Monday, March 2, 2015

Mike, Mike, he's our man, if he can't do it.........

To Lead the Parade, You Don’t Need to Chair  


Rep. Mike Capuano (D-Mass) this year is the first MoC or Senator to step up and introduce a positive piece of GSE legislation, H.R. 1036, “To provide for the repayment of amounts borrowed by Fannie Mae and Freddie …” 

The bill calls for Fannie and Freddie to reimburse the United States Treasury for the $187.5 Billion the two received in 2008, employing a 5% annual interest rate (the same rate banks were charged, not the 10% Treasury initially charged the GSEs) with all previous “dividend” payments—as F&F Treasury expenditures have been labeled—applicable to their outstanding original debt. 

Under his legislative arrangement, bottom line, Capuano’s bill would credit F&F the nearly $230 Billion they’re already returned to taxpayers, since 2012 ($40 Billion more than they were given).

Upon determination that the $187.5 Billion has been returned, the two will keep everything above that repaid amount as capital, i.e. they will re-capitalize. 

Will this bill pass and become law?  Probably not since most bills don’t. It would be nice but it doesn't have to generate attention. 

Capuano, a House Banking Committee member to which the bill was sent,  has separated himself, in a positive way, from the passive GSE supporters (“Shhh, I can’t say nice things about Fannie Mae, people will think I am weird, but I do agree with…….”). 

Note that in a non-GSE  hearing last week, Capuano smartly reiterated the topic, talking more about it. To me that is a major sign “the good guys” have broken through some of the obstacles facing fair treatment of F&F. It appears the 7th District Massachusetts Congressman—who represents a big slug of Boston and several towns around the city-- is prepared to take this issue further than just dropping in a bill, which occurs dozens of time every day when the Congress is in session and alone doesn’t mean much.

My take and some suggestions for the public and the Congressman.

Interests and allies who believe in returning Fannie and Freddie to the mortgage market in some valid operational capacity, owe Rep. Mike Capuano thanks and adulation. 

While his bill (which is identical to a bill he introduced in the last Congress) is about practical GSE repayments to Treasury, it really is about the future of the US mortgage finance system.

Despite all the sturm and drang from both political parties and outside players, there really are only two mortgage options in our future: the TBTF large commercial banks controlling/dominating conventional residential finance, or some F&F like entity—preferably the two originals—operationally shaping/driving mortgage markets.

To me, the latter--a reliably regulated F&F variant--insures multiple business partners of all sizes, the availability of long term fixed rate financing, standardization of mortgage products, terms, efficient market delivery, and, significantly, mortgagors not subject to manipulation and screwing. 

The unattractive alternative to F&F as principal players is a mortgage finance system the major banks design and operate, which we know will be good….for the financial institutions.
Yes, HR 1036 is about paying back, but implicit is a fair and equitable national mortgage finance system, with some government role, shaped either by the Obama Administration or, possibly, congressional action.

What can you do for Capuano? 

First, thank him by email, letter or phone call to his office (all that info is available on the Internet).

After explaining the stakes and what’s involved, ask your own Congressperson or Senators to co-sponsor the Capuano bill. It is a very easy task and happens often. 

If they agree, Members can “co-sponsor” another MoC’s bill after the fact or just drop in the identical bill and receive a different bill number, with his/her name on it. 

Comity suggests that they just call the Capuano office and convey their desire to “co-sponsor” his F&F repayment bill.  

Sponsors (Rep. Capuano) often re-introduce their original bill, with a list of colleagues who elect to co-sponsor the legislation. 

Ergo, even if your MoC isn’t on Banking, you can ask him/her to “co-sponsor.” Or, you can ask your Senator to introduce the same legislation in “the other chamber.” It’s done all of the time and each can send out their own press release announcing their support for the “bill to allow F&F to…….!” 

And by all means communicate your support to Capuano, even if you are not his constituent. It will show him that people notice the action he’s taking and they welcome it. 

(This isn’t necessary or even expected but Congressmen are always campaigning, so—if you are of a mind—make a contribution to Capuano’s re-election campaign.)

Other Steps for Rep. Capuano?

Some advice to Rep. Capuano, which I’ve mentioned elsewhere, is to keep thumping the drum over the unfair treatment of F&F in whatever forum he gets and force his audiences to focus on the fairness, efficient and effective homeownership issues at stake. 

--Get really well informed on the GSE history—especially how they worked to near perfection, pre 2005—as well as  recent developments, so you can answer initial and follow on questions with substance. (There are plenty of books, articles and papers out there which offer an objective review of how F&F ended up in conservatorship, which arise serious policy, economic, and political questions. I can supply a list.)

