Monday, March 9, 2015

White House Swings and Misses, Again

A Week for Dudes and Boobs!



Do we have another F&F congressional hero emerging?

Thanks to frequent “PBJ” F&F poster Chris Herecza, who made available his response Senator Pat Toomey (R-Pa.) to Chris’ F&F communication? 

Thank you for contacting me about Fannie Mae and Freddie Mac. I appreciate hearing from you.
As you may know, Fannie Mae and Freddie Mac are government-sponsored enterprises (GSEs) that purchase mortgages, pool those mortgages into mortgage-backed securities (MBSs), and then sell them to investors with a guarantee that the investor will be paid on time. With over $5 trillion on their balance sheets, the GSEs play an enormous role in today's housing market.

In 2008 as the financial crisis erupted, the GSEs' ability to meet their obligations came into doubt. On September 7, 2008, the federal government took control of them and extended a direct line of credit from the Department of the Treasury (Treasury). In return for supporting the GSEs, Treasury received senior preferred stock that carried a 10 percent dividend and warrants to purchase 79.9 percent of the common stock of each entity for a nominal price. The remaining 20 percent of the companies remained in the hands of private investors. From 2008 to 2011, Treasury supported the GSEs through the purchase of over $189 billion in senior preferred stock. Since 2012, the GSEs have not required further Treasury support.

On August 17, 2012, Treasury and the Federal Housing Finance Agency (FHFA) dramatically changed the terms of the original GSE support agreement in what has become known as the "Third Amendment." Rather than receiving a 10 percent dividend on its preferred stock, Treasury would receive all GSE profits going forward. By claiming all future profits, Treasury effectively eliminated all remaining shareholder value.

While I believe that taxpayers must be fully repaid and receive a fair return on their investment, the Third Amendment unfortunately may have a chilling effect on future private investment in the housing market. If the government is willing and able to unilaterally change the rules of the game at any time, investors in Pennsylvania and across the country cannot be confident that they will not again find themselves in a situation in which the government wipes out the value of their investment. Lack of private investment could prevent us from successfully reforming the GSEs, protecting taxpayers, and encouraging affordable housing finance for all Americans. I therefore look forward to working with my Senate colleagues on both sides of the aisle on this issue.
Thank you again for your correspondence. Please do not hesitate to contact me in the future if I can be of assistance.
Pat Toomey
U.S. Senator, Pennsylvania


Toomey addressed the “takings” issue and took a position, which should appeal to other GOP officials. Even here Toomey stands out from others who don’t/didn’t engage on this subject.
I urge all to thank Sen. Toomey—a member of the Senate Banking Committee-- for his position and treat him as an ally.

My congressional “ally” standard isn’t very rigorous. All a Senator or MoC has to do is to say or write something which suggests he/she sees a mortgage market operational future for F&F or introduce legislation, like Rep. Mike Capuano (D-Mass.), which supports that step.
The more Keystone State residents who agree with the desirability of F&F working into the future, the more attentive Se. Toomey should be, especially when GSE issues arise in the Senate Banking Committee.
As many of us did with Rep. Capuano (D-Mass.), let Senator Toomey know of your appreciation and support. If you live in Pennsylvania, he’s your Senator and you’re his constituent.
(Speaking of Rep. Capuano, I asked for a meeting with him and received a positive reply, with just the date and time being decided.)
For those readers who haven’t yet done so, please convey your support to Congressman Capuano for his introduction of HR 1036. It means something and let’s keep trying to get him co-sponsors.
Ask your Member of Congress and Senators to support the Capuano bill. 

…..And Boobs!

I don’t know Mike Stegman, Counsellor to Treasury Secretary Jack Lew and apparently one of President Obama’s senior GSE spokesmen.

If I knew Mike, I’d probably think he was an OK guy and enjoy talking issues with him. I am sure he would find me fascinating, probably asking for my autograph possibly on an old high school graduation picture, the extras your mother ordered when you finally got through twelfth grade and with which you inevitably got struck. The kind you would address, “To Mike, you are a real cutup; as you walk the stairway of life, stay as cool as you were in Algebra 1. UR 2 good 2 B forgotten, Bill.” 

Last week, Mike addressed the Third Annual Goldman Sachs Housing Finance Conference and, disappointingly, trotted out the same old F&F memes (read for yourselves).

Let me focus on the Stegman points that annoyed me, saving the most significant for last. 

