Monday, June 9, 2014

I Dare You to Cross That Line!



 

 

Bob Corker and the Little People 
 

Several weeks ago, during my almost monthly poker game, one of our players started talking about “midgets.”

He barely got the word out of his month than 6 enlightened friends jumped all over him (typical guy stuff!) in mock horror, chastising and correcting him on using a word that “little people” find disparaging.

Enter Senator Bob Corker (R-Tenn.), he of the infamous Maloni blog “heh, heh, heh” and the man who steered the CorkerWarnerJohnsonCrapo (CWJC) to a less than overwhelming Senate vote a few weeks, likely killing it for the foreseeable future.

Last week, in an unrelated Senate Banking Committee meeting, Corker accused his Senate colleagues of being like “a bunch of midgets,” which immediately caused Corker to incur the wrath of small people interest groups.

Couldn’t have happened to a nicer guy! ;-)
 


 

Mel & the FHFA Are Open for Business!!

 

FHFA Director Mel Watt served in the Congress for over 20 years, but I doubt if he ever got as much attention from the building, real estate, and financial services communities as he’s generating now. 

Despite rumors to the contrary, like last week when someone suggested Sen. Elizabeth Warren’s possible interest in new legislation was prompting CWJC reconsideration talk, most observers think housing reform legislation is history for a long time, possibly not until the 2016 elections produce a new President in the following year. 

(BTW, Warren clearly will be a major mortgage finance player in whatever the Senate ultimately does, whether she still is in the majority or the D’s become the minority Senate party.) 

It’s the nature of DC to produce the legislative equivalents of “Elvis sightings,” so I don’t doubt we’ll hear periodically of sudden revived Senate interest in variations of the CorkerWarnerJohnsonCrapo (CWJC) legislation. But that proposal died because it was a bad bill and possessed far fewer answers than questions, as those who closely examined the carcass soon discovered.

 

Come On Down!
 

On the flip side, Mel Watt and the FHFA are very much alive, open for business, and positioned to do some serious things to further housing finance market activities. Most people realize that and many industry people are actively pitching him on their needs.  

(See link below to an excellent article by Paul Muolo in last Friday’s Inside Mortgage Finance.)


 

(Here also is a National Mortgage News story about the Homebuilders reaching out to Watt.) 


 
Watt took a very aggressive position in his earliest formal speech and declared, in a Q&A session just afterwards, declaring his agency has the authority to make changes in the Fannie and Freddie conservatorship rules. That bold stance was music to lots of ears. 

I don’t know how much the Director vetted that remark, specifically, with the White House. 

But ex-Treasury staffer Jim Parrott, now at the Urban Institute—excuse me, I’ve been waiting to use this, “Who often parrots the WH--has long claimed that Congress is needed for substantive changes in the two mortgage guarantors. 

Last week, I linked Parrott’s exchange with Jim Millstein, himself a former Obama Treasury staffer who worked on the AIG bailout, who feels just as adamantly that the Admin has the legal grounds to move unilaterally. 

Millstein strongly advocates that the White House--and by extension Mel Watt—use its regulatory power to make strategic and substantive Fannie and Freddie changes to more fully serve a housing market still desperately in need of activity.

At a minimum, the White House and Watt should direct F&F to loosen, somewhat, their credit requirements and expand the borrower pool eligible for F&F financing. It’s doesn’t have to be floodgate changes,just a little unwinding the tight credit screws the two employ now.

Once again, I am going to link below Millstein’s constructive regulatory suggestions—in case anyone missed it last week--because he makes an excellent case for taking major restructuring steps. 

The more people familiar with it, the better the chance that disparate voices support some of these ideas which Congress won’t consider because it always is at political loggerheads with itself and still possesses unfocused Fannie and Freddie hostility and paranoia. 

The latter group totally ignore how markets work and/or doesn't realize that most of their concerns (as I have written about before) have long since been cured through regulation and those facts won’t be altered.  

The most significant current regulation--unlikely ever to change--prohibits F&F from securitizing or buying low quality subprime mortgage loans, which Wall Street firms and their mortgage broker networks created in volumes totaling hundreds of billions of dollars, six and seven years ago, and sold to F&F and investors throughout the world.

(Link to Millstein.)


 

Millstein Makes Sense for Obama 

One of the beauties in Millstein’s thinking is that it dovetails with just what this White House’s needs, a way to make some constructive economic changes without going through Congress.

Starved for any type of win, foreign or domestic, and facing a GOP congressional force still determined to wreak havoc on anything Obama promotes or touches, the Administration should implement as much on its own as it can. 

Millstein provides a pretty comprehensive road map for President Obama and Director Watt, systemically, to help many thousands of would be mortgagors—and the job creating housing related industries which serve them--by quickly (relative to the legislative process) revving up the F&F engines and  putting people on the path to homeownership. 

The risk is rather small, financially, and the benefits rather large macro economically.  

This is as close as this Administration will get to a win-win in real time, with the Hill political standoff, since nobody in Congress can/will structurally change Fannie and Freddie until after the 2016 elections, without WH acquiescence. 

So, you own them Mr. President. Why not use the entities to do a range of good things and, likely, bring more cash to the Treasury coffers? It might add some domestic luster to your legacy. 

