Monday, December 1, 2014

Watt on GSE Underwater Refi's, Epstein, Fiderer, Maloni and TH717



Thanksgiving Leftovers and Treats


Note to self: Few people read blogs during Thanksgiving week, remember next year—if you still are writing one.

Here are some F&F items which broke early last week or just as most people deserted DC for the long Thanksgiving weekend.

Graham for (McCain’s) President 

Yes, Senator John McCain (R-Ariz.), I think Sen, Lindsey Graham (R-SC) would make a fabulous GOP presidential candidate in 2016 and I hope he runs. 

He’s brighter and more personable than Cruz and Rubio, more mature than Rand Paul. Maybe President Obama should cross party lines, gain, and name Senator Graham Secretary of Defense to burnish his credentials? Then, in 2016, Graham can yell “Benghazi” all he wants although few may listen.

Refinancing Underwater F&F Loans 

FHFA Director Mel Watt changed the current F&F policy regarding REO (that covers 120,000 houses which the two own because mortgagors defaulted on their home loans). 

While the homes always could be repurchased by the original borrowers, some of them now will be able to buy them not for the outstanding balance on the mortgage but for the house’s “market value,” which generally would be somewhat to much lower in price. 

Good for Watt, although the Devil always is in the details. This was something the Obama Admin wanted to do when Ed DeMarco was FHFA’s Director, but the latter balked, citing the fact that he just didn’t agree with what the President/White House wanted. 


Professor Richard Epstein 

Richard Epstein, who works for plaintiffs suing the government over the “takings” issues, updates his opinions of the cases and legal developments to dater in this Forbes article. 

Nice to see what he has to say—hope he’s right-- but part of me thinks the courts are not going to be logical or consistent when the issue is F&F. 


Fiderer on Private Label Securities (PLS) 

I suspect that most people don't understand when opponents talk about doing away with Fannie and Freddie, the alternative is bank originated, securitized, and guaranteed mortgage backed  securities, known as “Private Label Securities" (PLS).

An article by Tom Ressler, from Inside Mortgage Finance, said a recent symposium of PLS interests were all over the landscape on the future and viability of the PLS market. 

Much has been written about the abject failure of that non-F&F market segment and the resulting huge dollar losses when the banks last heavily engaged issuing $2.5 Trillion of PLS, in the pre-2008 financial debacle era. Much of which failed quickly because of poor underwriting. 

Our good friend David Fiderer has offered his view as to why the concept of PLS is flawed and not a reliable alternative to Fannie and Freddie securitization or other bonds which have some government relationship.

Read it carefully and take away from it DF's perspective of this complex market component. 

