Last Week, Lots of Major GSE News
Senate Crashes, While Watt Soars
As I predicted in my previous blog, the Senate Banking Committee last Thursday did report the CorkerWarnerJohnsonCrapo (CWJC) bill on an underwhelming 13-9 vote, with one supportive “Aye” tendered by retiring conservative Senator Tom Coburn (R-Okla) casting his vote for his friend Mike Crapo (R-Idaho) not so much on content.
( I misidentified Coburn as Sen. John Cornwyn of Texas in the original blog.)
The narrow bipartisan approval likely was insufficient to show Majority leader Harry Reid (D-Nev)--or Minority Leader Mitch McConnell (R-KY)--the kind of popular appeal which merits Senate legislative floor consideration.
Compass Point’s Isaac Boltansky wrote an excellent post-action report looking at some of the contentious GSE matters. (Also, note how possible future committee Chairmen voted.)
See Huff Post’s article on the same matter.
Ironically, two days before the Senate Banking swung and missed killing F&F in its time at bat, Mel Watt Fannie’s and Freddie’s new oversight Director at the Federal Housing Finance Agency (FHFA), hit a solid double and easily could made third base with his maiden policy speech at DC Brookings Institution.
Watt reaffirmed his support Fannie’s and Freddie’s traditional role, keeping them working until there was reliable evidence of a viable alternative, and his commitment to increase mortgage affordability controlling keep F&F fees and charges (contrary to his predecessor’s agenda).
His speech, whether by design or not, marked Watt as a key player on GSE policy (which I am certain PO’d certain White House and Treasury officials, who saw Watt as the policy-shaky new kid on the block and not their equals).
Given Watt’s impressive debut performance, in the media’s eye, he might have vaulted over Treasury’s Mike Stegman and HUD’s Sean Donovan (who’s reportedly headed over to run OMB) as the Admin’s point person on GSE policy. (Grunt level, grumble, grumble!)
The well coifed Nick Timiraos (I know his barber!) covered the Watt speech for the WSJ and wrote the story linked below.
Tie Richard Bove down and douse him with cold water. If Bove was any more jacked up and delighted over Mel Watt’s speech portent, public safety officials might have to breathalyze Bove and cite him for writing under the influence!!! (See below.)
And Along came DeMarco….
On the same day that Watt spoke at Brookings, the man who held the job until the Senate approved Watt, Ed DeMarco, came out to argue that F&F should be throttled, shut down, and otherwise ignored because they made market mistakes and “failed,” in DeMarco view.
Wow, what a contrast, the new guy (Watt) holding out housing and mortgage finance hope and the former guy (DeMarco) spewing unhappiness and possibly venom. I look for Mr. D to wind up working for one of the DC conservative think tanks or a Southwestern financial firm hustling mortgage assets and businesses.
Here’s Timiraos’ story on DeMarco.
This article can also be accessed if you copy and paste the entire address below
into your web browser.
Mel, Have a DeMarco Opinion?
Because of the sharp contrast in the Watt and DeMarco messages, I called Director Watt (“Hey, Mel. it’s me. Bill) to ask if he had any response to what DeMarco said, since it clashed so much with Watt’s references.
Mr. Watt, statesman that he is, told me that he appreciated the situation in which Demarco found himself and knew that DeMarco was sensitive after President Obama replaced him with Watt. So, with great understanding and some obvious compassion for a “fallen government veteran,” Watt told me that I could attribute the following statement to him:
“Ed, tough noogies; natty, natty boo, boo and nah, nah, nah, nah, nah!”
(No, I didn’t call Watt and he didn’t say that, just a little Maloni effort at Washington DC humor.)
In This Corner, Weighing……
Also last week, in a somewhat related matter, the Washington Post’s Dina Elboghdady, penned this article about Wayne Hornsby, the ex-FHFA Chief Operation Officer facing charges over threats to Ed DeMarco’s safety/life.
Director Watt also delivered certainty on and outstanding question about F&F’s federal “conservatorship.”
In answering questions, Watt declared FHFA has the authority to make “conservatorship” changes. He didn’t offer any he would make or promise to do so, but established that principle.
Now, Watt wouldn’t be heading the FHFA unless the Obama White House politically blessed and appointed him and the new Director likely isn’t taking any dramatic steps which the White House and Treasury pols and quants don’t prior approve.
But, it was refreshing to have clarity on a matter which concerns many, not just those plaintiffs suing the Treasury over the “Third amendment” or other F&F issues.
It also provides a location to send their “conservatorship” remedial suggestions.
Here’s an Inside Mortgage Finance story highlighting that part of Watt’s pronouncements.
By Paul Muolo, Brandon Ivey, Charles Wisniowski
During the Q&A session at the Brookings Institution on Tuesday, Federal Housing Finance Agency Director Mel Watt confirmed that the agency has the power to end the conservatorships of Fannie Mae and Freddie Mac. But he noted that he has not contemplated what an end to the conservatorships might look like. It’s safe to say that all those hedge funds that have been speculating in GSE shares both common and preferred were listening closely to Watt’s every word...
