Monday, March 16, 2015

Capitol Hill in no Hurry to End F&F


A Brief Look Around Washington, DC




Any number of sources report that there is little interest on Capitol Hill in pressing mortgage finance reform legislation, which is another phrase for getting rid of Fannie and Freddie, despite the Obama Administration’s penchant for repeating its desire to work with the Congress on this subject. 

In the minds of many, there is no compelling emergency, there is no legislative agreement on next steps among parties or even within the GOP which controls both chambers. 

The semi-smooth F&F operation, despite the operational handcuffs each if wearing, makes this once popular topic less enticing. 

So, we wait for the courts to do something, for the Obama Admin to initiate something via regulation, for the next president possibly to do something. But it doesn’t seem likely that this Congress will take on this bruising political battle imbedded in “mortgage reform” with their own elections and the presidential tilt next year.

I still keep wondering when one or more of the TBTF senior bank honchos will come out and admit that their businesses all work better with F&F around to take on the banks’ mortgage loan risks. That would remove a huge motivational component from the complainers.
I just hope I’m around when that candid pro consumer admission occurs.

Mike Crapo (R-Idaho)

H’s no longer the senior Republican on the Senate Banking Committee, who last year joined with then Democrat Chairman Tim Johnson (D-SD) to introduce a weak mortgage reform bill that would have ended F&F over some indefinite time frame, but Senator Mike Crapo still managed to sound a faux shrill disaster warning, in a “POLITICO” interview last week, pointing to lower Fannie and Freddie earnings last quarter.

Crapo: “We’re starting to see [Federal Housing Finance Agency Director] Mel Watt loosen some of the standards that we thought should have been stronger and which we think could ultimately move us back into a more precarious financial posture. You’re starting to see what we all expected, which is the profitability of Fannie and Freddie that spiked for a year or two after the conservatorship began is dropping down.” 

OK Senator, feel free to ignore that GSE earnings still are positive; F&F repaid Treasury-with a $40 Billion and growing cushion--what they were given in 2008; each has sterling business books—built over the past 7 years—and both are creatively selling risky loan portfolio elements; they have ample loan loss reserves (not to mention unemployed deferred tax assets (DTA); and their regulation still is very tight. 

So, all of your concern is because of a Mel Watt blessed limited GSE experimentation permitting some 3% down payment homeownership financing and maybe supporting some rental housing?

A little over reaction, Mike?

Tuesday at Ferrum?

At one time, tomorrow’s planned all-morning GSE panel discussion at Ferrum College, in Roanoke, Virginal, looked to be a major deal, featuring the Admin’s Mike Stegman, former FHFA Director Ed DeMarco, and NYT financial columnist Gretchen Morgenson. 

That was before Stegman, reportedly, pulled the plug on his participation. I hope the talk goes forward. 

If nothing more, maybe someone will ask Ed DeMarco why—as several prominent DC lawyers and law firms, plus others contend—he ceded to the Treasury Department his statutory regulatory authority over F&F conservatorship.

DeMarco mostly is viewed as a bureaucrat who wasn’t a GSE fan and hoped to marginalize them over time, while he was the chief regulator.  

With Treasury supposedly pulling so many regulatory strings, did DeMarco disobey the law--which gave his agency sole province over applying the law--and thereby permit/encourage Treasury officials to shape and implement the controversial “Third Amendment “total revenue sweep? 

Despite his legal obligations and responsibilities to preserve and husband F&F resources for their return to full mortgage operations, it’s hard to discern that would be the case when his actions helped deny the enterprises any possibility of generating protective capital from their maple earnings. 

I certainly hope the courts ultimately see it that way and maybe some Ferrum faced college student will ask Ed that question? 

Ferrum could still be a fun morning even if Stegman bailed, possibly scared away by a prominent journalist who has expressed skepticism over the Administration’s GSE practices.


What Others Are Saying


Excellent BU law review article.



Investors Unite founder Tim Pagliara, penned this sensible article in an editor last week of “The Hill.” I hope someone is listening/reading.


Chuck Gabriel and his deft Capital Commentary 

The always interesting Capital Alpha Partners’ Chuck Gabriel of sees some cracks in the Admin’s F&F conservatorship positioning.


The NY Times, Peter Wallison, and me 

The New York Times decided to highlight the work of the American Enterprise Institute and longtime F&F critic, Peter Wallison.


In turn, I sent the editor a letter, which likely won’t get printed, but it made me feel better. 

Dear Sirs,

The Times this week carried a feature story on AEI’s Peter Wallison and his oft expressed view that the federal government and Fannie Mae and Freddie Mac were the cause of the 2008 financial meltdown.

Some mortgage market chroniclers call his tale “the Big Lie.”

After noting Wallison’s “lonely road,” your writer failed to explain exactly why Mr. Wallison’s “research” (mostly compiled by a former Fannie executive who had been dismissed) has been rejected by a multitude of sources both inside and outside of government, including two prominent writers whose work graces your pages.

Throw in rebuttals by the St. Louis Fed, the Federal Reserve Board staff, the Federal Housing Finance Agency, and the Federal Financial Inquiry Commission’s final report—not to mention real estate academicians at Harvard, the University of North Carolina, and many others—and you had ample opportunity to explain the “why” of Wallison’s plight.