Larry Summers
Former Obama Treasury official never has been a big fan of Fannie and Freddie but he did add value—and ultimately some cynical observations, once removed—when during a presentation (about 55 minutes into the You Tube video below), Summers noted how much revenue Fannie and Freddie produced for the federal government, how they have helped Obama Administration balance its needs, and how—since 2008—the mortgage giants have helped stabilize the broader US economy.
This caused one of my favorite and quite Washington-snarly mortgage buddies to observe in an email to a few of us.
So as you all have noted:
1 F/F have paid back taxpayers with largest net of any 2008 financial intervention.
2. They have been instrumental in bailing out larger economy, even according to F/F opponent Summers.
Thus, no question, we must take the Mortgage Bankers Association's advice and kill them.
NYC Distressed Assets Conference
Unfortunately, owing to a fast developing and for me—violent—chest cold/flu (shared with me by grandkids on Thanksgiving), I had to cancel a Monday (today) conference appearance in NYC on a panel about F&F future.
Jim Millstein, who was also on the panel, is to get an award from the “Faculty,” which sponsored the one day conference. Again, my apologies to Peter Chapman (I am coughing, in your honor, as I write this).
I never speak from a script—just notes--but for my blog venue, I have fleshed out what I was going to say to the group and offer it now (about the time the panel concludes its session) for your consideration. Please note my observations about mystery blogger “TimHoward717.”
Maloni prepared but undelivered remarks to “The Faculty’s” NYC Conference, 12-1-14
(I held up publishing this blog until the middle of the afternoon today and the anticipated conclusion of the NYC F&F conference session at which I had planned to deliver, generally, the remarks below. My comments were based on an outline the sponsors provided.)
--Most of what I’ll say has been in the blog I’ve been writing for four years.
--In a nutshell, when I worked at Fannie, it was very good at its statutory home ownership tasks and achieved many mission-positives and certainly revenue for its shareholders.
--I left at the end of 2004, when I hit the corporate early retirement age. Coincidentally, but not related, that was when the political long knives forced out CEO Frank Raines and CFO Tim Howard, along with our Treasurer Leanne Spencer Garmon.
--A federal judge, 8 years after the fact, found the three were not guilty of securities fraud, the primary cudgel our then regulator OFHEO used against them. But it cost the three their jobs, careers, and reputations, as well as several years under a legal cloud as they faced shareholder a law suit built on the OFHEO allegation. (Read the “real” Tim Howard’s excellent book on the subject.)
--As a professional, I can acknowledge the success of our political and business opponents, who did such an effective job.
--They splashed so much crap on F&F that the two still are digging themselves out from under it and may never be totally free of suspicions and doubt.
--Of course, the management which followed Raines and Howard shot themselves in the foot buying so much private label subprime, which quickly defaulted and added billions to Fannie’s and Freddie’s existing red ink, adding to the negative reviews.
--But it was the securities fraud allegation which hurt the most, when our enemies converted it into a phrase which repelled even the staunchest Fannie supporter, “Fannie cooked their books and then gave themselves huge bonuses.”
--That erroneous but effective charge still resonates with some in DC today. It plays to DC jealousy about corporate salaries and benefits and commercial black boxes.
(None of that is a negative in New York but it was/is a big time “bad” Inside the Beltway.)
--As most know, since 2008 and conservatorship, the reality is that the two entities have done fabulously, have benefitted from 6 years of solid if overbearing regulation and have paid back every dollar Treasury infused in them, plus @$20 Billion or $65 Billion, depending on how you view the money F&F had to borrow to pay the interest on the money they had to borrow!!!
--Let me quickly touch on Peter Chapman’s other questions by bringing in a perspective on the man called “Tim Howard 717,” who is not—as I hope most of you realize, by now—my former Fannie colleague and ex-CFO Tim Howard.
--About 6 months ago, when I first saw this blogger’s work in IHUB, I tried telling posters , “This Tim ain’t that Tim” and all but got shouted down because readers were liking what they were reading and didn’t care who he was…but back then many thought 717 was the Fannie official.
--TH717 is an active political broadsider and recently has been blog teasing with a story I hope is true, but I find very hard to believe.
--Imbedded in his tantalizing hints and references is the suggestion that the Obama Administration has a stealth agenda to embellish this president’s legacy;  keep F&F alive and functioning for the long term;  help middle income families secure the type of consistent, fairly priced, efficiently delivered, long term fixed rated financing—and to achieve all of that through executive action.
--Now, before anyone runs out and doubles their common or preferred position, this is a theory of mine about what “717” is doing but—as noted, I hope it’s true—but that strikes this old dog as too cute by half for this Administration and suggests a drollness and guile that I’ve not seen before in any Obama operations.


(Howard may be in this room and if he is, “Hi, good to be in your aura.”)


--I do believe and have written that the new GOP heavy Congress—at least before the immigration executive order—would allow the President’s minions to work at the fringes of conservatorship and broaden the Fannie and Freddie credit box, making it harder to dump them legislatively.


--I think there will be a Fannie and Freddie or at least one of them with us for the foreseeable future and that the type of chaotic and far-reaching changes contemplated either by a CWJC bill or even last session’s Hensarling bill—which dumped the federal government from the business and let only banks make conventional mortgage loans--won’t become law.


Could a Jim Millstein “in between” proposal get congressional approval or the utility model?? Certainly. But it would take a major legislative coming together, spanning a huge partisan gap for either to happen.


It’s most likely to happen if/when the WH, Senate and House is controlled by one political party—and the soonest that could happen is 20017—although the House would be tough for the D’s to take. I also am sure that such a homogenized DC wouldn’t have a raft of other things to do first before taking on a Fannie/Freddie restructuring, when operationally that wasn’t an emergency—because the public wasn’t demanding it.


Until that time, it is “status quo,” with the court cases being the wild cards.

What Others are Saying
NYT, 12-29-14 lead editorial on homeownership and wealth generation. (No mention of F&F, but still worth reading.)
Israeli ambassador to the UN Ron Prosor addressed the membership last week and unleashed a ton of historic truth on that less than august body, which I expect went in one ear and out the other of those assembled there. It was a response and harsh reminder of events since the 1848 founding of the State of Israel and the general fickleness/cowardice displayed by most world nations toward Israel, save the United States.
To those of us in the US used to listening to political code talkers, Prosor’s cold hard truth is a welcome noise.
Maloni, 12-1-2014
(Happy birthday, today, to our oldest son, Jason Wynn Maloni, who—along with wife Andi—are the parents of three of our six grandkids? Love you, J! Before I knew how bad Thanksgiving traffic was, coming back from Pittsburgh to Maryland, we almost had to name our first child “Breezewood,” when wife my quietly went into labor and didn’t tell me. As it was, three hours after entering our New Hampshire Avenue, DC,  apartment, Jason was born at George Washington Hospital. True!)


