Monday, March 30, 2015

GSE Updates and "Go for it, Judge Sweeney"


Reid Wants Schumer to Succeed Him


In announcing his plans to retire when his current term ends in 2016, Sen. Minority Leader Harry Reid (D-Nev.) would like Chuck Schumer (D-NY), currently a member of the Senate Banking Committee to replace him as Senate Democrat party leader. 

Newspaper reports are that the job is Schumer’s unless he suddenly decides he doesn’t want it, but his recent actions since the Reid announcement—suggest New York’s senior Senator will have a clear field, when the time comes.

Good choice for Harry and the D’s, but in anticipation of Schumer either being Majority or Minority Leader, US and international networks/media likely will have to start now ordering new cameras to insure they have enough prisms to cover Schumer in full bloom.

Safety Warning, "Look Out!” 

It’s an old comment, but still accurate line, "The surest way to injure yourself on Capitol Hill is to get between Schumer and a media camera."

That won’t change!

(Also, Shhh, keep it to yourself, Senator Schumer--who supports the FHFA-blessed 3% down mortgages and reviving the rental fund--believes that F&F already have repaid the federal government what they owe the taxpayers.)

NYT Article on Wallison Draws Response 

Several people told me they sent letters to the New York Times editor, commenting or criticizing the feature story the paper did on the AEI’s Peter Wallison. 

Here is one which got printed last week by the newspaper.

FCIC Chair on Cause of 2008 Financial Crisis

MARCH 27, 2015

To the Editor:

There is a reason that Peter Wallison’s “passion” to rewrite the history of the 2008 financial crisis is a “lonely quest” (“A Crusader Against the Common View of the Financial Crisis,” by William D. Cohan, Street Scene column,, March 12). The evidence presented by the Financial Crisis Inquiry Commission contradicts his revisionist view of the crisis. All nine of his fellow commissioners — five Democrats, three Republicans and one independent — rejected his theory that government housing policies were the primary cause of the crisis.

The data shows that Fannie Mae and Freddie Mac followed, rather than led, Wall Street in expanding subprime lending. Delinquency rates for loans purchased or securitized by Fannie and Freddie were dramatically lower than for mortgages securitized by Wall Street. And Fannie and Freddie mortgage securities, with their implicit government backing, undisputedly did not cause the losses that cascaded through the big Wall Street financial firms.



Financial Crisis Inquiry Commission


There have been a lengthy list of rebuttals to the Peter Wallison research (most of that data provided by Wallison’s AEI colleague Ed Pinto, who once worked at Fannie but was dismissed), in which the pair claim, in the 1990’s, Fannie Mae bought largely subprime mortgages and that led to the 2008 financial meltdown.

Their suggestion has been dismantled by exemplary loan performance of those 1990’s books of business (loan purchases/securitizations), not only through the 1990’s but into the next century, too.

However, no matter who (David Fiderer, David Min, Paul Krugman, Joe Nocera, Alan Binder, the Fed, the FCIC staff report) the conservative Right—especially in the Congress and at the WSJ—perpetuates the Wallison myth.

Why would PW’s opinion prevail over that of the head of the Financial Inquiry Commission President Obama created to examine that major financial and economic malaise and report to the American people its cause and elements???

Beating up F&F is standard GOP fare but, at some point, these would be policy makers have to acknowledge how much damage—without employing any aspect of F or F—the major banks and investments banks produced with their poorly underwritten, falsely rated, and quick to fail $2.7 Trillion in private label securities, issued between 2005 and 2007 and sold throughout the world.

Policy Forum

Tuesday, April 7, 2015 12:00PM

*“Featuring Peter J. Wallison, Arthur F. Burns Fellow in Financial Policy Studies, American Enterprise Institute; and John C. Weicher, Director, Center for Housing and Financial Markets, Hudson Institute. Moderated by Mark A. Calabria, Director, And Financial Regulation Studies, Cato Institute."

"After more than six years and dozens of books and journal articles on the subject, the causes of the 2008 financial crisis continue to be hotly debated, perhaps none more so than the role of federal housing policy — specifically that of Fannie Mae, Freddie Mac and the Community Reinvestment Act. Most experts agree that the increase in the number of loans that required a low
down payment, little documentation, and low borrower credit fueled the subprime boom and bust. But what caused lending and underwriting standards to deteriorate so dramatically? Did Wall Street greed drive the demand for subprime lending, or did federal mandates lead the charge?”

Let’s see, what are the chances of the Angelides letter getting mentioned or reviewed on April 7, at the above Cato event?

