CWJC=the Past and F&F=the Future??

 

 

Cats & Dogs: Me on a Few Matters

 

Bill Ackman’s is a “bad mother……..!” (See “lyrics from “Shaft” for, ahem, color), but not for saying he believes that Fannie and Freddie stock is worth somewhere between $30 and $40 per share (which would increase his personal wealth by well over a billion dollars, if it happens!).  

Ackman, the big time investor in Fannie and Freddie common stock, earns my ballsy sobriquet for calling out the Congress, saying it doesn’t have the requisite testosterone to kill F&F and turn upside down the nation’s mortgage finance system, handing new taxpayer goodies over to the nation’s largest banks along with an untested new regulatory regime. 

He may be dead on accurate. But like elephants and some donkeys, Congress has a long institutional memory and the next time Ackman needs some political help, Hill folks are going to remember that he exposed this Emperor for not wearing any drawers and turn a deaf ear or worse, flash an angry scow at him! 

Violating Jim Croce’s advice that you shouldn’t “tug on Superman’s cape or spit into the wind,” Ackman effectively did both with Congress last week. Hey, more power to him as noted. 

But, at least Ackman, now, can’t say I didn't warn him. 

Here’s a link to the capable Nick Timiraos’ Ackman story, as well as a link to Ackman’s Sohn conference slide presentation.  

blogs.wsj.com/moneybeat/2014/05/05/why-bill-ackman-is-bullish-on-fannie-freddie/tab/print   

Ackman presentation’s link.

http://online.wsj.com/public/resources/documents/IraSohnAckmanPresentation.pdf

 

Senate Mortgage Markup This Week? 

Senate Banking Committee Chairman Tim Johnson (D-SD.) said his Committee will try and markup/report the CorkerWarnerJohnsonCrapo (CWJC) mortgage reform bill this or next week.

The Senator and his allies may have added one additional vote to their core group of 12, but apparently they don’t have enough votes to project sufficient bipartisan power that the bill would be a winner if it gets to the Senate floor.

 

Six Democrat Senators seemed unshaken in their CWJC opposition as are a few of the committee’s conservative Republicans, reflecting much deeper opposition from groups on the left and right (see last week’s blog for that laundry list of names) and a slug of industry opponents in the middle, opposed to a huge resource transference to the nation’s banks; insufficient support for affordable housing;  questionable timing and timetable’ uncertainty over where “private capital” will come from; and allowing the federal government to put it’s 90% guarantee on those bank mortgage bonds.

I try hard never to say “never” about congressional behavior, but most observers believe that CWJC is dead this year and possibly for some time after that. 

Here is a Bloomberg link to D opposition.

http://www.bloomberg.com/news/2014-05-08/key-democrats-join-to-say-no-to-housing-finance-overhaul.html

 

It’s Not What It Is, It’s What I Say

 

I was a bit flummoxed last week when I read comments from Treasury’s Mike Stegman saying the nation needed to get rid of Fannie and Freddie and remove the overhanging financial risk the two represent for the federal government. 

OK, you’re allowed to spin, Mike, but exactly how will the federal government’s financial risk be reduced when the entire CWJC arrangement—which you and the Admin so fervently support—would be put on the federal budget, including its 90% bank guarantee on potentially trillions of mortgage dollars, plus whatever the remnants F&F Congress keeps in zombie status, unless they messed up—(who, the Congress?)--and the two mortgage giants still are needed? 

The OMB can pretend, when it serves the Admin’s purposes, that F&F are not part of the government—yet the two have no say over their own operations--and then when the Admin needs to excoriate them, and for rhetorical purposes, Treasury’s Stegman claims they are red, white, and blue and their liabilities are the taxpayers. 

But acknowledge certain realities, please, Mike. 

The post-2008 loans on F&F books are near pristine, reflecting most conservative underwriting, high borrower credit scores, significant down payments, and lender produced loans applying the latest Federal Consumer Finance Board (CFPB) QM (quality mortgage) standards. 

