Monday, September 8, 2014

Mortgage World Gets Busy!


CBO Crap

Ho-hum. The Congressional Budget Office (CBO) did its usual to damage the GSEs, when it issued a report saying that the federal government would save $58 Billion over 10 years if the two were euthanized and the CorkerWarnerJohnsonCrapo bill passed into law.

Sounds like big money to a Congress needing any bucks it can get. 

It’s bubkis both the number and the report or a “wild ass guess” as David Fiderer, the "Hebrew Hammer" called it. He also told me, “Any assumption that the CWJC system will provide stability in mortgage markets is, at minimum, a leap of faith.”  

The US mortgage finance system generates business activity of $1trillion in a bad year. So assuming some good years in the tracked decade, saving $58 billion in $12T or $13Trillion dollar mortgage volume cycle is a fly speck, even if it was real. 

What CBO doesn’t do but others have done is estimate  how much the heralded new system would cost consumers, lenders, and others in as the market tried to acclimate to the dramatic CWJC changes, new lending relationships, new regulatory rules, new capital,  etc. etc. 

Those estimated real transaction cost boosts would dwarf the $58 Billion the CBO’s green eyeshade guys claim as savings, which themselves are largely result of disparate accounting treatment.

And that’s before any of the bank participants get nailed trying to manipulate the system for their own reward at the government’s expense, as history suggests will occur. 

Having watched CBO over the years, it is not a stalwart at predicting long range results, especially from something as earthshaking as the CWJC bill, which would—itself—add trillions to the federal budget. Also, anything on the GSEs colors CBO's findings and hypotheses.

How much would it cost families if as many housing sources claim that new CWJC mortgage activity would carry higher rates of 100-200 basis points (1 to 2% and some estimates are higher)? How many fewer would qualify for a mortgage loan? How much would it cost those who do qualify if the $500 Billion in new capital required in CWJC doesn’t show up? And, who would pay it or fill the gaps. 

(Did CBO factor in what seems to be occurring now as major non-banks move into mortgage lending as the big guys waiver or bail? Is there a cost to that?) 

How much would the new “concentration” cost in industry jobs and absence of business dispersion if the big guys—as they inevitably do—squeeze out small lenders or leave them a marginal piece of the market? 

Someone on the Senate side wanted to get a cheap headline as Congress comes back to town. But, the correct way to read the story is, “The CBO savings report is just ‘CBO garbage in, CBO garbage out.’ ”


“Um, Hands up, or Mortgages UP”

OK, all of you “pistol packing Mommas” (look it up) or more likely Daddies, you’re in trouble, especially if you are in the mortgage finance business and sell any loans—or guns--to Fannie and Freddie. 

I thought the gun nuts left the agency when the last IG was hustled over the State (True: he wanted to arm his lawyers!!) but now—according to Charles Wisniowski's story in Inside Mortgage Finance the agency new IG is seeking a criminal investigator who also has firearm skills. Tell me why, again? 

I can fire a .22 rifle, have a flip phone, have fond memories of Angelo Mozilo and Lew Ranieri, know the mortgage business, have previous relevant experience, and can easily can spot a phony, I wonder if I qualify? 


All of this silliness just reminded me of one of my favorite TV shows and its theme song. Maybe FHFA just should call out for “Paladin;” he has character, intellect, and gunplay skills.


Michael Bright to BlackRock

Michael Bright has left the Hill for a major financial services company with offices in New York other eastern cities.

Bright did a lot of the important research, contact, and behind the scenes work for Senator Bob Corker (R-Tenn.), who was a major driver of the Senate bill which became Johnson-Crapo, but should always be remembered at CorkerWarnerJohnsonCrapo (CWJC).

Bright is headed to Larry Fink’s very large and successful BlackRock financial company.

Brief old man geeze. Fink was a mortgage innovator at First Boston and a major mortgage backed securities/financial services player in the 1990’s. (He was a prominent industry witness and leader, served on a variety of Fannie advisory groups, etc.).Along with Larry, one of BlackRock’s founding 8 partners was Ralph Schlosstein, who—fresh from the University of Pittsburgh with his MBA--first came to DC to work for my congressional boss and. technically work under me, although Ralph’s staff work involved matters before the Joint Economic Committee. 

So Fink is worth billions. Ralph--who did quite nicely at BlackRock before branching off a few years ago to set up his own financial group--isn’t worried about his next pay check, while I am writing a blog ranting about banks, Obama, IS, and the Ukraine?

What’s wrong with this picture?