(*Cato Institute event promotional material.)


Corker (R-Tenn.), Blackburn (R-Tenn.)
Want to Keep F&F $$$ from Treasury

But their reasons might differ?

Last week, Rep. Marsha Blackburn (R-Tenn.), a member of the HBC introduced legislation that would direct Fannie and Freddie to create reserve funds, if they get into future financial difficulties.

Here is a Politico link to her bill’s introduction.

I never am sure what motives are at work here with this and other ideas like it. Of course there is an element of ideology involved. But—giving Ms Blackburn the benefit of the doubt-- she’ll understand that what she wants is to preserve the enterprise capital and there are easier ways to do that.

Congresswoman Blackburn’s bill drew praise from Tim Pagliara, head of Investors Unite, a F&F shareholders group. Revenue kept inside Fannie and Freddie, no matter the mechanism, must be labeled “capital” and is a positive for investors.

As I wrote last week about Senate proposals to limit Treasury’s use of F&F earnings, congressional advocates just should join and support leaving all F&F money—over loses and administrative costs--with the two and they’ll have no options but to cover future losses with current/future revenue just like other financial service companies.



Phantom Sen. Corker Bill?

Last week, Senator’s Corker’s legislative and communications staff circulated a memo suggesting Corker (R-Tenn.) would seek to attach legislation to the Senate Budget Resolution—since approved in the

Senate--to create something called a “revenue neutral F&F fund,” presumably to keep the money out of Treasury’s hands (which many Conservatives argue should not be used for other federal spending or deficit reduction). 

Corker and reported co-sponsors also want to prohibit Treasury form selling the government’s F&F senior preferred stock without congressional approval.

There was the obligatory media coverage (small) and the usual chattering over what Corker’s objectives were. I’ll leave that to the junior Senator from Tennessee to explain.

As I completed the blog, it appears as if Corker had not offered his proposal. Although it later could be added to September spending bill, depending on Corker’s motives.

The early mention also generated discussion as to whether language attached to a budget proposals—since those documents are not signed by the President--would be binding or not binding on the White House, which has resorted to using its executive authority for a number of issues, not involving the GSEs. 

Final GSE Word From “the” Chairman?

However, the most definitive macro comment on GSE matters came from Dick Shelby (R-Ala.), the Senate Banking Committee Chairman, who declared no GSE reform legislation would go through Congress this session, which has been the conventional wisdom for weeks.

March 25, 2015 10:26AM ET | Bloomberg Government

(Bloomberg) -- The leader of the Senate Banking Committee said he’d rather leave Fannie Mae and Freddie Mac in U.S. conservatorship than pass a bill that includes explicit government support for the housing market.

The comments Wednesday from Richard Shelby, an Alabama Republican, were the clearest indication yet that Congress probably will leave the mortgage-finance companies under federal control for at least the next two years as lawmakers struggle to agree on the structure of a new housing-finance system.

Shelby, speaking at a U.S. Chamber of Commerce conference in Washington, said he opposes replacing Fannie Mae and Freddie Mac with a system that includes a government guarantee for mortgages.
Ditto NY Fed 

A new report from the New York Federal Reserve Bank said the same about.


Rosner and Stevens

I have no idea what is the latest between MBA senior exec David Stevens and Josh Rosner; but someone refuses to debate someone, in person or on Twitter, and the second party has banished (or whatever is the term of art) the other dude form reading his tweets. 

joshua rosner (@JoshRosner)
#CorkerWarner & #CrapoJohnson were crap. Now liars who said #GSE reform req Cong slipped #Amendment805 into #Budget to give market to banks

FHFA: Enterprises Run Business (Not!)

I've include the article from Inside Mortgage Finance’s Paul Muolo just to bury the phony FHFA line F&F managers control their day in and day out business operations. 

When you get 750 “coat pulls” from your regulator in a year, telling you that you messed up big things and small things—strongly suggesting you have marginal entrepreneurial discretion—it can’t be proclaimed, “You run your own business.” 

