Monday, May 5, 2014

Senate vote "delayed" but still might happen


Beyond Big Banks & Obama Admin
CWJC Bill Lacks Adoring Fan Club



Last week, the Senate Banking Committee postponed a vote on the CorkerWarnerJohnsonCrapo mortgage reform effort, without announcing a future markup date.

It is likely—but not dispositive—the bill is dead for 2014.

Congress can always surprise you, as it did when the Senate considered this incomplete, mammoth, tide turning, systemic turmoil producing, and bipartisan legislative exercise in search of a purpose. 

The Senate Banking Committee could make one more effort to report legislation. And, indeed, a number of committee Senators were quoted saying the Committee is working on the divisive outstanding and hopes to return to a markup next week or the week after (both times cited). 

But most observers think only Francisco Franco and the Pittsburgh Pirates MLB playoff chances are more dead than CWJC.


Reportedly, there are 12 sure votes for passage, a majority, but the Committee leadership wants a greater support margin to impress their chamber leaders to send the bill to the floor. (A matter which has more political permutations and implications than the mere combined fates of Fannie and Freddie.)

 Lots of smart people are asking one another “why” the bill fared so poorly last week. They were so desperate for answers, a few even asked me.


Too Much to Swallow


My answer was simple. Too much statutory construction to swallow, too complex, too disruptive, too uncertain, too costly, too little thoughtful debate, too little honesty, and too much hyperbole which likely produced last week’s inevitable “too bad for CWJC lovers” result. 

The sponsors overreached. They wanted to send huge dollars to those who don’t need it (the big banks) and did too little for mortgage seekers who needed certainty that middle and lower income families would encounter moderate pricing in this new paradigm. CWJC backers failed to convince other Senators, media, and the interest groups on those points. 

Along the way, they also failed to articulate a clear and consistent purpose for the bill. 

I never heard CWJC allies offer a common justification for it, beyond variations of, “It kills Fannie Mae and Freddie Mac,” as if that alone explained and justified years of certain systemic upheaval, complicated new business arrangements, new regulators on top of the existing regulators, i.e. the old guys who never stopped the last bank private label securities keg party. 

The Senators tried to ignore that the current F&F model—though still not efficiently and optimally run by its government overseers—is doing an excellent job of keeping fairly priced mortgage capital flowing evenly throughout the nation. 

CWJC was/is uncertainty wrapped in confusion, creating far more questions than it answered. 

When will its required $500 Billion in new “private mortgage insurance capital appear?” Who will provide it and will—as CWJC’s fans proclaim claim--Uncle Sam’s financial obligations truly be reduced if this entire mess, plus all things Fannie and Freddie remaining, goes on the federal budget? (Senator Corker: “Trust me on this, heh, heh, heh. Can you say, Pig in a poke?”)

As one of my old friends and a mortgage finance veteran, who served in a housing subcabinet position noted, “This bill lacks an adoring fan club,” except for the nation’s largest financial institutions and that telling fact certainly cost it Senate support.

Kill Fannie and Freddie but Why?

The bill was gargantuan and invited pointed challenges from lots of the folks, across the political spectrum, who weighed in against CWJC. 

The Senate would kill F&F but only after they keep them like zombies, barely, to be revived and used if needed. But, Senators, won’t their employees race to find other jobs to support their families, while they’re being told their work places are history and their toil is unwelcome? 

How will that work? You can’t call for “time out” in an $11 Trillion mortgage market where major primary and secondary mortgage market deals are every few seconds while two key market players—on which you continue to rely--rapidly lose their financial talent.

And, what about higher new mortgage “costs?” The CWJC advocates pretended that all of their legislative machinations, duplications and overlap will not raise the cost of mortgage credit--much--or else they dismissed those worries as fear mongering or the price of progress. But CWJC has no real central authority to insure mortgage affordability remained a priority. 

Senate bill supporters countered affordability concerns by trotting out some highly suspect Mark Zandi estimates (maybe, because he was an early Corker-Warner advocate?) which I believe will come back to haunt Mr. Zandi because of his lowballing estimates.


