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.
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.