By Paul Muolo
The Federal Housing Finance Agency took 750 conservatorship “actions” against Fannie Mae and Freddie Mac last year, including denials of non-delegated business activities, according to a new report from the Inspector General of the agency.
The report, however, is light on specifics. The IG notes that these actions include “conservatorship directives to the enterprises to undertake actions related to strategic goals and scoreboard objectives, conservatorship approvals” and other mandates.
The IG does not detail for the public what a non-delegated activity might be, though it appears the regulator has communicated this information to the boards of the GSEs through “letters of instruction” (LOIs) not to engage in certain activities.   
One LOI requested that Fannie and Freddie first ask the agency for approval in regard to certain mortgage servicing sales. Again, no specifics are provided.
Entitled “FHFA’s Conservatorships of Fannie and Freddie Mac: A Long and Complicated Journey,” the report’s central message appears to be that the FHFA is keeping a tight regulatory grip on both mortgage giants. Fannie and Freddie were placed into conservatorship in September 2008.
What Others Are Saying
Charlie Krauthammer handicaps GOP Presidential candidates.
Judge Sweeney’s hearing room on Tuesday.
Keep an eye on Judge Sweeney’s 3-31, Tuesday, Claims Court status hearing on “Third Amendment discovery” matters.

Senator Ted Cruz (R-Tex.), with no noticeable increase in his nose size, now supports Obamacare since it covers his family.


Rep, Peter King (R-NY) doesn’t like Ted Cruz


If the Urban Institute’s resident optimist, Jim Parrott, applied his GSE analysis to other seminal matters, he might also conclude there is congressional consensus on Immigration, Tax Reform, and US military tactics in the Middle East, opposition to voter registration restraints, and gun control support.

IS THERE A GSE REFORM CONSENSUS? — Jim Parrott in an Urban Institute op-ed: “It is easy to be pessimistic about GSE reform these days. The effort to pass legislation out of the Senate last year showed the subject to be remarkably complex … And early signs are that this Congress won’t even bother to take it up in earnest, making another concerted legislative effort unlikely until after the presidential election. … There is, however, one cause for optimism: through the effort in the Senate, a relatively broad, bipartisan consensus emerged on what a future system should look like.

“The key parties agreed that the nation’s housing finance system needs to provide broad access to affordable, long-term, fixed-rate lending; that the private market should bear the lion’s share of the credit risk; and that whatever risk the taxpayer bears must be insulated behind significant private capital. While negotiations among the like-minded eventually stumbled over how best to accomplish these objectives, the broad alignment around what we were trying to solve for provides us with a compelling framework for reform.”


John Berlau, Competitive Enterprise


Happy Passover and happy Easter to all of my friends and blog readers.
Peace, good health and love to you all, especially the family of Carlos Falchi, a family friend, a sweetheart of a man, super talented, who passed away much too young last week.  

Maloni, 3-30-2015


Note: I am taking the next few weeks off and won’t publish a blog, unless something GSE stupendous occurs.

Monday, March 23, 2015

There's Basketball and the GSE Follies


GSE March Madness Bracketology


There were the predictably odd, discordant, but always interesting, GSE follies last week. 

Sweet 16 

None more riveting (figuratively) than the verbal  flailing that Rep, Mike Capuano (D-Mass)--sponsor of HR 1036, which would allow F&F to repay the Treasury and move on—delivered to Treasury Secretary Jack Lew when the latter appeared before the HBC on another topic.

It wasn’t quite a Barney Frank-esque hostile witness excoriation, but it came the closest in years to any Democrat kicking the Obama Administration’s ass over its Fannie and Freddie treatment. (Brief exchange below.) 

While I suspect that Capuano respects Lew, he wasn’t buying any of the Admin’s GSE pabulum and tied Sir Jack in not quite Gordian knots, but serious enough that Secretary spoke out of both sides of his mouth (standard Obama F&F fare) and, in essence said, paraphrasing, “We ain’t going to fix F&F, that’s up to the Congress, but we like their revenue, just fine.” 

Capuano did force him to admit the Admin hadn’t proposed any F&F legislation proposal, yet, which Lew tried to obfuscate, claiming the Obama team had worked on the Senate bill last year. 

Psst. Has anyone told the Secretary that bill died--and not in a humane way politically--with some very traditional Democrat constituencies coming out against the bill, not to mention D’s still on the committee? 

Secretary Lew, despite all of the Obama BS about concern for the “middle class,” there was no—repeat no, none, nada, keine, injen, nenhum, nissen (“zilch” in other languages)--mandatory affordable mortgage lending in the bill for which you claim some responsibility.

There was rhetoric but no substance, all happy talk and no walk!

Why do you think those prominent committee Democrats, civil rights and social action groups opposed it? Why did the Realtors and community banks balk at all of the power and revenue you were channeling to the TBTF banks? 