Apparently, in putting Obama’s thumbs down on recapitalizing F&F from earnings—revenues which are over above what they’ve paid back to the Treasury--and preferring dismantling/doing away with them, Mike dragged out this hoary old justification,……the flawed (F&F) design of allowing shareholders and executives to profit as taxpayers take the risk should be abolished.” 

Mike, when in the past 7 post-conservatorship years have shareholders and executives profited as taxpayers lost money?   


Treasury HAS Been Paid 

As Mr. Stegman knows well, taxpayers have made money on F&F, some $40 Billion more than they received in 2008. 

Mike might also should check out the 2008 “TARP” bank cash expenditures, almost 2 ½ times what F&F got, which some banks still haven’t paid back. 

Mike, in trying to make your point to the Goldman group, you created a straw man to cast GSE doubt (your timing was ironically impeccable since GS’s in-house bank just barely passed its Treasury conducted stress test). But you also displayed ignorance about what the Congress did and why, when it recreated Fannie Mae in 1969 as a private company with a public mission.

Forty five years ago, the Congress already had HUD in place and was very happy with what it had wrought. That was something it decidedly didn’t want to refabricate to deliver conventional residential finance to America, ergo they intentionally made Fannie (and several years later) Freddie look and operate differently. They told it to run itself like a true corporation, paying all of its own expenses and using prevailing market standards to price its products and hire and fire employee.

But you implied that GSEs and profit are bad.

Did your host or any other bank or investment bank finance or invest in mortgages for free or at cost? (Have you lately checked bank profits since 2009?) 

In complaining that Fannie and Freddie grew their business in the 1990's, Mike, conveniently and blithely ignored that both Presidents Clinton and Bush called on Fannie and Freddie to do just that and increase the homeownership rates in the United States. 

That’s not Maloni making it up. Don’t take my word for it, read it in the WH/Treasury files.  

Which President was wrong, one or both? 

I don’t know why the White House and Treasury can’t/won’t hear the GSE song most people are humming? There is far more interest finding a way to keep F&F and building their protective capital than shutting them down. 

Mike, that could explain all of those “ZZZZZZZZZ’s” you heard after you spoke.

BHO’s Legacy....banks? 

And here is where I come down on Stegman, Jack Lew, Valerie Jarrett and anyone else politically advising this President on the GSE issue and/or his “legacy.”  

Really, banks are the key to Obama being remembered as a middle class hero? 

Admin folks keep endorsing some version of the Senate’s CorkerWarnerJohnsonCrapo (CWJC) mortgage reform bill, which barely got through the Senate Banking Committee in 2014 and then died. (Stegman, again, did so in the GS remarks.) 

Here is the political question for those who seem to be so out of touch with the American people. 

How can any Obama legacy benefit from the CWJC legislative basket of confusion, craziness, inefficiency, delay, and predictable consumer cost increases, when you do away with F&F (even over an indefinite time period), while you willingly/knowingly transfer the primary and secondary mortgage markets to the TBTF banks, which--first--will insist on major new on-budget federal subsidies to take that mission?  

Fess Up, Guys, It Ain’t “Private Capital” 

Oh, and how does all of that FDIC insurance fund-produced bank revenue make it "private capital?"  

($6.5 Trillion of consumer savings, bank and checking accounts, are backed by a $57 Billion FDIC fund; that Mr. Lew is a major ^&%$*#&  bank subsidy.

Messrs. Lew, Stegman, and President Obama, do you think there is no federal deposit insurance subsidy there and can that $6.5 Trillion dollars plus really be considered “private capital,” when the American public/taxpayers put their savings there only because of federal deposit insurance for which the depositories don’t really pay enough?  

I am not suggesting FDIC coverage is wrong, but when you bitch about F&F federal subsidies or Uncle Sam holding up the GSEs, tell the entire story. Uncle Sam underpins lots of financial institutions.

Banks are Your Industry Knight in Tarnished Armor? 

Yet, you keep touting a major bank-based mortgage reform solution (CWJC). 

How often must the big banks prove to you they can’t be trusted to run an “honest game?” How many more billions of federal financial regulatory fines must they pay to convince you that they are not the proper stewards of the nation’s $11 Trillion mortgage markets? 

What part of constant financial institutions cheating, scheming, and “bank, oops” moments finally will convince you that your mortgage reform solutions are not ideal for the American public? 

Certainly, use the banks, employ them for primary market lending, but don’t give them the keys to that kingdom and let them rule the roost.

Why Does a Well Regulated F&F Not Suffice?

What is beneath your confusion, hate, and F&F distrust? 

