Monday, September 29, 2014

Lots of F&F stuff and Politics this week...


Clap your hands, take a deep breath, exhale..


Are F&F Investors Worried??


If I monetized my current Fannie holdings, the proceeds might allow me to buy an old used car or a new big screen TV, meaning my Fannie interest is not very financial, so my comments have no self-enrichment sentiments attached.

But, as reflected in recent Fannie and Freddie common and preferred shares price weakness, it appears  investors seem to think something bad is brewing for the two and maybe soon. 


Face it, the GSE securities trade on political and judicial news, whims, and rumors.

Congress ain’t doing much, with numerous conflicting outcomes and new principals driven by which party controls the Senate after the November elections, while the courts have their own unrelated schedule. 

Unlike most every other stock, earnings, market share, overhead reduction, etc. don’t seem to stoke F&F buyers. It’s all about investors trying to anticipate what the courts will do and/or what damage Congress and the Obama Administration might perpetrate. 

For a moment (it doesn’t require much more), look at what a rookie member of the House Banking Committee speaking to a DC meeting said about the timing and substance of possible Fannie and Freddie legislation and the difficulty in passing same.

At a conference sponsored by the American Banker, Rep John Delaney (D-MD), naturally made a case for his alternative approach to the distinctly different Chairman’s bills which passed each Banking Committee but never made it to the floor in either the House or Senate. (See story linked below.)

More important than the substance of his legislation--which isn’t going anywhere--Delaney’s observations are a reminder of the difficulty Congress faces in soon replacing F&F.

Delaney—who with two other junior Democrats has sponsored a competing proposal--highlighted his concerns with House Banking Committee Chairman Jeb Hensarling (R-Tex.) bill, which takes the GSEs and the federal government totally out of the mortgage market and calls on private lenders (mainly the banks) to make the rules and carryout whatever business they deem appropriate.

"I think that the proposals that on their face remove any government engagement from the market in a short period of time are very short-sighted, because right now it's a very imbalanced market. It would take years, if not decades to get it back to equilibrium," said Delaney.

He added that while the idea of a fully private housing market is "intellectually interesting," it remains politically impossible.

"You're never going to get that and for as long as you have that position, you will never change the system. And you'll sit here in 10 years and you will have the system exactly as it is today," the freshman lawmaker said.


The Senate Banking Committee CWJC bill, sponsored by Chairman Tim Johnson (R-SD) and ranking R Mike Crapo (R-Idaho)—based largely on legislation championed by Sen. Bob Corker (R-Tenn.) and Mark Warner (D-Va.)--also abolishes F&F and creates a new federal mortgage insurance agency to guarantee MBS issuer losses, but it puts everything—including the F&F remnants on the federal budget or some $5 Trillion dollars’ worth.

That ain’t happening quickly, either, since whether the Senate goes R or stays D after November, congressional conservative voices and their budget conscious votes only will increase in 2015.

So, for the worriers and fearful, let me offer my sobering perspective of what Delaney said, since he was spinning and pitching a little for his bill which won’t move anywhere in a GOP dominated House. 

It’s going to be a long while before Congress moves any F&F legislation and, in the interim, the two likely will enjoy black ink for the next several quarters. 

GSE fans (whether you are investors or not) just should take a deep breath and watch what may be a raucous sound and light show, but little else. 

Nobody is slipping anything weighty through a post-election session.


Zimmer and Gabriel on GSEs

Old friends and colleagues, Rob Zimmer, a former Fannie and then Freddie lobbyist, who now represents a group of small mortgage lenders, and Washington financial analyst Chuck Gabriel, President of Capital Alpha Partners LLC, collaborated last week on document expressing their view of Hill developments in the Fannie-Freddie and mortgage finance worlds, including the regulatory spheres. 

The three of us agree on much, as you can note from my shorthanded version of next year, which I spelled out above and which was completed before I read Rob’s and Chuck’s work. 

But, the two do a deeper dive than I and note that whomever wins the Senate, beyond the headlines, the focus will be on regulatory mortgage finance relief and not legislative, with FHFA and the FHA under the guns and with appointed officials, not Congress, having opportunities to make things easier for borrowers.

Here is a link to their work.

Note: For the record, I think Pat Roberts (R-Kan.) doesn’t get re-elected. 

See the very interesting George Will column below on the election issues facing Kansans. (BTW, George Will lives four doors away from me and has not—in the 22 years we’ve lived here—acknowledged me or anyone I know when he walks his dog daily, head down with earbuds in. He even upset GG, the super conservative, who always thought that George would acknowledge and then engage her on their shared beliefs. Maybe it’s my deodorant of choice, Eau d’Pittsburgh?)

What Others Are Saying 

The National Journal did a lengthy article on problems that House Banking Committee Chairman Jeb Hensarling (R-Tex.) seems to be generating among his colleagues on both sides of the aisle with his dogmatic approach to committee issues. This single minded pursuit isn’t winning him many friends and won’t pass muster in the Senate, even among fellow Republicans. 

Jeb needs to remember that the earth isn’t flat and, like it or not, he’s chairing a congressional committee in 2014 not 1914, when some of his constituents carried six guns every day (wait, it’s Texas, they still…..).


Syria, the UN and the Always Helpful
Russian and Chinese Diplomats 

From a CNN news report:


 “Russia's foreign minister warned "against any attempt to narrow down the problem" to select groups, urging the world not to have "double standards in dividing terrorists into good terrorists and bad terrorists."

rstr"China and Russia, both permanent members of the Security Council, have blocked a number of attempts to force Syrian President Bashar al-Assad to step down as a way to bring about an end to the civil war that has since seen the rise of ISIS and other terror groups.”

Cold Hearted review of the US “Coalition”

Here’s is a somber but probably accurate review of who is doing what in the fight against ISIL and why, by John Batchelor writing in Al-Jazeera.