Lew and Capuano exchange: 

Capuano: Since FF went into conservatorship, FF borrowed $187.5bn and have since repaid $225.5bn, a $40bn profit or a 20pc rate of return. Can you tell me what you’ve done with the $40bn that you’ve gotten back beyond what the taxpayers lent?

Lew: It becomes part of government receipts and general funds. As a practical matter, it’s what has helped us to reduce our overall deficit.

Capuano: More receipts is fine, but it’s come into the general fund and we’ve spend it any way we want. That’s not the issue. But that $40bn, that’s only the beginning. What has FF been able to pay down on what they originally borrowed?

Lew: Congressman, I think the idea that they are kind of out of the woods.

Capuano: I didn’t say that. I’m asking you what happened with the money?

Lew: There’s still a federal guarantee behind FF.

Capuano: I understand that, I actually like and appreciate that even though some of my colleagues don’t.

Lew: And the exposure that taxpayers have until there is housing finance reform…

Capuano: Fair enough. What kind of capital reserve have FF been able to build up?

Lew: They have not built up a capital reserve…

Capuano: Because we’re sweeping all the money out and putting it into the General Fund and spending it, am I right?

Lew: Until we move to a system beyond the current one, taxpayers are ultimately responsible and therefore

Capuano: But that’s been the case since the 1930s that the taxpayers have been on the hook and they had a blip and taxpayers stepped in, as we promised we would do for 80 years and now we’ve been paid back. The question I have is, when are we going to stop using this as a piggybank? I know we have to have a debate about reforming FF, but if that’s the case, what’s the Administration’s proposal on how to move forward?

Lew: I think that the important question is how do we move forward on housing finance reform? We have very much wanted to move forward. We think it’s an important priority.

Capuano: Have you submitted a proposal that I haven’t seen?

Lew: Well, we worked closely in the development of proposals, particularly on the Senate side and have been engaged with thinking through with others on how to move forward.

Capuano: But those have not moved forward as we clearly both know.

Lew: I don’t disagree that progress has been slow.

Capuano: If that’s the case, how long are you going to keep Fannie and Freddie hostage? The reason I ask is not about Fannie and Freddie. It’s about homeowners. By holding them hostage, number 1, you’re not allowing FF to capitalize. Number 2, you’re not allowing any funds to be left over for the housing trust fund. Number 3, you’re basically submitting homeowners to an additional tax for the purposes of general revenue which doesn’t sound fair to me. General revenue should be paid by general people.

Lew: I don’t agree with that analysis in terms of the impact on homeowners. I do think that there is a very serious question as long FF are in conservatorship they’re in public exposure.

Capuano: Because you won’t let them out. You won’t let them pay off their debt!

Lew: There is, I think, the need for housing finance reform in order to move beyond.

Capuano: If one of my constituents were to loan me money and not allow me to pay them back, what would you call that? 

He’s the Horse

What’s important to me--and any effort which needs to gain Capitol Hill support--is a self-identified “horse,” someone boldly willing get up, lead, state and re-state the obvious case until people begin to listen. 

Rep, Mike Capuano stood up first, when he introduced H.R. 1036, and he’s stayed vertical, declaring the obvious when he has the opportunity. Pols on both sides of the aisle will begin to listen. 

Readers, keep thanking Rep. Capuano, via his office email, Facebook page, calls and letters. He deserves our support

Almost Sweet 16, but not quite 

Does the Government Communicate With Itself? 

Last week Jack Lew was joined by the Federal Housing Finance Agency’s Office of Inspector General (FHFA IG) –in loose choreography—as they each strummed the same tune in different venues. Both called on the Congress to bite a political bullet and--in the year before most Senators and all Members are up for re-election, plus a little presidential contest—asked the Hill to turn the nation’s residential real estate market upside down and produce some new delivery system, consequences be damned.  

GOP to WH: “Sure, we’ll get right on that for you!”

The White House chose to ignore that the US may have the best one of those, right now, in the core F&F delivery mechanism. 

In its congressional “SOS,” the FHFA IG’s office raised the specter of F&F possibly needing more Treasury cash for their operations, ignoring the fact their bosses just across the street at Treasury and in the White House--with a regulatory stroke--could quickly solve the problem and allow F&F to keep their earnings, especially now they have repaid the $187.5 Billion they were given, plus a $40 Billion taxpayer sweetener on top.

The IG warned that "stakeholders should not presume continued profitability" at the two companies.


Why FHFA’s Fear Mongering Rings Hollow?