Open your eyes to the fact that your endorsed substitute national mortgage operation, likely will cost more—certain for consumers—reap undesirable systemic chaos--as you uproot the financial known for the unknown--and place on top the very institutions which have defied you politically, tried to gut your minor Dodd-Frank and CFPB successes, endorsed your GOP opponents with their words and money, and have roared through your federal regulators like a famished diner through a chicken pot pie.

Has this or the Bush Administration--as both have with Fannie and Freddie--suggested major “wannabe” F&F financial replacements slash and  cap their salaries and reduce their officer and employee stock compensation? 

Is it the cutesy Fan and Fred names, their forgotten genesis, or are you just spreading of fog to confuse and justify? 

In killing them, where is the win-win for the American people? Where is the good mortgage finance news for any of the traditional Democrat constituencies or anyone else in the middle class, about which this White House suddenly is showing great concern? 

Do you really think that doing away with F&F gets the federal government/taxpayers off the hook when/if something bad happens with the banks in charge?  

Not only are you naively pipe dreaming but you are misleading the nation. 

Fixing F&F is far easier and will produce better homeownership results than pretending you need to blow everything up and start anew, giving away the mortgage ranch in return for continued bank thumbs in your eye. 

They don’t label those big boys “Too Big to Fail” (or jail!) for nothing!


“Bibi”--Another Dude! 

I watched the entire Netanyahu speech to the joint session of Congress last Tuesday, observing the expected “standing O’s,” many legitimate, some phony.

I could be wrong--since I only have been about a thousand times in my life--but what I thought I  saw in those  nodding heads and side comments to colleagues, was the wish—from both sides of the aisle—that President Obama could deliver a speech with that degree of certitude and sense. 

I also suspect that many were thinking, “Why couldn’t this tough nut be our President,” constitutional rules aside!


John Carney and Josh Rosner Fight on Twitter

I don’t use Twitter but folks always are sending me GSE related exchanges which are worth reading. Here, the WSJ’s John Carney, and Josh Rosner, author Wall Street analysis, go back and forth with each other over, what else, Fannie & Freddie. 

This originally was posted by Trey Garrison on Housing Wire. 

(Trey if you still are interested in interviewing “the real” Tim Howard, as per my several emails to you, let me know?)
(My original post on this matter has been removed because of a dispute. See the next segment for the only details I have.)

Late Posting Monday afternoon, 3-9:  

OK—I just learned I screwed up and fell for it; the original Tim Howard 717 site,, still is up and working.

The site I listed above, apparently is a knockoff caused by a dispute, the details of which just are emerging. 

So, if you use the site above, know that you are not getting the TH717 who started blogging F&F stuff over a year ago.

I am taking down the ersatz site reference.


What Others Are Saying 

Where you sit is where you stand! 

The always interesting Gretchen Morgenson, using recently revealed Federal Reserve Board transcript discussing a special 2009 bank financial aid package (“cash for financial products trash?”), hit the mark again with her Sunday column. 

But if people were impressed with the New York Fed’s TALF (Term Asset-backed Liquidity Loan Facility)--the little known, behind- the-scenes bank balance sheet support, which produced $750 Million in revenue for the Treasury, after the New York Fed took a 10% haircut for its services--what should they think about the Fannie and Freddie exercise which earned the Treasury $40 Billion and counting? 

Are you surprised that most Treasury and Fed officials--, on a post mortem basis--thought the now ended TALF was a huge success? 

Go, Gretchen.


Special Gretchen Morgenson request.

Ms. Morgenson, please ask your Ferrum College (in Ferrum, Virginia) hosts to invite a knowledgeable lawyer (Richard Epstein?) to discuss “Third Amendment and takings issue,” when you join Ed Demarco and Mike Stegman later in the month to do so, as part of a broader GSE agenda.

It should not be your responsibility lead this segment, yet the other speakers on your panel are directly/indirectly mentioned in the plaintiffs’ lawsuits, but it still is one printed conference agenda subjects. 


Who are F&F principal investors and does it make sense to buy the stocks?

From the Motley Fool



Maloni, 3-9-2015








Matt Hill said...

Hi Bill, great post!

You have already beaten this idea to death, but I finally had an aha moment when watching a lame movie the other night. Kind of a realization of something you've been saying all along.

The only private housing related corporation that has motivation to put morals before profits are the GSEs. That's why they are hated by so many. It's very hard to compete with morality. With the GSEs out of the way, morality is no longer a barrier to the endless profits others seek.

