Sunday, March 30, 2014

On the Right we have..and on the Left we have......


CWJC Has Some Critics


Let’s see now, there’s the Obama White House, check; Corker-Warner (Senate D’s and R’s), check; Johnson-Crapo (Senate D’s and R’s), check; Hensarling (mostly House R’s), check; and now Maxine Waters (mostly House D’s), check. 

Yep that makes it official, elements of the full political spectrum want to blow up Fannie/Freddie, make off with their resources and assets, and substitute a monstrous melange of new and untried schemes to run the nation’s $10 Trillion primary and secondary mortgage markets, while providing the large financial institutions with ways and means to ravish the new system and satisfy their own selfish financial interests.

Has anyone asked Putin, Assad, Kim Jong-Un, the Syrian rebels, or the Lord’s Resistance Army, if they want to throw their weight behind some version of mortgage reform?

This GSE firing squad lineup reminds me of the scene in “Blazing Saddles,” where “Attorney General Hedley LaMarr(actor Harvey Korman) is recruiting “bad guys” to raid the town of Rock Ridge and he enlists every clichéd Hollywood villain he can gather, cowboy rapists, Klansmen, Nazis, Arab raiders, Mongols, Indians, and Mexican bandits (“Badges, we don’t need stinkin’ badges”). 

Maybe the US Capitol Police can ferret out a Fannie Mae congressional supporter, in some dark hidden basement in the Longworth or Cannon House office buildings? 

The Numbers Don’t Matter (gulp)!

That overwhelming CWJC political support doesn’t awe or intimidate. 

The way Congress works, no matter how many lemmings hop to follow the loud Grand Poobahs, you’ll still have critics exposing details of the various bills. Enough of that noise will make an elected official’s excitation cool and ardor wane. 

So, let’s see what some CWJC detractors think. 

Josh Rosner, a managing Director at Graham Fisher who once co-authored a Fannie-critical book, this week said the following about the new Senate legislation, which reportedly is filled with statutory language written by the TBTF institutions. 

 “Unfortunately, the bill replaces Fannie and Freddie with an untold number of new government-sponsored enterprises by handing a massive taxpayer backstop to the nation's largest banks. These banks will also profit handsomely from large mortgage volumes as a result of the bill. … Rather than fix these problems, legislators seek to demolish the current mortgage market and build, from scratch, a new system that makes things worse.  … They put at its center a new regulator, the Federal Mortgage Insurance Corporation, with a fundamentally conflicted mission—combining safety and soundness, affordable-housing goals and consumer protection.

“The bill will have the effect of increasing rather than reducing the concentration of lending in the hands of a few large banks. Under the legislation
the government will also sponsor mortgage aggregators, insurance entities and a mutually owned securitization platform. Our largest financial firms will use their public homeownership mission to push for eased lending standards. In good times lenders and their shareholders will enjoy the profits generated by higher mortgage volumes, and in bad times the public will again be stuck holding the bag.”



Come on Josh, don’t hold back, tell us what you really think? (I love it!)

Hey Congress, suck on that analysis! 

A published author, Rosner isn’t the lonely voice of some former Fannie Mae lobbyist, an all-around good guy and handsome Pittsburgh sports fan. 

I’ll take acolytes wherever I can find them. Here’s the Heritage Foundation's review. Heritage is headed by Tea Party darling and former South Carolina GOP Senator Jim DeMint.


And, there’s the American Enterprise Institute (AEI), with angry Ed Pinto writing that CWJC is dangerous and lame.

The draft bill released on Sunday, March 16 by Senate Banking Committee Chairman Tim Johnson (D-S.D.) and Ranking Member Mike Crapo (R-Idaho) will not protect taxpayers from future bailouts. 

It will replace the implicit federal guarantees enjoyed by Fannie and Freddie with explicit guarantees enjoyed by their successors. 
  • It will replace the single-family affordable housing mandates with a new set of affordable housing provisions that will also lead to debased underwriting standards. 
  • It will raise taxes on the middle class by imposing a new tax on homeownership that will be used to provide billions annually in furtherance of a misguided policy to promote risky lending to lower income homebuyers.

Experience has shown that any bill which includes an explicit guarantee of an insurance program will fail to protect taxpayers.  The proposed Federal Mortgage Insurance Corporation (FMIC) will be no different. 

The bill, as was the case with Fannie and Freddie, assumes the government would be better at pricing risk than the market.  The examples of the government’s mispricing of insurance risk are legion—flood insurance, Medicare, and pension guarantees to name but a few.  Supporters point to the 10 percent requirement for private capital.  Deposit insurance is based on a similar concept, yet it has failed not once but twice.  The savings and loan deposit insurance bailout (FSLIC) of the early-1990s and the FDIC bailout by the Troubled Asset Relief Program (TARP) in 2008.   And lest we forget, Fannie Mae at one point had a similar capital requirement which was whittled away over time by Congress.

The bill, as was the case with Fannie and Freddie, would encourage too much of the wrong kind of debt for our economy—debt that bids up existing housing assets and the land they sit on, creating a temporary wealth effect and a crowding out of capital investment needed for a productive and growing economy and jobs growth.  Worse, the result will be another artificial housing boom and consequent bust. 

