublicans” with thoughtful political initiatives.
But, instead the Hill D’s and the White House offered up Syria, “Obamacare,” disputes with Israel, immigration missteps, lingering unemployment and a slack recovery, Russia, Iran, Iraq—and did I mention Obamacare—and will give GOP voters and Independents grist to vote out Democrats this fall, replacing them with Conservatives.
Maybe that’s just the way our democracy works and, possibly, in 2016, mistakes by a GOP controlled House and Senate, could produce the reverse and D’s will win back the White House and possibly the Senate, again?
What Others Are Saying
In the Weekly Standard, an unusual source says Fannie is good!
Harlan Green in the Huffington Post.
Housing Wire article questions if CWJC will hurt housing recovery?
Alvarez and Marsal suggest F&F liquidation value is $200 Billion.
Writing for a forthcoming Brooklyn Law School law journal, David Reiss produces an overview of the F&F law suits.