Will the big banks--not nearly as closely “overseen” as F&F in your new FMIC federal oversight with its literal federal security blanket--produce similar safe and high quality loans? 

Any chance the banks, overseen by your “virgin regulator,” succumb to temptation, revert to form and go back to their pre-2008 gambling standards thereby putting the federal government at great or greater risk? 

I would bet on some variation of those financial officials regressing, Mike, why would you bet the taxpayer’s dollars it won’t happen?

 

Where Are the Banks When You Need Them (Holding Out for More $$$)?

 

Speaking of the big bank mortgage lenders, in forcing Fannie and Freddie to increase their lender charged guarantee (and in turn passed onto charged to mortgage borrowers)—which in turn has cause lenders and Realtors to bitch at F&F and their government overseers--the federal government has claimed those forced increases will bring “more private capital back into the market.” 

Yes, but when, for what are the banks waiting?

One of my mortgage market savvy friends sent me a question about this Administration’s hollow explanation of guaranty fee (Gfee) increases. (BP is “basis points,” with 100 BPs in a percentage point; billion dollar deals move on a few BP.) 

“Fannie's average G Fee charged in Q1 was around 63 BP, compared to around 26 BP in 2010. The GSEs have raised Gfees from around 25 bp to 63 bp (about 150% boost), and yet private capital has not come into the market, save for large loans to high credit score borrowers with large down payments.”   

“So, how much higher would the GSEs have to raise G fees to attract private capital back into the mortgage market excluding loans (they make) to the rich?”

 

The government forces F&F to jack up mortgage their fees, and therefore mortgage rates, to entice the banks to return to a market they abandoned because the profits aren’t high enough?  

Will someone answer my friend’s question? 

 

Maloni May Be Premature, But…? 

It could be a bit too soon for this, however if--CWJC is functionally dead--I would like to see a group of thoughtful “stakeholder” interests begin exploring ideas for utilizing the strengths of the current Fannie and Freddie mortgage system model. 

Forget putting critics in the group for “balance,” fill it with multi-discipline seasoned professionals who knowledgeably can assess F&F virtues and flaws and their recommendations be guided by common sense. 

Such an assemblage could offer structural and operational change suggestions that deal with what some people find problematic with F&F’s current and previous operations, a recognition of the political not necessary the systemic reality. 

Since there continues to be a lot of misinformation and unfocused GSE animosity on the Hill, the latter are judgment calls or possibly just relative, but they must be confronted and either explained to the satisfaction of a majority or dismissed with solid rationales.

 

Private ownership is one of those shibboleths, corporate profits are another, possibly housing goals a third, but this observer never will accept that the pre-2005 Fannie was bad or infectious to the nation and requires shuttering. 

I’ve seen and know too much to buy that phony argument. I’ve written that much of the 2008 F&F regulation has solved many of the F&F problems.

 

If the big banks and many R’s are willing to buy into the now flailing CWJC mélange, could they open their minds, pragmatically, to a Fannie and Freddie legislative revival product, complete with healthy bank profit making and low bank risk?  (Come on FSR don’t be so stodgy, get creative.) 

I can think of a few heroes who might step up and offer to lead that exploratory inquiry.  

Nature abhors a vacuum, so I look forward to the first stirrings of the yet to exist but not far from happening future of the Fannie/Freddie task force. 

Director Watt’s Speech Tomorrow

 

Mortgage finance mavens will be looking closely at what FHFA Director Mel Watt says--at DC's Brookings Institution--in MW's first major speech since being sworn in. 

C’mon Mel we know you can’t say too much but strike a blow or two for lower rates. And save taxpayers $300 million and blow up the common platform exercise. The two entities you oversee have wonderful platforms which easily can be shared and could be adapted with far less money and fewer people than Ed DeMarco put in play on his “platform” odyssey. 

