Sun Shines
on GSEs Last Week
Frankly, I cannot remember a week which had as many F&F
positives as last week provided.
From judicial announcements to surprising congressional
affirmations, with some superlative reportage in the middle, it was a week to
be savored offering some legitimate hope for a rationale way out of the current
legal and political mortgage morass.
I continue to believe
a growing number of people recognize the “replace F&F” meme is not the
ideal housing finance policy or practical approach to pursue, since the inherent
political head banging creates doubt and weighs down the U.S. housing market’s
operational success.
More discussion and exposure to the issues—and more
importantly the many manufactured but relentlessly repeated mistruths—can only
facilitate this needed education.
Specific
Good Things
Watt
Testifies; Bipartisan Acknowledgements
Mel Watt’s testimony before (R-Tex.) Jeb Hensarling
(R-Tex.) and the House Banking Committee kicked off the week of surprises—not
that the Director was a “profile in courage” --but political gold was unearthed
when Democrats and Republicans in their
statements and questions first affirmed F&F have repaid the Treasury
almost $40 Billion more than the two received from Uncle Sam in 2008, (the “paid back” construct also crept more
into media reports) but the Members expressed their belief that Fannie and Freddie
are undercapitalized.
Booyah!
The next step should question why F&F don’t have
necessary and desirable capital to protect again future losses or even begin a
transition to more full market participation, as envisioned by the 2008 Housing
and Economic Recovery Act (HERA).
While
some Members used that as a cudgel, IMO, drawing attention to this fact will just
bring more exposure of the “Third Amendment sweep,” which takes every penny of
F&F earnings for the Treasury.
Hey
Mel, See How Dumb I Am
It wasn’t all love and
kisses for Mel, but the cause was helped, when senior R’s—Chairman Hensarling,
Ed Royce (R-Cal.) and Wayne Garrett (R-NJ.)—inevitably displayed their F&F
irritation, ignorance, and mortgage market naivety.
Hensarling, still
blaming F&F exclusively for the 2008 troubles, using out of date 2011 information
continued to mix apples and oranges and still couldn’t even produce edible
fruit salad; small example below.
“ACORN-like,” whoosh there’s an incendiary,
possibly racially charged, indictment. You don’t think Hensarling is using a derogatory
phrase to put down the FHFA rental housing funds and families who need them, do
you?
Nah,
that couldn’t be right because Chairman Jeb Hensarling must know—and likely
voted for—the appropriations bill which specifically, by—says that Acorn nor any
affiliated organization can’t receive federal rental assistance money.
Now
that they’ve been “schooled,” you don’t think Jeb and his posse uses the description
again, do you, do you, huh?
Ed Royce persisted in
suggesting F&F hadn’t paid the government anything. And—in a shot at Watt’s
call for funding two rental housing funds--earlier introduced a bill saying
F&F earnings only could be used to reduce the deficit.
Garrett ignoring any
role in the 2008 meltdown for the grievously underwritten and rated $2.7 trillion
PLS subprime issuances by banks and investments banks.
In full partisan
throat, Garrett blamed only government policies and suggested Watt’s recent
decisions on rental housing funds and 3% mortgages would rekindle the 2008
problems, again.
Despite those
obstacles, kudos to those Democrats and Republicans who made the point that
F&F can’t possibly build capital when the Treasury takes every penny the
two make.
That cold hard fact—along
with the efforts of 20 or so plaintiffs in the lawsuits charging Treasury and
FHFA with violating the Constitution’s 5th Amendment--will force
policy makers and media to pay attention to the illogical impact of the
2012 Treasury sweep decisions.
Judge
Sweeney Stiffs the Government
Hallelujah, last week, we also had Judge Margaret Sweeney--finally
getting irritated at the government’s failure to follow through on her original
“discovery” directive--announce she would not “stay” discovery, as the federal
government requested and—this is Maloni’s interpretation,
not the Judge’s actual words—told the DoJ lawyers to get off their butts,
quit slow- walking the process and playing “hide the pea” regarding plaintiffs
lawyers legitimate requests.”
The government contends,
among other things, that the documents being sought are super sensitive and
could cause major financial and economic damage if revealed. Reportedly Treasury/DoJ/FHFA
are stamping the equivalent of “top secret” on many of the materials to keep
them away from the plaintiffs.
I will repeat there is
nothing in the existing F&F files that could bring down our market or cause
the dollar to fall.
Sweeney knows what the
government is up to and, I hope, she is upset and offended.
Unlike Administration declarations
last year about the super sensitivity of these document, government lawyers likely
are hiding politically embarrassing docs which show the US Treasury likely
violated HERA, forced FHFA to abandon and cede to Treasury its F&F statutory
conservatorship authority. Treasury then conjectured some twisted legal logic for
the “sweep,” that allows the government to gobble every penny which Fannie and
Freddie earned to the tune of close to $218 Billion.