Fannie and Freddie have created excellent books of business over the past 7 years; they are selling off their legacy portfolios with creative risk sharing deals; they have major DTAs still on their books, as well as significant loan loss reserves, their current tight regulation limits them from doing anything that is risky or financially untoward, and nobody is trying to end that regulatory arrangement. 

If rates rise, the derivatives both enterprises employed—which reduced last quarter’s profits—will reverse those results.

Also, as a reminder, the President’s other department, the Office of Management and Budget (OMB), earlier this year estimated that F&F will provide somewhere $195 Billion in new revenue to the Treasury over the next 10 years.

Did FHFA’s IG office miss that little report, also called the President’s FY2016 Federal Budget? (See below.) 


Which Administration claim should we consider specious, OMB Director Sean Donovan’s or the FHFA’s IG?

And how about sidebar inconsistencies, if fears are present about earnings and the need to borrow from Uncle, why the FHFA approved new building leases and a separate new construction project for Fannie to move and consolidate its workforce. If F&F are going to run out of money, are those prudent regulatory actions?

Also, isn’t there just a little political disconnect, naiveté, or ignorance in the WH’s and IG’s effort to goad this Congress into screwing the middle class, a Congress, which doesn’t really want to leap into a very boiling mess of icky mortgage reform politics now or any time soon? 

The IG report was fodder to Reuters, CNBC and others and got the agency’s name mentioned, but to what end? 

Come on, FHFA boys and girls, take your scare tactics elsewhere, although I do have a cadre of friends who say every time you raise that issue you draw attention to the unfathomable “PSPA Third Amendment” sweep, which takes every penny F&F earn and puts it into “the fungible pot” of the government general fund.
By all means, pick your poison, do you call greater congressional/media attention to the bolloxed, enigmatic “sweep” or do you just demean yourselves and the Administration politically?  

Judge Sweeney’s “gonna getcha,” if you don’t watch out!


Never Got Out of the First Round of 64 


You can’t make this stuff up, but I admit to putting the worst possible interpretation on certain players' actions.

The good news: 10 US Senators—led by the ubiquitous Mark “30-1” Warner (D-Va.) and Mike Crapo (R-Idaho)--want to make sure that the Treasury doesn’t use F&F earnings to fund other government programs and introduced legislation to that effect. 

But, do these august statesmen fail to understand, no matter the source, any funds which flow to the Treasury (see exchange between Capuano and Lew) are “fungible” and just become government revenue to be used wherever necessary and, in effect, reduce the deficit? 

Possibly, as bad as not knowing/understanding that simple fact, it seems to have escaped the solons if they want the F&F earnings to stay with F&F--and protect against any future financial frailty issues--the Senators should insist the money just remain on the GSE’s books and never go to Treasury. 

Hell, I’d vote for that! 

IMO, the Senators’ best bet is to encourage the Treasury (and the WH) to use its executive authority to end the “sweep,” and leave future earnings with the two enterprises, instead of scooping into the general fund every penny Fannie and Freddie earn.

That would take care of the Senators’ stated problem but it also might keep F&F alive, so they bay at the moon and seek the impossible and tell Treasury not use F&F cash in ill ways.


What Others Are Saying

A closer look at federal subsidies and who gets them.


(When the above article broke, one of my mortgage market friends, observed, wryly, “But Stevens, Parrott and Stegman say the GSE model is the broken one!”



Big Boy Playground?
joshua rosner (@JoshRosner)
@DavidHStevens @MBAMortgage Wow! I just saw you blocked me. You aren't doing much to help your reputation after chickening out on our debate

Another reason, I don’t Tweet.

There appears to be some sort of professional spat between the MBA’s David Stevens and Josh Rosner, Graham, Fisher financial analyst. 

Apparently, they disagree on some matters—including F&F—but the issue du jour is debate challenges from Rosner to Stevens, either in person or on Twitter, which Stevens, according to Rosner and others, is “ducking.”

Tune in next week as we follow the boys as they dare one another to “knock this chip from my shoulder and step over that line.”

Related/unrelated. Josh Rosner’s paper at Fed/Wharton 3-18 conference.

Derivatives, not underlying MBS, was the 2008 problem, claims new book by Howard Hill. 


AIG Investors Get Barely a $1 Billion…


WSJ’s Joe Light, F&F might need cash, IG’s report.


Urban Institute: GSE profit explanations 


B. Swanson in Housing Wire, comments on Jim Parrott’s F&F UI paper.


Only foreign policy comment/link.

Krauthammer on Bibi’s re-election. 


Maloni, 3-23-2015