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. 

http://finance.yahoo.com/news/u-regulator-unveils-policy-help-182236829.html?.tsrc=applewf

 

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. 

http://www.forbes.com/sites/richardepstein/2014/11/26/a-tale-of-two-bailouts-aig-fannie-and-freddie-and-beyond/

 

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. 

http://www.nationalmortgagenews.com/news/origination/private-mortgage-securitizations-have-a-math-problem-1042801-1.html   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. https://www.youtube.com/watch?v=rpb1i9rL99I   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.)   http://www.nytimes.com/2014/11/30/opinion/sunday/homeownership-and-wealth-creation.html?hp&action=click&pgtype=Homepage&module=c-column-top-span-region&region=c-column-top-span-region&WT.nav=c-column-top-span-region ___________________________________________________     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.   http://www.standwithus.com/news/article.asp?id=2103 __________________________________________________   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!)