The Week Gets Better, Times 50
Tim Howard’s paper--which
scolded the government for its conservatorship actions as well as “the sweep”--then
got amplified about 50 fold when former FDIC official and current Arnold and
Porter attorney Michael Krimminger
and the Cato Institute’s Mark Calabria,
a former Senate staffer, issued a dynamic paper which earned immediate
attention suggesting that the “third amendment sweep” was outside the statutory
parameters of HERA.
See a link to the
paper below.
http://investorsunite.org/wp-content/uploads/2015/01/Krimminger-Calabria-HERA-White-Paper-Jan-29.pdf
Too many people saw, read, and heard
about it for their work to be ignored or cast aside.
Dessert, Dessert, We Need Sen. Shelby
Senate Banking
Committee Chairman Richard Shelby (R-Ala.) provided some major icing on the week’s GSE cake, when he told Bloomberg,
as part of a much longer interview, that he hopes to return Fannie and Freddie
to the mortgage market, but without their government ties..
The major significance
for me—and others—is that the Senate’s most powerful financial services voice did
not call for atomizing or disassembling the mortgage giants.
That does not mean he
will fly F&F banners in his hearing room or put their decals on his car, but it does
suggest that he understands the structural, operational, and political problems
contained in the “let do away with them” approach to mortgage finance reform.
Sen. Shelby on F&F (Bloomberg)
http://www.valuewalk.com/2015/01/sen-shelby-fannie-mae-freddie-mac-video/
The other Sweeney Order…and Me and You
The night before Judge Sweeney ruled that she would not
“stay” discovery--which the federal government requested—the Judge issued a separate
order reaffirming an earlier decision she put out reminding lawyers for both
the government and the plaintiffs not to contact her office (including her
clerks or herself) with information about the case.
This recent order was aimed at ex parte communications,
those from outside the official hearing process, meaning from civilians with an
interest in the case.
My Bad?
I never sent anything to the court—and I don’t think the
Judge knows me or my blog--but I certainly have suggested it would be nice if
someone made sure that the courts, judges, and clerks involved in the “third
amendment” cases understand Tim Howard’s paper, exclusively featured in the
blog two weeks ago.
There is no evidence that anyone followed my naïve
instructions, but, as someone memorialized in the movie “Ghost Busters,” if they
did “That would be bad!”
It could hurt plaintiff’s interests (an action not beneath
some of those who would see these cases scuttled).
So, continue to vent your court case opinions with your
Congressman/woman or Senators; send letters to the editors of your favorite papers,
or to your friends; but don’t contact the courts with your ideas related to these important
cases.
Sweeney’s ex parte order.
You and Very Good
Guy, Bryndon Fisher
For those of you with an unquenchable desire to share your third
amendment insights with engaged lawyers, I provide you Bryndon Fisher—an
occasional reader and poster here—and his gracious offer.
Bryndon, currently a lawsuit plaintiff, invites you to send
all of your thoughts/ideas to his attorney (see below), working on his piece of
the “takings” case.
Noah Schubert
Schubert Jonckheer & Kolbe, LLP
Three Embarcadero Center, Suite 1650
San Francisco, CA 94111
(415) 788-4220
|
What
Others are Saying
Gretchen
Morgenson, in her NYT column, cites some jurists not
afraid to engage with big bank skullduggery.
Warren
wins on Weiss
AEI’s Peter Wallison
(Peter Earns Attention)
Peter Wallison, the AEI’s resident GSEW antagonist, complained
that his recent book—which was much like his other books, blaming the government
and F&F for the 2008 financial meltdown--was trashed on Amazon’s book site by left wing
provocateurs.
In making his point, PW once again absolved the Wall Street banks and investment banks of any 2008 responsibility.
“None of these reviews
showed any familiarity with the book, or contradicted the extensive data that
shows the 2008 financial crisis was caused by the government’s housing policies
– and not, as the political Left has asserted, by insufficient regulation of
private sector financial firms.”
Peter Aids the Cause This Time
Also, last week, Peter provided some GOP
introspection when he told Politico the
following about GSE reform:
“There’s no reward in it for them (Republicans in Congress),”
says Peter Wallison, conservative author and scholar at the American Enterprise
Institute who helped craft a privatization scheme that passed the House
Financial Services Committee in the last Congress but was never voted by the
full House. He explained a privatization of Fannie and Freddie, which is
favored by GOP House leaders, would antagonize many powerful constituencies,
like realtors, banks and homeowners, as well as those not generally endeared to
the Party, like civil rights and community groups. “Congressional leaders do
not want to take the risk; they do not want to incur the risk of all these
interest groups,” says Wallison.