 

Benghazi (“Nasty”) Select Committee

My advice to House Democrats on the GOP’s Benghazi anti-Hillary, very transparent election 2016 deception is, either name no Democrats and have the R’s stare at empty chairs as they make their campaign points or, appoint the meanest, nastiest, uncooperative SOBs in the D Caucus, the irascible contemporary equivalent of five Barney Frank or John Dingell clones (when the latter two were in their crankiest prime!).

 

 

 

Who Said What Last Week? 

Paul Muolo discussed F&F’s first quarter earnings in Inside Mortgage Finance. (Thanks, Guy Cecala.) 

Fannie’s and Freddie’s ‘Account Balance’ With Treasury Nears $26 Billion as Earnings Continue to Roll In; Legal Settlements a Factor in 1Q Profit By Paul Muolo / pmuolo@imfpubs.com Fannie Mae and Freddie Mac together earned $8.3 billion in the first quarter, thanks in part to large legal settlements with MBS issuers. However, the incoming cash continues to flow through to their bottom lines. According to a calculation from Inside Mortgage Finance, by the end of June, the two will have an account “surplus” with Treasury of roughly $25.7 billion. The surplus represents dividends or cash paid to the U.S. Treasury versus draws received. Freddie Mac earned $4.0 billion in 1Q, Fannie $5.3 billion. Neither benefitted from an adjustment to their deferred tax assets, which they have just about exhausted.  In its earnings statement, released before the opening bell Thursday, Freddie noted that legal settlements contributed $4.5 billion to its pre-tax income. Fannie took in $4.1 billion from legal settlements. The results suggest that if the legal settlements are factored out of the equation, the two – at least on an operating basis – didn’t exactly have a stellar quarter. For a more detailed analysis on their earnings, see the upcoming edition of Inside Mortgage Finance.

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Gina Chon writes in the Financial Times reporting on F&F 2914 1Q earnings of $10 Billion plus (ho hum!), all sent to the Treasury. 

http://www.ft.com/intl/cms/s/0/40b5dd78-d6b1-11e3-907c-00144feabdc0.html#axzz31LkEK9nw 

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Isaac Boltansky in Compass Point discusses the Senate Banking Committee’s situation.

https://compasspoint.bluematrix.com/docs/pdf/ea078b95-7c91-423d-bf35-8d81b7fffe54.pdf

 

My forced Fox Network News viewing and listening (elderly mother in law in residence insists on it 24-7, for real) has sensitized me to the ongoing campaign that network conducts against anything “Obama, federal, or Democrat party.”

The Fox assaults are non-stop and mind boggling, but a bit less than half of America seems to groove on it.

 

It’s early, but I am sure that Fox Network will find some way to blame Barack Obama for the Nigerian schoolgirl kidnappings; V. Stiviano‘s—“I’m his silly rabbit”-- scurrilous taping of Donald Sterling; as well as Johnny Manziel’s career disastrous (for him) selection by the Cleveland Browns (“the team where athletes go to die”).  

But, the right wing lost a major Obamacare attack point last week, as reported by Yahoo, when a major GOP fun fact went boom in their face.

http://finance.yahoo.com/news/gops-latest-anti-obamacare-talking-213658327.html

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Here is Victoria Finkle’s American Banker article suggesting how a Senate markup vote may shake out.

http://www.americanbanker.com/issues/179_86/this-is-how-the-senate-banking-gse-vote-plays-out-1067307-1.html?utm_campaign=daily%20briefing-may%206%202014&utm_medium=email&utm_source=newsletter&ET=americanbanker%3Ae2629332%3A520359a%3A&st=email

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As the brilliant Senate solons tried to blow up the existing mortgage finance system and substitute that warms the heart of the Bankers Roundtable and few others, Fed Chair Janet Yellen was announcing why she was so concerned about a national slow running housing market.

Yes, political brainiacs, that’s a signal to go on a legislative rampage and shock a frightened system (meaning mortgage consumers) even more.

http://finance.yahoo.com/news/yellen-cites-housing-geo-political-140315366.html

Maloni, 5-12-2014

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