Since, it wasn't our government or Fannie and Freddie, but our nation’s commercial and investment banks, in 2005 to 2007, which haphazardly created over $2.7 Trillion in private label mortgage backed securities, or “PLS,” using lower mortgage standards in their own loan factories—which bypassed the Fannie and Freddie systems--because it meant more bank revenue.

F&F made mistakes, too, but bank private label securities generated three times more losses than F&F mortgage bonds.  

And when the banks sold PLS heavily to foreign investors, the 2007-2008 US real estate softness made our domestic problem an international one.

My original draft had references to Don Quixote, windmill tilting and Sancho Panza (PW’s buddy Pinto?), but David Fiderer, acting as my editorial conscience, talked me out of it. The Times likely wouldn’t have printed the original one, either. 



Borowitz in the New Yorker


TEHRAN ( The Borowitz Report) — The North Korean dictator Kim Jong-un said on Tuesday that he feels “snubbed” by the decision of forty-seven Republican senators to write a letter to Iran but not to him, the official North Korean news agency reported.


In the same humor vein…. 


Iran Offers to Mediate Talks Between Republicans and Obama

TEHRAN - Stating that “their continuing hostilities are a threat to world peace,” Iran has offered to mediate talks between congressional Republicans and President Obama.

Iran’s Supreme Leader, Ali Khamenei, made the offer one day after Iran received what he called a “worrisome letter” from Republican leaders, which suggested to him that “the relationship between Republicans and Obama has deteriorated dangerously.”

“Tensions between these two historic enemies have been high in recent years, but we believe they are now at a boiling point,” Khamenei said. “As a result, Iran feels it must offer itself as a peacemaker.”

He said that his nation was the “logical choice” to jumpstart negotiations between Obama and the Republicans because “it has become clear that both sides currently talk more to Iran than to each other.”

He invited Obama and the Republicans to meet in Tehran to hash out their differences and called on world powers to force the two bitter foes to the bargaining table, adding, “It is time to stop the madness.”

Hours after Iran made its offer, President Obama said that he was willing to meet with his congressional adversaries under the auspices of Tehran, but questioned whether “any deal reached with Republicans is worth the paper it’s written on.”
For their part, the Republicans said they would only agree to talks if there were no preconditions, such as recognizing President Obama’s existence.


Vlad Putin just sent 47 sets of “Russian Nesting Dolls” to the letter-signing GOP Senators. But 34 of them seemed upset that the dolls just got “smaller and smaller” and there was “nothing in the last one?”



Speaking of the Senate letter to Iran, circulated by Sen. Tom Cotton (R-Ark.), which repeated themes from Israeli President Bibi Netanyahu’s address a joint congressional session—a speech which some viewed as Speaker John Boehner’s electoral boost to the Israeli President running for re-election—may not be the lift some people hoped. An internationalist friend suggested that Bibi could be in for a tight election night fight, less because of his foreign policy than owing to domestic economic issues in the Jewish state.

We’ll know Tuesday. Ditto with Chicago’s Democrat Mayor Rahm Emanuel, facing a battle. 



Maureen Down

Ho hum, again (and again, and…) Ms. Dowd dumps on Hillary for HRC’s hubris and attitude. This time citing Hillary‘s email accounts when she was Secretary of State. 

Dowd repeats her theme that Bill C is an oily guy and Hillary is single minded in wanting to be the first female president. 

So what?  

Hillary’s not the only one with fiery presidential ambitions, although she likely will be the only one with X Chromosomes. 

We know it, Mo, you disdain the Clintons and don’t want her to be President.

What more abuse can Dowd or the Right hurl against her Clinton Wall and claim about HRC that people don’t already know?

If she HRC gets the Democratic nomination and faces any of the GOP Lilliputians, Dowd has provided ample Hillary information (ammunition?) to help voters make their choice.

But, at some point, the constant drum beating scorn is less about Hillary and more about Maureen Dowd.


Maloni, 3-16-2015



Anonymous said...

Where did you find out that Stegman dropped out of the event? I had not read that news anywhere else. Thanks!

Bill Maloni said...


As my mother used to say, "Does Macy's tell Gimbel's??"

I heard Friday night from someone close to conference sponsors.

Today's "Compass Point" (Issac Boltansky's operation) lists only Morgenson and DeMarco, as well, plus a canned video from Sen. Mark Warner (D-Va.), which always was part of the agenda.

Matt Hill said...

Thanks for the excellent post Bill. A lot of really good info, especially the update on Stegman which was not widely known.

As far as the Solomon BU article, I do too think it is really good. However, I found it lacking and unclear in the shareholder remedy section on page 418. I think he would have been better served abstaining from a recommendation here. The shareholders really aren't looking for specific compensation, they just want their company back.

Bill Maloni said...

Matt--Thanks. I try to call attention to any major article (and a few minor ones) which say positive things about some aspect of the GDSE odyssey.

They're still fewer than the complaining or critical ones.

Ari said...


Great blog post.

Is it possible to unsubscribe me from my email?

(I prefer to just log in and see it without an email)



Bill Maloni said...

Sure--Should be able to do that for you?

(Ari--Does you last name begin with an "R?"; just want to zap the correct recipient.)

Ari said...

Yes Bill, last name begins with R.

I just get so many alerts per day emails from GSE areas, I check your blog and others everyday anyway.


Bill Maloni said...

No problem, Ari, it's done.

If any more come through, let ,me know.