--Send out a "Dear Colleague" letter asking fellow House members to "co-sponsor" this legislation; support your request with what you (Capuano) believe benefits most American families no matter where they reside or what their political persuasion. 

--Seek time for a "special order" on the House floor, where you and likeminded MoC's can discuss the multitude of mistakes in keeping F&F unfairly hamstrung (Obama Admin/Mel Watt issue) and what it means to consumers. 

--Magnets attract. Lobby members of one of the numerous congressional caucuses to support it and possibly act to get their entire caucus on board. Several HBC members also are in the Congressional Black Caucus or the Hispanic Caucus, two groups which should like the equity benefits a F&F backed system offers their constituents.

--Rep. Capuano, if you haven’t already, have your press assistant let producers for the major TV news talk show producers know of his "availability" to intelligently discuss this matter (matters)! Be prepared to go on the air and talk the talk, armed with quality arguments and historical understanding. (Educate the Boston media, if you hope to ride this drive this issue for the next several months, so they’ll come to you for comments when the inevitable pushback occurs.)

--Convince Massachusetts’s Senator Elizabeth Warren (D-Mass.), who sits on the Senate Banking Committee," to take the lead “in the other body” and be the primary Senate sponsor of HR 1036. 

She could be a formidable ally.


Why do this?


For me the issue is positive noise (a MoC staking out the position F&F should exist and operate) and momentum, gathering other Senators/Members of Congress to the legitimate virtues of F&F operating in the market with a less government restraints, but still well regulated approach. 

Unless I've been watching a different Congress and unrelated Capitol Hill, until now, we F&F supporters haven't had any Senators and Congressmen/women stake out the position that the companies should go forward and operate with fresh capital and limited restraints.  

A mid-tier House D may not to carry the day on F&F-- when both Houses are controlled by the GOP and the WH is, ahem, “other directed” (which is the nicest description I can must about their F&F policies)--but Rep. Mike Capuano can be that initial and motivated catalyst.  

That's what Capuano represents. Wish him well, assist getting him endorsements, and hope the Capuano message gets amplified “inside the Beltway.” 

Small titillation: An excellent source, in a position to know, reports that there are senior D’s in both chambers interested in the Capuano bill/approach. Advocates soliciting HR 1036 support from their own congressional delegation should report any positive responses to the many F&F websites (TH717, PBJ, IU, this one, etc.) so we can keep tabs and help. Hint, work the big states.



What Others Are Saying


The new buzzword which F&F allies are promoting for social media and others uses, think “Wikipedia,” to convey the story of Fannie and Freddie and their shareholders being ill treatment by the federal government. I first saw its repeated use on the “TH717” blog.

Use “Fanniegate” with your network and see if you can vault it into Wiki-world!!


Subject: Tweet from John Carney (@carney)

John Carney (@carney)
@Ny1david Again, though, what's the point of that stat about GSE vs. PLS? So what?

WSJ’s John Carney in the middle of “Twitter” disagreement with Fiderer and some other Twitter users on comparing GSE versus PLS mortgage bonds. 

I don’t tweet, but to a few friends who do and in response to Carney, I sent the following: 

Carney= “So what?”


My initial reaction to the Carney noblesse oblige meme was the following angry suggestion.



Then I calmed down and sent the following to the same few friends.

Gee, Doctor, I begin to see Mr. Carney’s problem. 

--Bank/investment bank-generated PLS, i.e. non-F&F, was poorly underwritten, falsely rated, and failed three to four times as much as F&F MBS, requiring far greater federal financial support (through TARP) than F&F did ($187.5 Billion all of which has been repaid with a near $40 Billion and growing surplus); 

--Most GOP and conservative observers, like Carney, pretend that Wall Street/Big Bank PLS never happened or wasn't that big a deal, choosing to blame F&F for the entire 2008 financial meltdown; 

--Discussing bank PLS adventures exposes the greedy big bank sector--to which Carney and his colleagues would cede the entire primary and secondary mortgage markets—which also risks showing the public that TBTF banks can’t run any large market without milking or skimming it (See record of over $220 Billion in financial regulatory fines paid by Carney's preferred mortgage market managers, the nation’s largest banks, for a broad variety of financial violations. It’s in their culture.); 

--And, if the government didn't provide them heavy new subsidies (see last year’s CWJC legislation), big banks never would offer and hold  FRMs, unless they were hugely overpriced because the banks can't, manage the interest rate risk on a FRM, especially when those loans are financed by the short term (federally insured) deposits. Note: The deposit insurance remains a major federal subsidy to all depositories, which most “civilians” don’t realize. 