GOP leaders are also reluctant to pursue a reform measure that
would be seen as bailing out shareholders, according to Wallison. “Congress
does not want private investors to make a killing on Fannie and Freddie,” he
says.
fanniefreddie-reform-despite-proposals/
A final word from
David Fiderer
Our friend and colleague, David Fiderer, is a major critic
of the AEI’s mortgage research efforts, headed by Peter Wallison and Ed Pinto.
Wallison has relied on Pinto’s “research”—which has been
rebutted by several prominent sources—but the AEI and Peter (not to mention Ed)
keep pumping out the same detritus.
Fiderer sent me the following when he saw Wallison’s new book,
using Ed’s old numbers, and saw Peter’s complaint s(mentioned above).
Pinto/Wallison don't
equate apples and oranges; they equate apples (GSEs) with sardines
(CDOs). They equate the best performing loan portfolios (F&F) with the
absolute worst (PLS), they equate a business model that never faced a liquidity
crisis (F&F) with the business model that triggered a global meltdown
(PLS).
For starters, everything
in the lending business is framed around loan
performance; and nobody ever came close to matching the stellar
performance of the GSEs. Pinto/Wallison want us to believe that the
GSEs, and their affordable housing goals, led the race to the
bottom in credit standards, and the private market was compelled to follow
on that downward path, till an inevitable financial crisis occurred.
So instead of looking at
the GSEs' outstanding overall performance, they pluck out a
small sliver of the F&F portfolios, mortgages with 95+% LTVs, and say
instead, "By 2000 Fannie and Freddie did away with down payments."
They translate risk diversification into something more sinister sounding, so
those, "low FICO scores were consistently subsidized by less-risky
loans." They refuse to mention that high LTV GSE loans were always enhanced by their private mortgage insurance, so that
GSE severity on high LTV loans was better than severity on loans with
60-80% LTVs.
The truth is that most
of the credit losses were concentrated in a small 20% segment of the overall
market, private label securities. The idea that PLS deals mimicked the GSEs is
ridiculous. Fannie and Freddie had huge mortgage portfolios comprised of mostly
strong credits and some weaker credits. PLS were small static pools of
mortgages that were all substantially similar. Deals were segmented by pools of
subprime mortgages, Alt-A mortgages, or jumbo mortgages. There was no way PLS
could match the GSEs in risk diversification, which is why the idea that
Wall Street felt pushed by the GSEs to take on these higher risk loans
makes no sense.
Also, the GSEs purchased
only 15% of all PLS issued during 2005-2007, and those were only the most
senior, triple-A tranches. Which segues to the issue of subordination.
Despite what Pinto/Wallison want us to believe,
there never was any "mortgage meltdown" at the GSEs. But in September
2008 there was a huge meltdown, not in mortgages, but in PLS mortgage-backed
securities. The deeply subordinated tranches, the slices that assumed the first
losses and had scant margin for error, got wiped out right away. And those
subordinated tranches were packed into CDOs, of which about $300 billion were
held by AIG, Citigroup, UBS, Merrill, AMBAC and MBIA. Those were the biggest
companies that got hammered the hardest in short order. That's what melted
down, and caused liquidity crises throughout the system, not mortgages, and
especially not GSE mortgages.
Maloni, 2-2-2015
Congrats #36, former
Pittsburgh Steeler Jerome “The Bus” Bettis on your NFL Hall of Fame selection.
You’ve always been a standup player and gentleman and deserve the professional
recognition.
3 comments:
Bill, thanks for your weekly insights! 'Twas a good week indeed and hopefully one we can build on.
I would like to second your congrats to Mr. Bettis on his HOF induction. As a lifelong and diehard Steeler fan and someone who spend some quality time with Jerome, I can attest to him being a gentleman and very charitable person. And, of course, an all-time great RB.
The image of The Bus running over Brian Urlacher on the that snowy (December 2005) day in Chicago is how I'll always remember him though...similar to Franco and the IR!
GO STEELERS!
Amen to that and a lot more; Bus's play against Seattle in the SB, which they won, and the whining of the Seattle fans for years after that gamer, for me added to Pete Carroll's embarrassment yesterday.
(Although it was a battle between two organizations I don't like.)
But that was fabulous game to watch, with the world now forgetting Seattle WR Kearse's catch on his back after it bounced of his chest, arms, and legs!!!
Maloni's makes another mistake.
My sports loving past must have over taken me when I called Rep. Scott Garrett (R-NJ), a HBC member, "Wayne Garrett," a former professional baseball player for the New York Mets.
Sorry, Congressman!
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