Larry, Ralph, remember your old friends!


What’s Next in the Senate

Frankly, the next major thing in the US Senate is the November 4 congressional elections, which at this moment has control of the Senate teetering and a possible shift to the GOP.

Congress will hasten to get out of town as early as it can in October and run home for reelection events.

IS and Ukraine could slow that schedule, since the President now seems to have put off his regulatory immigration efforts until after November. 

I’m won’t speculate on which Senators will win and lose and where control ultimately will reside,  because the Democrats have some major weapons still to employ—in elections term—and there always is the odd lot race that nobody watches and then you have a surprise. 

One way or another, there will be a new Chairman next year in Senate Banking, since Tim Johnson (D-SD) is retiring. If the D’s hold onto control, likely Sherrod Brown (D-Ohio) would be Chair; if the GOP prevails, when the new Congress is sworn in in 2015, Possibly Dick Shelby (R-Ala.) will drive the horses. 

What won’t change is House control, which could see added GOP strength, so mortgage finance issues still will be driven by Jed Hensarling (R-Tex.), House Banking Chair. 

Nothing substantive moves legislatively until the Senate sees who is running what, which means until 2015. (I mention that for the few Senate staffers who claim there still could be a Senate CWJC bill and conference with the House in 2014.)

BTW, don’t underestimate the loss of a staffer, like Bright.  

Sure, we (former Hill assistants) can be and have been replaced but, principals just have so much time. Capable staff carry a lot of the legislative burden. 

Corker won’t fail without his top guy, but he’ll need to quickly find and trust a new “Michael Bright.” (And despite the familiarity, MB needs to stay away from the Hill and the Senator, including not answering too many calls from his old Corker colleagues. That will get him, his old project, and his new employers in trouble.)


Hill Analysis re Mortgage Reform

I am going to keep my analytical crystal ball as clean of “what if’s” as I can and stay basic. The tide in leaning GOP. 

If Shelby becomes Chairman, he might not be warm to putting $3 Trillion dollars in new federal obligations on the budget, as CWJC, and might not want to pass that kind of bill and then get into the House crosshairs, where those R’s want no F&F or anything else that manifests a federal role in the nation’s mortgage finance system. 

Any bill that Brown would fashion, having similar characteristics and possibly even a greater federal involvement, would run into those ideological and political problems and even some D’s may not want to carry that burden into 2016 Senate races and the all-important presidential election.

One never says never, but I still am comfortable suggesting that it will be 2017 before anything F&F serious moves in Congress—even as noted some Senate staffers suggest bills still will pass this year—and agree that near term action will be on the regulatory forefront, with Mel Watt being the mover.


We’re in Kansas, Toto! 

One fascinating discussion at my last week’s Friday night poker game was the fate of GOP Senator Pat Roberts in Kansas. The R’s at the table suggest that the unpopular Roberts was headed for a loss to an “self-funded independent,” whose likely was hindered by the  D candidate, until –reportedly—Senate Democrats talked their nominee into resigning from the race. Except that the GOP state officials won’t let the Democrat drop out, citing violated state laws as he attempted to get out.  To be continued. 

Keep an eye on Kansas, which probably won’t elect a D but could elect an “I,” who might caucus with the D’s and deprive the GOP of a crucial organizational vote. Click your heels, boys and girls.


Gimme Mo, Gimme Mo!! 

They’re back at it, the banks are want more, more, more, more.... 

More, Mo-Mo

Feigning objectivity (Ha!), the MBA’s David Stevens lays out the trade group’s solution to the nation’s mortgage issues, which—surprise, surprise—is exactly the MBA agenda and the much of the CWJC legislation. Watch as their noses get longer.

Oh, and the MBA is agnostic on the court cases.

Who says Fannie isn’t shrinking? 

In case you’re keeping track, Fannie Mae’s mortgage portfolio totaled $449 billion at the end of July, an 18 percent decline over the past 12 months, according to Inside Mortgage Finance.


What Others Are Saying 

Dick Bove says we’re in for a mortgage crisis this winter, but I don’t buy it. 


Politico looks at the Senate races.


Russian bank hires Lott and Breaux!!!! 

Get your money up front Senators, because you should know can’t trust the Russians. Hope your former colleagues agree…with me.
I wonder how large is the GAZPROM PAC?

(“Why yes Trent, thank you. I do accept ruble contributions and so, I am sure, will the Senate Republican Campaign Committee.”) 



Sarah Palin chides Tina Fey.


Do banks continue to redline? Do bears still crap in the woods…..?