The bill, as was the case with Fannie and Freddie, would require politicized credit standards--once again putting lower-income families into housing they can’t afford, with the same disastrous results

We also have Mike Whitney’s biting analysis, in the Smirking Chimp(which is not a commentary on any of the congressional sponsors). 

The leaders of the U.S. Senate Banking Committee, Sen. Tim Johnson (D., S.D.) and Sen. Mike Crapo (R., Idaho), released a draft bill on Sunday that would provide explicit government guarantees on mortgage-backed securities (MBS) generated by privately-owned banks and financial institutions. The gigantic giveaway to Wall Street would put US taxpayers on the hook for 90 percent of the losses on toxic MBS the likes of which crashed the financial system in 2008 plunging the economy into the deepest slump since the Great Depression. Proponents of the bill say that new rules by the Consumer Financial Protection Bureau (CFPB) –which set standards for a “qualified mortgage” (QM) – assure that borrowers will be able to repay their loans thus reducing the chances of a similar meltdown in the future. However, those QE rules were largely shaped by lobbyists and attorneys from the banking industry who eviscerated strict underwriting requirements– like high FICO scores and 20 percent down payments– in order to lend freely to borrowers who may be less able to repay their loans. Additionally, a particularly lethal clause has been inserted into the bill that would provide blanket coverage for all MBS (whether they met the CFPB’s QE standard or not) in the event of another financial crisis. Here’s the paragraph:

(Read Whitney’s entire piece, here.)


John Taylor and the National Community Reinvestment Coalition threw this brickbat, aimed at the absence of enforceable low income housing provisions when the J-C bill first was released and which remain unchanged. 

"While we are encouraged that the Johnson-Crapo draft incorporates elements of a
proposal put forth by NCRC, and addresses some of the shortcomings in Corker-Warner, the details of the draft text still raise serious concerns. It is critical that housing finance reform ensures access for all creditworthy borrowers, regardless of their income level, geographical location, or race. In its current form, the details of Johnson-Crapo appear to fall short. The draft bill does not include meaningful enforcement and evaluation criteria to ensure access. “

And last—for now—Chuck Gabriel of Capital Alpha Partners excellent review which gets into the competing accounting issues raised by the CWJC legislation in “wonky Washington.”

As my late father loved to say, when something he predicted came to pass, “I told you, didn’t I tell you. I told you!” 

With the Conservative/Teapublicans rising in Washington, how does this unorthodox federal budget stuffing meet “GOP code?” 

The Waters’ bill does mandate lenders to do affordable housing, but the details (where “the Devil” hides) won’t necessarily make it so.

The only way the lending community willingly does low income mortgage lending is if they are threatened with loss of huge paydays for not complying; don’t look for “goodness of the heart” or “it’s the right thing” mentalities from the big money guys. It’s all about the bottom line. 

Carrots are fine but sticks work better.

Seriously Folks….

In anticipation of next Tuesday’s knee slapping humor and stealing a joke from the wonderful team at Inside Mortgage Finance, “Did you hear that FHFA Director Mel Watt just agreed officially to speak?” April Fool!!!

Just teasing, Mr. Director.

Watt is in a tough position, he can’t get too far away from his White House sponsors, but I have no doubt that his heart is in the right place when it comes to helping people achieve homeownership.

I believe he’s sincere when he tells people that his primary mission is insuring the safety and soundness of Fannie and Freddie and preserving their value.

Based on that intent, I hope Watt slow walks or jettisons Ed DeMarco’s legacy common securitization platform, which may cost taxpayers as much as $300 million plus see a few hundred new employees constructing something which clearly isn’t in F&F’s best interests because it’s was designed by its maker (Mr. DeMarco) to serve their successor(s)—and frankly it’s questionable whether it‘s even needed given the existence of the separate F&F platforms to which every lender in the nation is a commercial partner to one or both.

That  government giveaway was Ed DeMarco’s personal dream not his official/statutory agenda, which is why—now that Ed’s gone—I expect he will join an ideological comfort spot (AEI, Cato, or with one conservative financial companies outfits in the Southwest).

Senate Markup of CWJC has been scheduled for April 29, which should give the primary sponsors sufficient time to make changes and build additional support.

I keep hearing that the big banks could be shocked to unhappiness by some mystery amendment in the works. That would be great to see, but talk is cheap.

Worth Watching and Hearing


Maloni, 3-30-2014












Qualified Observer said...

This is off topic from your last blog but we've discussed it before. Is *this* the real Tim Howard?

Thanks in advance. If it is, I'll apologize to some people. If it isn't, I'm going to hound them all.

Bill Maloni said...

QO--No it isn't and I alerted the "real Tim Howard" this morning, when I saw that this guy has started a blog.

From what I understand, there is little one can do if your name is hijacked like this.

But the former Fannie Tim Howard has lawyers to advise and protect him, if that's necessary.

Humorous sidebar.

When I called attention that "this Tim ain't that Tim" to the message board where the phony guy has been posting, I was berated because the poser has been offering lots of talk--not sure if it was insight--and readers liked it.

Qualified Observer said...

Thanks for the fast response. To be truthful, I've found no fault with the guys analyses but the fact that he's effectively increasing his credibility in this way really grinds me.

I'll point people here for now; we'll get some traction anyway. Maybe you could include another paragraph like the one from 24 Feb?


Bill Maloni said...

I'll let my friend Tim worry about the imposter, as you noted--so far--the faux Tim's comments don't appear to be harmful.