(Any of you tweeting to Carney, feel free to use those points or even say, “As Bill Maloni has written.....")




Brad Miller, a former 5 term Democrat Congressman from North Carolina, who served on the House Banking Committee, offers his very thoughtful mortgage finance perspectives.

Look back at the man who now is Chairman of the HBC (excerpt from Miller article).

William M. Dana testified at a congressional hearing on March 30, 2004, on behalf of the American Bankers Association. Dana said “the ABA believes that the development of the subprime market has been a positive development for American consumers.” Financial innovation “has made credit available to many consumers who had previously been left out of the marketplace,” he said. “The development of the subprime market has assisted those borrowers tremendously.”

“I need not remind my colleagues on the committee that Americans currently enjoy the highest rate of homeownership in the history of America,” Republican Congressman Hensarling said at a congressional hearing on May 24, 2005. “The benefits of free enterprise and competition have been plentiful. With the advent of subprime lending, countless families have now had their first opportunity to buy a home or perhaps be given a second chance. The American dream should never be limited to the well-off or those consumers fortunate enough to have access to prime loan rates.”

(I guess some people are right, “You can’t fix stupid or stubborn.”)


Humphrey Hawkins Hearings….. (Maloni fantasizing what Yellen should have said.) 

Chairman Yellen: "Blah, blah, blah, blah, unemployment, employment, jobs, blah, blah, America, we take seriously, blah, blah and no Mr. Chairman I don't believe the Fed needs a congressional audit or congressional enema! In fact there is great similarity in what the two will produce!"
Repeat of Calabria/Krimminger in Bloomberg.

Kurds Using WWll weapons?
My one non-GSE comment this week is to offer the article below and ask the Obama Administration, why our Kurdish allies--men and women who have leaped forward to fight and defend their people and their lands against ISIS—have not been equipped with the best military stores our nation can provide?

Can’t we drop in or otherwise transport tons of rocket launchers, heavy mortars, bazookas, M50 machine guns, and sniper rifles, some howitzers, and appropriate ammunition?

I would ship the same package to the Ukraine (adding some helos, tanks, and artillery), but that would open up another worm can.


For those who care (and want to assemble their own "care package."):


Maloni, 3-2-2015



Fan O. Fred said...

Thanks! Reposted to Twitter and StockTwits.

Agreed...we need to generate support for Capuano's movement. This specific bill may not pass, but the general thesis should be pushed ahead...!!

Bill Maloni said...

Thanks FoF--he dropped in the same bill in the last Congress but, as you know, this is a different period, literally and figuratively, much more openness to a F&F going forward and commentary supporting the same.

I was serious about "other D's," now someone just has to get them to come out a bravely support the idea.

Fan O. Fred said...

Shoot me an email if you think there is a way to strategize on "encouraging" these other D's. "Immigration" was sucking up a lot of oxygen...perhaps we have good timing now to push. H.R. 1036 details still not out...even more strange, no mention on MC's website. If he's not going to promote his own bill, we'll have to...if he's not trying hard enough to find a co-sponsor(s), we'll have to duly noted in your post. TY!

Bill Maloni said...

Again--I've offered some ideas, in today's blog, for people not in DC to generate co-sponsors and interest.

Contact real estate editors of the back home papers and express support and why you believe it makes sense for the local market and the nation.

To me, it's less about the payment mechanism and more about what keeping them alive means for mortgage finance in the nation.

The same "source," told me that Capuano is quite serious, this time, and some of the grunt work he has to do since he can reach out to his colleagues better than we can and certainly getting Sen. warren on board would be a major plus.

I spoke about contacting our own MoC's and Senators, but there is no reason why supporters can't call other offices and make the same pitch.

If supporters happen to be members of national trade associations, i.e. Realtors, builders, small bankers, contact your trade groups--or fraternal organizations--and seek their support, as well.

It's advocacy, so creatively sell
affordable and equitable home ownership, efficiently delivered.

No bad ideas, FoF, just ideas whose time may not yet have come.

Wayne Olson said...

Ummm, Rep. Capuano introduced the same bill in the last session. I guess there is a new state of the world every two years. But, still...

Bill Maloni said...

Wayne--Thanks for reading; not sure what point you are making?

I said Capuano dropped in the same bill last year. But a new congressional session requires new legislation.

You are right, times have changed relative to the politics and even the possibility of Fannie and Freddie going forward in some capacity, as Congress realizes that the huge problems in any transition from the current system to one where F&F don't exist or exist as "interim" isn't worth the cost, delay, inefficiencies, bank domination, lack of parity, and maybe the future of the 30 year FRM.