War is hell and the word/acronym SNAFU (“situation normal all f____ up!”) evolved from our collective WWII experiences. Bad things happen in wartime and that includes casualties and fatal mistakes. 

The public needs to be prepared for the inevitable loss of US military lives in the latest battles with ISIS, bombs that kill innocent civilians, tactical errors, and combat setbacks. It can’t/won’t be any other way. 

Hopefully the public and President Obama’s political enemies understand that and they won’t undercut him and the nation’s efforts the moment the news on CNN isn’t daily bombing runs and ISIS targets hit, but a downed jet or the deaths of American air personnel  or Special Forces troops.


Good for Pope Francis 

Your Holiness, there are plenty more like this guy. Root them out.


Soft on Financial Criminals?

William Black (Al-Jazeera) says AG Eric Holder was too easy on the bankers. 


My Good Friend, Senator Dick Shelby 

As someone who—when I worked for Fannie—raised lots of campaign money for Dick Shelby (R-Ala.), a long time senior R on Senate Banking and possibly its next Chairman, I sometimes feared running into Dick, because he would loudly recognize me, “Bill,” and tell everyone in hearing distance, what a great job I was doing filling his coffers. That only got me/Fannie more $$$ attention and requests for similar help.
As the WSJ informed the world this week, a lot of people must have stepped up and replaced me helping Dick, since the Senator’s war chest now is more than $17 million fat with campaign cash and growing. 

Dick Shelby is a lot of things but slow on the “ask” he isn’t and never will be.

Suffice to say, in the past, he was a strong Fannie fan, although recently that’s changed.

(In case anyone is wondering: Federal law—approved in 1989--now prohibits retiring Senators and Members from keeping their excess campaign cash for any type of personal use. Before then, that’s exactly what departing federal office holders could do. Now, when a Member retires, the unused money must be contributed to a charity or to other political committees with specific guidelines covering those gifts. It can’t be sued as a financial sinecure.)


Foxspeak: “When you are not intending to do something, you are intending to..” 

Steven Colbert incinerates Fox News for its “Coffee Salute” Obama coverage.


Senator Warrens Wants Hearings on Fed Dealings With Goldman

Jonathan Spicer and Emily Stephenson, writing in Reuters, say Senator Elizabeth Warren (D-Mass.) is upset over “whistle blower” revelations about the Fed’s protection of Goldman and wants hearings to explore what happened.


Barney Frank

For those of you wondering about what former Congressman Barney Frank has been doing and thinks (really?), the Washington Post answers your questions.


Walmart—Fannie was There First 

The news this week that WalMart was offering checking accounts in conjunction with an online bank reminded me about 15 years ago, Fannie was in deep discussion about approving Walmart as a “mortgage seller servicer,” putting mortgage applications and Fannie’s name within easy reach of all of Walmart's customers. 

Fannie backed off because some in the front office thought it was too aggressive (not me!).


The Fed and Treasury Did What to AIG?

In her Sunday NYT column, Gretchen Morgenson reveals some not previously available information from Hank Greenberg’s suit against the federal government over its decisions and treatment of AIG and the insurance company’s clients.

As you read her concerns, keep in mind the same cast of characters abused F&F putting them into conservatorship and applying and then changing their oversight guidelines. Apply that to the 20 F*F cases pending.


Maloni, 9-29-2014

Readers looking for commentary on the Lamberth decision and related issues, see the "comment" section. Also, I'll write much more in the next blog.


Matt Hill said...

Thanks for the update Bill. This is one of the rare cases when inability to act as a bi-partisan team has saved us from ourselves. It allowed people to see the dire consequences of a new world without Fannie and Freddie. Mistakes were made and everyone across the board has paid dearly. Good to see people are starting to see that you don't abolish the group that made the least amount of mistakes. You reform them and make sure it never happens again.

Bill Maloni said...

Matt--I love your logic; unfortunately, it's a quality lacking inside the Beltway.

My hope is that people on both sides recognize the downsides of extreme approaches and realize that we have a system that needs tweaked not pummeled with a sledge.

Anonymous said...

Well, I guess we now know why the stock price has been taking a beating.

As the late Paul Harvey would say," and now the rest of the story"...

Bill Maloni said...

Anon--It makes me wonder if Lamberth's decisions somehow leaked. I know that sounds conspiratorial but I wrote this week's blog thinking that nothing--observable--justified the selloff in the stocks.

I will discuss the judge's finding more in my next blog, but I expect a plaintiffs appeal, since so much money is involved. Then, they still have the Sweeney cases, in which she thought there was enough information to sustain discovery.

So we'll see, but it isn't good news for Fannie/Freddie fans, but it also seems to be a very dogmatic interpretation.

But that's why the plaintiffs have lawyers. Lawyers who all said that these cases would take a long time, which to me means the SCOTUS.

I also don't think it makes the legislative job any easier.

Bill Maloni said...

I won't try to turn chicken crap into chicken salad, but as one smart guy observed, you don't hire Olsen and Boies unless you expect to go before the Supreme Court.

This issue still has a long way to go.

Anonymous said...

Bill do you think the decision to rule in favor of the government was due to the fact that the claims were not for monetary damages? Below is part of the judge Lamberts opinion:

HERA’s express anti-injunction provision, which, as explained below, necessarily covers litigation arising out of contracts executed by FHFA in accordance with its duties as a conservator, qualifies as a reliable indicator of congressional intent to preclude review of non-monetary APA claims brought against both FHFA and Treasury.

Bill Maloni said...

Anon-I don't know why Lamberth
came to this decision, which I believe ignores the "intent" of HERA which was to preserve the two entities.

You don't do that by taking every penny of profit.

I believe this decision will be appealed for some obvious reasons.