CWJC Opponents Should Remain Alert

But the multitude of interests and organizations who/which threw their names, bodies, and reputations against this markup effort better not remove their “big boy football pads,” think the famous horned helmeted “fat lady has sung” or it’s OK to light a victory cigar, not just yet.  

Investors in F&F preferred and common stock, Ralph Nader, the Urban League, Independent Community Banks, Credit Union National Association, National Association of Federal Credit Unions, the National Association of Realtors, which raised salient cost issues in a markup eve letter, AEI, Cato, Heritage, the 24 organizations which signed the Committee for Growth letter opposing CWJC, and myriad others, should stay poised and keep your opposing voices ready.  

The issue will not disappear from congressional political agendas. 

As noted, CWJC may come up again soon in Senate Banking, but the macro issue won’t go away unless the Obama Admin or Congress change course and suddenly decide that there may be virtue in reconstructing Fannie and Freddie in a way that deals with whatever are their/its real concerns. (Talk to Jim Millstein, again, and others who would keep the best of what we have and substitute some other ideas.) 

If Senators make enough changes to pacify the Banking Committee's "Left" and succeed in not ticking off its Right, they might produce something which looks strongly like what’s available today utilizing Fannie and Freddie.


Make What You Have Better!

If that occurs, observers should ask, “Why go through 5-10 years of Hell-filled mortgage market transition when some minor surgery on the current system will produce nearly the same results?” 

It’s worth reminding the CWJC backers that the current system has guarantors, aggregators, insurers, plus some fornicators, hustlers, nesters, gatherers and all of the other "ers and ors" that CWJC would create. 

But the F&F legacy system is better known, and likely more consumer friendly and trusted, except by the big banks, which makes it even a better arrangement for the public. 

Slightly reshaping what you have gets you acceptable changes faster and in a less disruptive manner, than turning the mortgage markets over to the TBTF banks and their allies and hoping the virgin Federal Mortgage Insurance Corporation (FMIC) regulatory arrangement can keep the always rampaging big guys from ravishing the new mortgage market arrangements. 

Fuggedaboutit, since the big banks won’t cooperate in God’s lifetime to produce that result. 

Who Last Week Said What? 

The very conservative Washington Times editorially dumped on CWJC (and other things).

Nick Timiraos in the WSJ writes about the Senate vote delay.

This article can also be accessed if you copy and paste the entire address below
into your web browser.

Jaret Seiberg at Guggenheim Partners also comments on Senate action last week delaying the CWJC vote.


Truth Out comments on our current national plutocracy.

Mark Fogarty in the National Mortgage News finds some CWJC imperfections.

And finally, this week, here’s a letter I wrote to the Washington Post on April 28, 2014, which is self-explanatory regarding its editorial that day, but—not surprisingly—the Post didn’t print. 

The Washington Post took its predictable "anything bad for Fannie and Freddie is good" approach in today's editorial condemning opponents of the Senate Banking Committee's mortgage reform bill. 

But, in hyperbolically saying without the government stepping in in 2008 to financially support Fannie and Freddie (infusing $187 billion in both), "...there would no housing recovery, nor Fannie and Freddie profits, and perhaps no US economy," the Post reinforces Fannie's and Freddie's core strengths. 

The White House and US Treasury didn't have to choose Fannie and Freddie to run the nation's secondary mortgage market. It could have taken over their role itself, using Treasury to oversee the markets; it could have given the mission to HUD and its in-house mortgage securitizer (the Government National Mortgage Association); or it might have assembled a group of the nation's largest financial institutions and asked them to do it (ignoring that those latter entities--more than Fannie and Freddie--helped throw the country into the 2008 financial abyss with their issuance of more than $2 trillion in poorly underwritten, soon to fail private mortgage bonds).

But, instead, Fannie and Freddie were tasked with that job and it was the right choice, indeed, since the mortgage markets have worked flawlessly for the past six years.