Duncan MacLeod said...

Wishing you a speedy recovery

Bill Maloni said...

Thank you, DM. It will happen, but the timing really sucked for me. There were times when I would have blown through any condition to go anywhere, but not anymore.

They had a lot of experience and talent present so I wasn't missed. I was told, despite the informal agenda commenting on the identity of "TimHoward717," the subject didn't come up.

Mr fid l sticks said...

Hope you get more better sooner and again thanks for all you do ....
Also wanted to alert you to the upcoming Investors Unite Capitol Hill Summit, which will take place on Tuesday, January 13th – Wednesday, January 14th in Washington, D.C.
Please see link below for more info and thank you Bill for the opportunity to share this with you and your readers ....

Bill Maloni said...

Yes, Mr. Sticks, I saw this event is coming up and I will try and make this one, having missed the one a few weeks ago. (Someone should suggest to Mr. Pagliara to invite some of the new congressional R's--who will eb fresh to DC--to sit in or certainly ask their senior staffers.)

It would be nice to have someone on the Hill showing their love for investors.

Also, thanks for your comments on the TGH717 blog. I meant what I said about him. In this world, controversial and attention getting is good.

But I know that "our Tim Howard" would feel better if TH717 used another name.

BTW, I think I have achieved--with a few hours left--an all time high in "blog hits" today. (See counter at the bottom of the page.)

Part of that was because of the delay I imposed on myself, owing my inability to attend the NYC conference today, wanting to share my comments but not pre-empt their program. Some folks came on twice today, but less than a third.

I also think people seeing a reference to my stuff on TH717's blog also generated a lot of hits today.

I hope they all enjoy what they read and come back.

Bill Maloni said...

Into each life, a little rain....

The Larry Summers video from the Yale Okun lecture--which said nice things about Fannie and Freddie--and did produce the hilarious MBA comment just this past week from my friend, actually was done in 2008.

What LS said about F&F stabilizing the economy and providing the Obama Admin with cash is accurate, but while I didn't state it, anyone reading it might have assumed this was fresh stuff. It was prophetic but not new.

My bad!

Mr fid l sticks said...

I'm glad to hear you are planing on attending the upcoming IU Washington event and I think it's a fantastic idea to bring some new reps with a fresh perspective to the table. (I hope Mr Pagliara is listening !)
If you get a spare moment please stop by the UI web site they have a discussion board and would be thrilled if you gave them a shout out.
As always I will spread the word on your great blog it's arguable the oldest and certainly the best of all the good ones!
Oh ... and who's that DC BILL guy anyway?
he always seems to know when the next blog is comming ....

ps. we do all agree on the th717 name ... please tell Mr Howard thank you for his being patient with that, we do know the difference and as you can see most just use th717 these days ... but still

Bill Maloni said...

What do you mean I'm the oldest blogger in the....? ;-)

I am not very good, truly honestly, with technology and my stuff used to be posted on IH but then it didn't have a link or some other issue befell it.

So "DCBill" started putting up a generic "Read/Google" message that seemed to draw readers. He's lives nearby.

Tim's patient but when Judge Sweeney egged on by the DoJ lawyers--used the "name coincidence"--in part to deny him the ability to consult with Fairholme on discovery, he felt like he had been hit by that damn red, white, and blue car, again!

Anonymous said...

Bill, I hope you're feeling better soon. Thanks for your blog. I read it weekly.

BTW, I noticed on your hit counter today, around 7:30am someone inside Freddie Mac was reading your blog. Any Idea who it could be?

Bill Maloni said...

Thanks Anon--No idea at all about that or anyone else whose data shows up.

I thought I was over this, yesterday, but the damn wet cough and hacking came back last night. I really must have pissed off somebody important??!!

Bill Maloni said...

Mr. Sticks, check out my last posting on the IU site, with the GOP newbies on HBC.

And email me, plz, at one of my addresses, so we can communicate a bit faster,

Mr fid l sticks said...
This comment has been removed by the author.
Mr fid l sticks said...

Bill I left my contact for you on your thread at the site ....

Bill Maloni said...

Thanks. (Truth, I think I have three different addresses for them, one which just shows topics, one full site page, and a third which seems a bastardized version of comments but with no sponsors listed.)

I don't self describe myself as a "tech idiot" for nothing!

Just email at the Gmail address below.

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