What Some May Be Missing
It’s a simple position for me to take but hard to understand, if you never worked in a financial
institution or for a financial regulator
When it comes to mortgage finance, one of the reasons I support a Fannie Mae revitalization or reprivatization, where Fannie or some other significant financial investor acts as overseer, is because I don’t trust the nation’s large banks to behave.
U.S. financial institutions have shown themselves capable and willing of rampaging through all sorts of federal regulatory constraints and, frankly, are faster, more nimble than the bureaucrats, and always will take risks to make money, which is their primary reason to exist.
It matters not how august the federal regulatory officials are (see Board of Governors of the Federal Reserve System or the United States Treasury), banks will undermine them, sometimes knowingly or unknowingly with the assistance of the very agency personnel they are subverting.
But, here is my metaphorical explanation of why mortgage lenders (most controlled by the large banks) won’t easily prevail if they tried to scam when selling loans to Fannie or seeking Fannie’s MBS securities.
If your watchdog is bigger and meaner than the bank dogs--and motivated because one of his body parts is at risk his, i.e. “his skin is in the game” (think Fannie’s money)--that nasty dog will do a far more ruthlessly efficient job, than any pretend federal watchdog who barks only after the bank dogs violate the “no peeing in the house and drinking from the toilet bowl” rules.
And, yes boys and girls, it is all about the money. Maybe if the federal government shared those stiff, after-the-fact, bank fines with their employees who snoop about sniffing bankers’ activities, the Feds would be more effective at insuring the nation’s citizenry won’t have their carpets soiled so much by regulated financial institutions.
To earn/generate more revenue is why banks manipulate and cheat.
The Ongoing Story of Maloni
and the W Post Editorial Board
Once upon a time……
Again, last week on the even of the Senate Banking vote, the Washington Post editorialized against those opposing the CWJC legislation, continuing the paper’s crusade against Fannie and Freddie.
Predictably, I sent a letter to the editor, which naturally was ignored, but appears below.
Today's Post editorial--dumping on the continuation of Fannie and Freddie--misses the sunshine and spreads just the doom and gloom your editor’s see.
First, in less than three years, F&F have repaid all of the $187.5 billion the government infused in them and added what is now a $23 Billion and growing surplus.
Next, opposition to the Senate bill to undo Fannie and Freddie was opposed pretty broadly not just from the from the "left"-- to which the Post gives credit--but also from the right, i.e. see opposition from Cato, AEI, Heritage, Club for Growth and many conservative others. In addition, the Urban League, Ralph Nader, the Independent Bankers Association (ICBA), the National Association of Federal Credit Unions (NAFCU), the Credit Union National Association (CUNA) and others objected to this plan which basically shifted control of the nation's mortgage markets to the large commercial banks. (Please read some of the opponents’ detailed objections.)
The big National Association of Realtors (NAR) also expressed concerns about the bill's costs and negative impact on mortgage affordability.
It's important to note, which the Post also seems to avoid, that Fannie and Freddie--unlike any other entity which received federal financial kelp--were banned from lobbying as part of the 2008 takeover and the myth of F&F lobbying opposition should be buried, too.
The Corker-Warner-Johnson-Crapo Senate bill is bad legislation and would extend huge federal rewards to the large bank lenders which helped drive the US 2008 financial disaster (far more than F&F did, just compare the relative losses of the principals), has no certainty for mortgage financing for low and moderate income families, and proposes a Rube Goldberg regulatory regime, none of which yet exists. No wonder people opposed it.
The Senate bill would take years to implement putting a new regulator in charge while F&F got unwound and the banks got to use their new federal mortgage securities federal guarantee. A recipe for disaster if one looks closely at bank behavior in the past few years.
The housing finance sector of our economy, which is about 20% of GNP, deserves far better.
Yes, retooling F&F--with significant structural changes--would occur more swiftly and more surely, with less cost, more certainty, and less political bloviating.
Cabinet Shuffle, New HUD Secy?
Weekend news reports have President Obama nominating San Antonio Mayor Julian Castro as HUD Secretary, as current Secretary Sean Donovan’s moves over to the Office of Management and Budget (OMB).
Castro’s twin brother, Joaquin represents San Antonio in the US House. Both brothers are considered rising Democratic political stars.
Now it’s Julian Castro’s turn to try his hand at F&F politics.
What Others Said and Wrote
I have never regretted labeling Tim Geithner, big banking’s best Democrat friend in Washington, when President Obama named the head of the New York Fed to be his Treasury Secretary. His actions bore that out.
Gretchen Morgenson’s New York Times column reviewing Geithner’s new book underscores that point.
Reuter’s did a story on Watt, speaking later in the week, and expanding his Brookings views.
An article from the Center for Economic and Policy Research pops the balloon of the CWJC advocates who claim—unlike the current situation with Fannie and Freddie—their bill will removes the federal government from any mortgage market loss obligations, by substituting private capital.
(Remember, post any comments or questions below.)