Which countries are candidate for the “2014 Anti-IS Coalition of the willing?”


After the always housing helpful (not!)  Ed DeMarco’s FHFA stopped Fannie Mae from trying to decrease the burden on mortgagors of “captive MI insurance,” the oversight agency—under Mel Watt-- now has moved on some proposed regs to limit REIT which have captive insurers (subs) from being members of the Federal Home Loan Bank System, the other major—but often ignored or overlooked—piece of FHFA’s jurisdiction. Bank system membership is attractive because of lower cost funding available.,


Speaking of Ed DeMarco, the former F&F boss man has joined the Michael Milken Institute, where he promises to write and speak some more. Save your time Ed—and save your money Mike—we’ve heard it all before. 


Whopping price paid for used tool???


Sen. Warren complains about DC/Wall Street revolving door and Eric Cantor. 


Fox Network News lost one of its most ardent viewers/listeners (“Bill, can you turn the sound up?”) this weekend, when Audrea Hitz Wynn, 93, passed away. RIP, “GG” (Great Grandma).

Maloni, 9-8-2014




Anonymous said...

"How much would it cost families if as many housing sources claim that new mortgage activity under the CWJC would carry rates 100-200 basis points (1 to 2% and some estimates are higher) more costly? How many fewer would qualify for a mortgage loan? How much would it cost those who do qualify if the $500 Billion in new capital required in CWJC doesn’t show up? And, who would pay it or fill the gaps."

Hard to decipher the $58B bonanza, with relatively limited costs in first 5 years, and $10B in years 6-10.

What is clear is that they use .9% (90BP) as their profit fundction.

Multiply that times the $1 trillion a year and we are looking at cost to consumers of at-least $90B

Mortgage tax. Inefficient. Locking out small banks. Who will be there in a downturn. So many clear hurdles and way too many questions.

Nice try CBO. (And, interesting timing to counter James Glassman +200B profit, left on the table)


Bill Maloni said...

Thanks Chris--

Look deeper into the report and you'll notice it suggests savings come from utilizing different accounting procedures for GSEs and the proposed FMIC.

As noted, CBO Garbage in, CBO garbage out, with an attitude!

The bad guys always use smoke and mirrors.

David Jeffers said...

We(the FHLBanks) made it clear last week that we have very serious concerns about the proposed anti-liquidity reg that the FHFA is about to publish in the Federal Register. So there's no need to go into here .. other than to say it would force many banks and thrifts to maintain at least 10% of their assets in mortgages or MBS. Why? Good question. Because it would mean less money, not more, for housing. Right now the most important matter is the very limiting 60-day comment period that FHFA has set. At the very least, a healthy dialogue on the issue deserves a more reasonable 120-day comment period. If you agree more time is necessary, write FHFA Director Watt.

Bill Maloni said...

DJ is a long, long time friend and former colleague, who now works in the Bank System.

Matt Hill said...

I see Corker jumped on that CBO report like a duck on a June bug. Based on CBO track history, I'm gonna go with Glassman's numbers.

Bill Maloni said...

So did the WEH, see Mike Stegman's
comments to North Carolina lenders, yesterday.

Such bullshit.

How can you just assume no dislocation, no brittle results, no service gaps, and no cost increases, when you uproot something as big sand as systemically integrated F&F and substitute an entire new set of rules?

As a friend puts it, "It's La-La Land mortgage money, free and there for everyone!"

Bill Maloni said...

Naturally, I should spellcheck my comments.

That should have been "WH."

Matt Hill said...

With the Treasury, FHFA, the Justice Department, WH, CBO and tons of congress members all in on this big lie, you wonder if anything that anyone in the government says can be taken at face value anymore.

I'll have to start being nice to my wacko neighbor that is stockpiling canned food and water as he's starting to make a lot more sense now:)

Bill Maloni said...

Offer to bring the wine and extra ammunition.

In my angrier moments, I say "lie," but the advocates shade and twist the facts to fit their position.

Yes, there was a CBO study which claimed CWJC could produce $58 Billion in savings.

Yes, Corker and the WH (Stegman) both mention it because it support their positions.

Those employing the fact of the study are not responsible (or ersponsible enough) to point out that "revenue gains," solely, came from disparate accounting--apples versus oranges-- treatment over several years. Or, that the CBO did not estimate the added cost to consumers and the market from the transition, inevitable dislocation, higher costs, fewer product options, possibly less liquidity, etc. etc. than what exists in the current GSE dominated system.

So, were they lying????