The Post also forgot, conveniently, to mention that, in the past two years, Fannie and Freddie have returned to Treasury that initial $187 Billion in taxpayer’s money, with $15 billion in surplus, which will grow even more in the next few weeks when each sends the Treasury their entire 1Q 2014 earnings, as current regulations require. And more on top of that each business quarter, until that particular matter gets decided finally in the courts.  


Maloni, 5-5-2014







Duncan MacLeod said...

Bill- funny no one ever mentions the Hedge Funds that are short Fannie n Freddie- Corker does not seem concerned his plan will make them Billions?

Bill Maloni said...

DM--Still not sure what Corker's objectives are, besides the being on center stage, raising money, and claiming that he always right (pun intended).

If CWJC action on the Senate stage
dies quietly (maybe a committee vote and then hibernation), I'm curious what drum he will thump and what he takes away from the setback?

I think he's been the quiet Captain of this ship.

Duncan MacLeod said...

Sohn conference- Ackman makes a nice presentation for GSE Reform- and puts a dollar value in how much the government will get for their troubles.!!!

Bill Maloni said...

Someone just sent me his presentation. I thougt I read a $35 or $40 common price prediction.

Ackman's very bold, calling out the Congress and challenging it/them itstheir weaknesses, although I think he's more right than wrong.

The challenge for some of us is to give them reasons why a F&F revival with restructuring makes the most sense.

Matt Hill said...

Bill, Do you have any idea when the congress slide deck is due to come out on this? You know, the one ensuring America that they will not lead them astray? I assume with something so important. it may just have been an oversight and is set to come out any day now...

Bill Maloni said...

There isn't a Member of Congress (House or Senate) who is serving or served in the past, who hasn't--at some point in his or her career--actively misled their constituents and the public.

It goes with the turf.

But, having worked there 10 plus years and watched the Congress for more than 45 years, it does seem to have gotten worse in the past dozen years.

It won't get a lot better no matter who gets elected.

It's built into the institution's DNA.

My hope is that some future president is so popular and so trusted, that he or she, can force some of the BS and hatred out of the institution.

Anonymous said...

There is a lot of message board chatter announcing the CW/JC bill is dead. Forgive me for being last to funeral but I won't believe it until I see it. There is a long standing lobby effort backing these crooks forcing elimination down our throats as if they know best with Obama being the biggest disappointment. What a joke to have legislation written by a bunch of aides with the help of a Countrywide scam artist. As if we are a bunch of stupid morons. I could care less this being about a shareholder issue, even though I am one, it's really about the ideas trying to guide the future of this country that scare me the most. I have 3 children who I want to teach the American dream of having a way to achieve wealth by owning a home and how it can be one of the great pleasures and feeling of accomplishments in life, but there is this brainwashing exercise that the future is renting and we should all get use to it. Meanwhile we have the elite family empire building of wealth that we should all succumb too while bowing to prophets like Corker and Warner who are a disgrace to this country.

Matt Hill said...

Well put anonymous. Unfortunately, it's just so easy in our society to feel above others once you've experienced success. This culminates in trying to get away with things you know are inherently bad for others, but good for your personal agenda. I hope for a true leader to eventually one day lead our country, one without any skeletons in his or her closet. I don't think it will ever happen. I certainly am not qualified and I don't know many people who are.

Bill Maloni said...

Anon and Matt Hill--

We share a lot.

One thing to consider is the history of pendulum thinking, part of what we are seeing--and don't like--is small minded reaction to the 2008 financial meltdown, wrongly placed exclusively on Fannie and Freddie, and the attendant group think reactions, including tightening up credit for all borrowers.

The latter is slowing loosening and I think Mel Watt will facilitate that process.

I also think, the pendulum swinging back--plus the likely defeat of CWJC--will make it easier for some to consider restructuring/reprivatizing F&F
as a viable future policy alternative.

I think CWJC likely is history and that will help rethinking Fannie and Freddie. But, nothing legislatively will happen soon--remember, Bill, never say never-- and maybe not until we have a new President in 2017.

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