I think I also said what Capuano has done is to draw attention to a matter which has produced 20 lawsuits filed against the US Treasury and FHFA for their ill treatment of the mortgage giants.

As the GOP-controlled Congress wakes up to these facts, the Capuano bill--with a further regulated F&F but run by real entrepreneurs, might have quiet appeal.

If I misunderstood your point, please straighten me out.

Wayne Olson said...

I have a condo in Boston and met with Rep. Capuano last spring. He said, among other things, that he didn't care about FnF investors. Nor my personal plight as an FnF investor. He did mention his bill, but I had lost interest by then. Now, my portfolio is worth over one million less than a year ago at this time.

I also have a condo in Portland, ME and changed my voting address to Maine a few weeks after meeting with Capuano. I met with staff from Angus King and Chellie Pingree. A few weeks ago, I'm working on a letter to Angus (I used to work for Angus years ago) and also to Chellie Pingree (Chellie is married to a hedge fund billionaire). I understand that Capuano's bill is good, but I'd rather be represented by someone else.

Bill Maloni said...

Wayne--I see your dilemma, nice to have those residential options (not just for voting).

Ironically, I intend to call Rep, Capuano tomorrow to directly offer the help I've discussed in my blog.

He may not want to talk to me, considering me a GSE huckster or just unwelcome.

I just believe the entities (I want to call them companies, but...) offer the nation far more than the alternatives. I would believe the same, whether I owned the few shares of GSE stocks I do, or not.

It's not an never has been about money or personal wealth for me.

I understand but reject the congressional perspective of hedge funds being bottom feeders, etc., etc., but how is that industry different from clever businessmen who "seek to buy low and sell high?"

I suspect the spiffy country clubs and flinty city clubs are filled with the latter.
Imbedded in those last few sentences is why I advised Capuano and other allies to find the "homeownership" merit in this F&F adventure and stress is.

Winner and losers in the court cases merely are a byproduct of this broader discussion, since the Congress won't make those calls.

Duncan MacLeod said...

I just changed voting address also. I moved from Cantor (now Dave Brat) to Booby Scott's in Richmond.
No middle Ground here in Richmond VA. I think the US supreme Court Gerrymandered this.
Any way back to point. My Congressman is a good tried and true Dem and a friend of congressman Watt.
I want to write a letter offering suggesting Supporting Capuano but also for Scott to support Watt should he want to stand up and the right thing.
Not sure how to frame the argument with out sounding like an insult.

Bill Maloni said...

DM--From my time, Bobby Scott was/is a good guy.

My advice would be to make your Capuano pitch, noting why you believe it is good for Scott's constituents (which really is that F&F offer more than a future system shaped and dominated by the big banks).

I then would offer the truth about Mel Watt, which is that he'd done a good job, so far, shown some progressive stripes, but still can't range too far ahead of the President who seems to be listening more to the Treasury types than the others.

If you believe it, you might also suggest that the President Obama's "legacy" is enhanced by making sure the previous successes of F&F are preserved rather than uprooting the mortgage finance system and giving it all to the TBTF financial institutions, which Mike Stegman continue to argue--as recently as today in DC.

Anonymous said...


Thanks for the call.

Keep working on getting out the story.

As you noted every hometown has a newspaper reporter, but they also have a home town bank or former S&L that had much Fed Agency MBS or Preferred stock - as part of their assets and their interest earning assets. Maybe encourage a few reporters to talke with small town banks (if they are still around) and ask them what Fannie and Freddie meant to them.

Banks want to originate loans - commercial loans that are tied to Prime plus or Libor based they really don't want FML's. Their morgtage broker arm originates them as a service and then quickly sell them into the market - Fannie and freddie. Loan sales - are the a way of generating business; appearing to be in the FML business but, because of the interest rate risk - considering most banks leverage off of debt (deposits) and CD's which have short term maturities they can't have fixed cost of money and floating revenue (interest rates). Over 30 years the cycle repeats and moves to often to allow this - which means FML' if held by banks are balloons or adjustable.

Fannie and Freddie offer the ability to manage bank risk - TBTF banks; really don't want this on them. They really prefer Fannie and Freddie, but as you mentioned really don't like them to dictate to them; which caused the ruffled feathers. Its why no one likes Comcast or the power company, they set the rules and make up the rules; invariably you are controlled by that and TBTF banks don't like being told what to do or how to act - which is why they hated fannie and freddie.

Thanks for the call.

Original Anon.