Yes, the GOP will hate whatever the President does here, by what else is new? 

President Obama—without asking anyone and following Millstein’s advice--has an opportunity to free up some needed investment energy and meet a demand that will power job creation, as it has in the past. 

What Makes the Most Sense! 

Getting from here to there?
Simple. The Administration should draw an “enlightened F&F regulatory mortgage finance red line" in the sand—with F&F’s name opposite where the Admin is standing--and then dare itself to jump over it. It has worked for others. 

Carl Icahn Buys into F&F 

Carl Icahn’s purchase of F&F common stock, in a transaction with Bruce Berkowitz’s Fairlholme Capital Management (which has sued the Treasury over its F&F dividend “sweep” actions), caused some attention last week and likely drove up the stock price. 


 

It produced a question to last week’s blog comment section and my observation that Icahn’s reputation gave some buzz to the purchase, but I would have been more impressed had Warren Buffett and Charlie Munger bought into one or both companies. 

If that occurs, then watch out as every retiree takes take their butter and egg money and follows the Omaha pair.

There certainly is historic precedent for Buffett’s investment interest in Fannie. 

Two Fannie Mae and Buffett stories are worth recounting. 

When David Maxwell was Fannie’s Chairman and CEO, about 30 years ago, Buffett owned Fannie common and then later sold it, prematurely as it evolved.  
In subsequent months/years, the Fannie stock soared and Buffett wrote in one of his famous annual reports (slightly paraphrasing), “Selling Fannie Mae stock was the worst investment decision I ever made.” Buffett reportedly missed a billion dollars upside price increase. 

Tim Howard, in his recent book, “The Mortgage Wars,” recounts how he and Frank Raines in 2004 made a harrowing (at least the return flight was such, see story in Tim’s book) to Omaha to seek Buffett’s financial support, when regulators told Fannie it need additional capital. 

Buffett agreed to supply $5 Billion to boost Fannie’s position, although the deal never came to pass because Tim and Frank got forced out by political machinations of the then Office of Financial Enterprise Oversight (OFHEO) which later became the current regulator, the Federal Housing Finance Agency (FHFA).

 

What Others Said Last Week 

CNN’s Money site carried a depressing story about how and why the “American Dream” is escaping more individuals and families. 


Yahoo discusses some of the big fines soon to be handed out to foreign banks, which violated US banking and regulations and legal rules. 

When paying these gigantic fines just becomes a cost of doing business, someone might want to question why the federal punishment/sanctions aren’t tougher. 


 

 

Maloni, 6-9-2014

8 comments:

Anonymous said...

When will the WH and all of their economic advisors wake up and support the Millstien proposal?
Watt cannot implement this concept without Admin support and some protection from Tea Party politicians. That would require substantial support from housing and housing finance industry groups.Let's go!

Bill Maloni said...

Anon--

I agree and it's one reason I am pushing much of Millstein's plan and, indeed, all of his "do it yourself" approach.

I don't understand the communications between the WH and the agency or the fact that Treasury is in the middle.

Someone needs to explain the benefits to the President for him to get more involved and that someone could/should be Mel Watt.

Anonymous said...

At some point the GSE debt belongs on the fed balance sheet. One can not have it both ways forever~ take all profits and book NO debt. What a game the Fed is playing.

Bill Maloni said...

Who--to whom they will listen-- is going to call them on it?

Nobody wants another $4 or %5 Trillion on budget and if the Congress and the Admin (along with the OMB and the Congressional Budget Office) continues to play hot potato and insist the debt is private but the companies are wards of the government, who is going to forget about this year's congressional elections, the 2016 contests, immigration, healthcare, Iran, Syria, Iraq, North Korea, relations with the Russians, global warming, the heartbreak of psoriasis, and make this a cause celebre'?

Bill Maloni said...

Who--to whom they will listen-- is going to call them on it?

Nobody wants another $4 or %5 Trillion on budget and if the Congress and the Admin (along with the OMB and the Congressional Budget Office) continues to play hot potato and insist the debt is private but the companies are wards of the government, who is going to forget about this year's congressional elections, the 2016 contests, immigration, healthcare, Iran, Syria, Iraq, North Korea, relations with the Russians, global warming, the heartbreak of psoriasis, and make this a cause celebre'?

Anonymous said...

Bob Corker is a midget that should stick to keeping unions out of God's country and steer clear of having anything to do with economic policy on such a grand scale.

https://www.toledoblade.com/Automotive/2013/09/08/Union-battles-Organizing-efforts-could-drive-off-Volkswagen-lawmakers-say.html

Bill Maloni said...

I agree; unfortunately, I was told by someone I respect that the Admin doesn't see it that way and thinks it has a good working relationship with him on mortgage reform. As I've written, he did more than any other Senator to carry the Obama Admin's water on that terrible bill.

Strange bedfellows, indeed, heh, heh, heh!

Bill Maloni said...

I agree; unfortunately, I was told by someone I respect that the Admin doesn't see it that way and thinks it has a good working relationship with him on mortgage reform. As I've written, he did more than any other Senator to carry the Obama Admin's water on that terrible bill.

Strange bedfellows, indeed, heh, heh, heh!