Thanks for continuing to beat the drum on this. That's what it takes to get through thick heads like mine.

G. Buckman said...

Bill, great as usual. Couple of things...

One…regarding “Tim Howard717 (not the real Tim Howard)”….his blog is back up and can be located at The blog that popped up a few days ago is not the original. Best I can tell it was started by Glen Bradford, a poster on various FnF message boards. Not saying one is better than the other, just pointing out the difference that might be confusing folks.

Two…thanks again for the FnF history lesson yesterday, it was extremely enlightening.

Three…I was wondering if you had any thought to the theory that it could be possible the Administration, FHFA and the UST insist on their conservatorship stance while there are still a few PLS lawsuits left to settle. I believe there are two left from the original 18 or so. There’s a small bank and then RBS, which is rumored to be settling for at least $7 billion. Is it possible that FHFA et al feel there’s a better chance of settlement happening with RBS while FnF are under the thumb (and legally backed by) the UST/Gov’t. As opposed to hoping RBS will settle with FnF while standing on their own, out of conservatorship and without the legal threat/backing of the UST/Gov’t? I’m not saying this is true, I’m just wondering out loud if this could be the case and that after the RBS settlement FHFA et al start to change their unified conservatorship stance?

Duncan MacLeod said...

Matt- excellent point. i remember pro-active moves, after Katrina, and other Disasters.
Also fnf- lead the way even after forclosure in allowing individuals to own purchase first. Investors have to wait. I do not see mtg companies building communities like this.
Maybe a list of what Fnf have done vs banks would be enlightening to some?

Fan O. Fred said...


Thanks for continuing to pursue the truth. Spin Dr. S sure was in his element last week. I think I am in the minority that found encouragement (once you get past the BS) in what he said, and didn't say.

Good luck meeting with Rep Capuano...I look forward to hearing about it. I have a meeting request into my district's FSC member, too. Will let you know how it goes.

That Ferrum College event seems like a great PR opportunity. ...picket sign bonanza!!

Thanks... and oh, and put me down for one of those autographed pictures... worth $$$!


Bill Maloni said...

Nonsense Matt ("thick head")--There's an old advertising/PR maxim that says people need to hear the same message 18 times before it begins to get through to them.

But, banks are not freebie institutions and shouldn't be; they exist to make money by lending money and providing services.

That's why I am shocked because F&F did the same thing but so many seem outraged.

I guess those folks missed the lecture where Fannie was "privatized" in 1969 and only attended the one where the prof said they have a federal charter and "public mission." By congressional design, the two went hand in hand.

GB--Thank you and your colleagues.

Yes, as I just noted on the blog, I fell for the confusion over the two "717" sites; I've asked Glen for an explanation, since the details still are fuzzy.

I don't know about their lawsuit strategy; but--given the scheduling and decision uncertainty, and possible plaintiffs appeals, I doubt if the Admin is actively manipulating the two to determine its next steps.

Likely just dealing with lawsuit and conservatorship (revenue!!) in parallel.

This doesn't strike me as a deft "strategizing" Administration, just a lot of folks winging it.



Only the most obtuse financial institutions failed to offer debtor/mortgagor relief for those affected by regional disasters.

F&F did it automatically, with a standard package (90 days forbearance?) and, my memory is most national and regional banks did as well.

It was the right thing to do, looked good, and the employment impact meant that most borrowers need a few months worth of relief until their jobs and income were re-established.



At least he didn't say "wind down," someone noted, but he played to his crowd, which historically made beau coup bucks form F&F securities activity.

I've learned that others have approached Ferrum about beefing up the panel, but nothing has changed.

With Rep, Capuano, I'll discuss only what he feels I can share with everyone; hopefully it's a list of "how to help me"......)

I am waiting on the shipment of the frames before pricing and selling the photos.

(I was named most handsome and was starting QB in my senior year, true!!)

Bryndon Fisher said...

Dear Bill:

As usual, your post is enlightening, timely, and forthcoming. And your teleconference yesterday was very enlightening. I very much appreciate your knowledge and insight into the circumstances now facing two of America's most pivotal enterprises.

With warm regards,

Bill Maloni said...

Thanks, Bryndon--

Now, I know you had to duck out early, but you did order the cheeseburger and fries, and two draft beers. That's $87.80 not including tip.


My pleasure, B. I enjoyed it.

(Small explanation. I had several people ask me some questions about a particular historic GSE incident, so it was easier to gather them on a call. Not something I am planning to do frequently.)