Wednesday, March 12, 2014

Here We Go, Again


Thoughts on Johnson-Crapo


There is a reason why smart people always maintain “the Devil is in the details.” 

Looking at the bi-partisan mortgage finance reform principles, issued on Tuesday--which reportedly will be reflected in a coming draft bill sponsored by Tim Johnson (D-SD) and Mike Crapo (R-Idaho), chairman and ranking Republican on the Senate Banking Committee draft--there is a lot to like, but…. 

Today’s early salutes to their genius and hard work, quickly could become brick bats, when revealed elements gore somebody’s ox or provide more pig slop for some than for others. 

Tim Johnson has been a standup guy for a long time and the Senate would like nothing better than to give him a law which could bear his name (think “Dodd-Frank”); but anything which passes this Senate likely is DOA in the GOP-run House, where Jeb Hensarling and his Tea Party posse don’t think the federal government should in the housing finance business.
Ergo, we may never see in God’s lifetime a “Johnson-Hensarling” mortgage finance reform law.
Whisper, whisper.. 

Not surprisingly, there were a ton of rumors surrounding the Senate announcement, which is why seeing the components make so much sense, including a rumored 10 year phase-in to permit this and future Treasury Departments to secure from F&F an additional $180 or so billion dollars in dividends, the OMB predicted this week that F&F can provide for the General Fund. 

(The mortgage giants always could represent more money and efficiency, if F&F were just were re-privatized and spun away from Uncle Sam, but that’s another discussion).

I would be stunned if between now and the 2016 presidential elections, the two chambers of Congress got more liberal or progressive.

Anger and general frustration at President Obama’s largely ineffective record should produce victories for more Conservatives in each chamber and maybe GOP control in the Senate after November 2014. 

That means there will be no major expansion of Uncle Sam’s role in mortgage finance, such as that reflected in Johnson-Crapo, with its renewed set asides for low income single family and multifamily housing that can pass Congress while Barack Obama is in office. 

As I’ve written and others who serve on the Senate committee commented, everyone wants to see the details of Johnson-Crapo before they sign on the bottom line and pledge their total support. 

Ignore most of the trade association cheer leading coming when the story broke, since nobody wants to P.O. the top D&R on any committee they need.
But they could flip tomorrow or next week, if the specifics don’t favor them. 

Share prices in the preferred stock and the common stock of both companies took major gut shots after the announcement. But, they were a crap shoot before and remain so, with their prices falling and jumping as the gamblers assess their fates. 

But, nothing revealed with the Johnson-Crapo announcement, no set of principles, no draft bill, can change what the courts will need to decide in the multiple and massive cases against two Treasury Departments and the Federal Housing Finance Agency over the original F&F conservatorship and the subsequent major alteration in how F&F return money to the US Treasury.  

BTW, at the end of this month, the two will have returned north of $200 Billion to the nation’s taxpayers.

With less than three years left in office, I doubt the  Obama Administration will go for a legal settlement which both costs the government money it needs/wants and opens this Administration to more ridicule for the short cuts it likely took in implementing F&F’s current situation. 

We will have a lot to chew on before any consensus, let alone final action, is reached on replacing F&F and constructing a new national primary and secondary mortgage market, which I think will come sometime in 2017.


What Others Are Saying

The WSJ's Nick Timiraos discussed OMB’s $180 billion 10 year F&F dividend projections.

Jody Shenn writes in Bloomberg. 


Mary Smith goes off on Credit Suise in the New York Times 

In thestreet, Philip Van Dorn waxes eloquent, on two different topics.




Maloni, 3-12-2014


Anonymous said...

I appreciate your blog, thanks so much.

Biil, I think Obama has had good intentions since he took office yet as my father pointed out to me many years ago, the President is only as good the gang that surrounds him. With that, I never really understood why Obama embraced persons such as Summers, Geithner and Paulson, So it's not Obama that I blame directly but the bad influences that fed him a line or 2, that earned him the legacy of bad policy decisions, What is most sad and troubling is that voters will go to the polls in 2016 without really knowing the architects behind the many scams.

The imminent need for mortgage finance reform is an example of the above and I agree nothing will happen in the near future,

Bill Maloni said...

Anon--Geithner and Summers are on President Obama; Hank Paulson was W's Treasury Secretary.

Larry Summers is smart, but full of himself and doesn't play well with others. Geithner was too close to the banks, coming from the New York Fed and forgot that he was to manage not succor them.

Barack Obama appointed them and trusted them and their screw ups or mismanagements are on him.

I wanted this President to be a giant but he's not made up that way is a debater not a gut fighter and the R's only wanted to fight with him. They said it, they pointed out their plans and eh did very little to combat those schemes.

Good man, probably a good husband and father, but appears not up to the challenges the fractured GOP has thrown at him.

Obamacare is a mess, at least to outside appearances; the economy hasn't totally recovered; Keystone Pipeline is being held up; Syria, North Korea, Iran, Irag, Russia, and Israel/Palestine, possibly China, are overseas trouble spots (and that's being kind).

The EU won't step in on the Ukraine take over in any meaningful way.

Al Queda is cropping up all over Africa.

Obama's not running and the R's are running against him and his policies. And many D Senators and Members are retiring or running but hiding from the President.

Mid-November is going to be ugly, I think.

My sense is that the American people don't need much to want anybody but the Democrats running the Congress next year and then 2016, will give the R's a chance to capture the whole thing.

Anonymous said...

Hot potato!

"Warren: Housing Reform Too Big an Issue to Rush Legislation"

Bill Maloni said...

Lots of smoke and mirrors in town on this issue.

I'm told Warren is negotiating with Johnson-Crapo for what she wants on low income housing support.

Public comments are not necessarily an accurate reflection of her position.

But, too much accommodation for Warren (and the other "progressive"
D's) will cost J-C the GOP support they need. Tough balancing act, but that's how successful legislating is done.

Anonymous said...

Sounds like a discombobulated mess of ideas trying to find middle ground. I don't see this bill going anywhere especially since the SBC can't agree on basic principals. Hasn't this bill been in the "finalizing stages" now for a long time?

Bill Maloni said...

Yep and everything which is happening, largely in public, usually goes on behind the scenes when legislative proposals have a real chance.

The media this week reflects most of that. Because I written so much (number of words) in the blog I'll put out tomorrow, I don't have the usual "What Others Aare Saying" segment, but do link two representative articles within the blog text.

Note that the first discussion of Johnson-Crap caused the F&F stock to drop mightily but first common and preferred came back later in the week, suggesting investors are not buying into a quick resolution.