Bad GSE Things Happen in Threes
(Some elbow and wrist surgery, at the end of last week, left me “Block-sedated” and with a heavy wrap on my left arm between those two locations. This blog has been typed largely with one finger/hand, the right.)
The Congress scuttled home for its summer recess (think rats!), mostly to bloviate and tell tall tales and falsehoods to their constituents about what they did (a little) and didn’t do (a lot) while representing them. However, three separate GSE legislative actions, in both chambers, could lead to a very F&F-active fall congressional session for enterprise supporters.
That is not a good thing for F&F and it could get much worse.
The Senate approved a four year extension of the Highway Trust Fund bill—with no corresponding action yet taken in the House--extending the current 10 basis points (BP) Fannie and Freddie guarantee fee “pay for” out to 2025.
It doesn’t increase the current 10 BP, being used now as a pay for to cover previous relief but it doesn’t eliminate it, either. (Several mortgage finance/financial services trade groups asked the Senate not to go this route and let the additional fee die in 2021.)
See NYT Editorial, below.
Good New or Bad News?
The bad news is the GOP Senate, again, taps F&F as a piggybank for a much need transportation bill. The good news is its action, if unchanged, means the Hill has backed into F&F being around for another 10 years, albeit providing revenue for other federal initiatives.
The other Senate issues, the first discussed in my last blog, involved SBC Chairman Dick Shelby (R-Ala.), who managed to attach his entire “regulatory reform” authorizing bill--which had come out of Banking on a strict party line vote--12-10, to an appropriations bill intended to fund the federal financial regulatory network.
That Shelby bill, among other things, would increase the size of large SIFI (Systemically Important Financial Institutions) banks which enjoy lesser regulation then their even large TBTF financial brethren.
Right now the SIFI cutoff for limited regulation is $50 Billion in assets and Shelby would raise that to $499 Bill (since $500 Billion thrusts them into a higher category of regulation). Shelby also lowers the regulatory threshold for smaller banks, screws with Fed operations, throws bank interference into the F&F common securitization platform project, and does other GSE harm (see comments from his colleague Bob Corker (R-Tenn.)
Again, no House action on this legislation, either. Yet, but all the financial institutions are hot for it.
Bad and Bad
Last week, the House Banking Committee, after working out matters with the Committee D’s, approved an Ed Royce (R-Cal.) GSE compensation bill which would disallow a Mel Watt (FHFA Director) plan to grant salary and bonus compensation (up to $4 Million) to the F&F CEOs and instead limit those salaries to the current $600,000 paid to both positions. (Originally, this legislation would have lowered those salaries to the $250K range.)
Here is where we start to get into the real bad GSE news, in my humble opinion.
We’ve already established that nobody on Capitol Hill likes the GSEs, although most can’t explain why beyond repeating horror stories they’ve been told but can’t elaborate or substantiate.
But this scheme is simple and understandable, it inflicts pain on F&F, at least to the top guy in each place.
Ergo, anything bad for the GSEs, i.e. limiting their CEO compensation, will move swiftly through the legislative process with lots of support.
The above bill still needs full House approval, which won’t be tough to schedule and get, and then goes to the Senate, where the Senate will quickly pass it or…..festoon it with other anti-GSE bells and whistles, to which very few in either party or in either chamber will oppose.
The 6 year Senate Highway bill—which ironically may conflict with the Shelby bill provisions, i.e., the latter has a prohibition on using GSE funds for non-GSE purposes—could pass, independently, but there might be disagreement over the funding, albeit I doubt if many will oppose using the F&F money, if Shelby and the R leadership want it.
Additionally, the Shelby reg reform bill could pass on its own, unless pulled down because it violates a Senate rule about “authorizing on a spending (appropriations) bill.” (I am sure Shelby, in deference to the GSE pennies partially funding the highway bill, would remove any conflicting language form his legislative effort.)
I am certain, the compensation limitation legislation will pass. The question for me is does it do so de novo or does it become a “hate/fix the GSEs” omnibus?
But, when one party runs the Sense and House, while you don’t need a special bill for mischief, any existing legislative vehicle gives you that—the more important to other interests the better—because it also will attract supporters from the “stomp the GSE" crazies.
Once they start who will stop them, not this Admin which likely agrees with most of those provisions, maybe some Senate D, more sensitive than the House to procedural rule busting abnormality?
But a bill—like the pay raise limit proposal—gives the perfect vehicle to carry GSE pain.
There are not a lot of available congressional heroes if the R’s decide it’s now time to screw with the GSEs.
That’s my fear in a nutshell.
What Others Are Saying
Poor US banks, they are making bazillions and complain about every single thing, claiming the US government is disadvantaging them.
I doubt if it will stay shut down, but the House—with huge Tea Party backing--wisely refused to extend funding for the Export-Import Bank, which gives taxpayer subsidies to major US corporations to facilitate their overseas businesses.
Keep the money here and let the behemoths use their own income to win foreign sales!
Yahoo Friday business headlines
Case in point from Yahoo, “U.S. banks on top globally!”
“U.S. banks are giving their European counterparts a run for their money... Over the past five years shares of major U.S. banks have climbed on average 45%, while major European banks, including Barclays (BCS) and Deutsche Bank (DB), have seen their shares drop by 17%.”
Housing Wire on Royce capping GSE exec income.
WSJ’s Joe Light on same vote.
Trump’s real net worth, a billion here, a billion there and pretty soon…??
Realtors Report, failing US homeownership rates
IN CASE YOU MISSED IT: The U.S. homeownership rate fell to 63.4 percent in the second quarter, the lowest ratio in 48 years. The West suffered the lowest reading at 58.5 percent compared to the Midwest which had the highest at 68.6 percent. The figures were compiled by the U.S. Census Bureau.____________________________________________________
Bruce Berkowitz’s Fairholme Fund 1H15 – Questions for Government on Fannie Mae.
These questions, which cut to the heart of the Third amendment law suits, were posed in Bruce Berkowitz’s in his most recent quarterly business report.
Posted By: VW StaffPosted date: July 29, 2015 04:36:
- Why did federal regulators design a financial support program for Fannie and Freddie on the basis of academic estimates of future performance rather than tried and true statutory accounting and claims-paying ability (which is the standard for all regulated mortgage insurers)?
- Why did federal regulators require Fannie and Freddie, while in conservatorship, to purchase $40 billion per month in underperforming junk bonds from competitors?
- Why did federal regulators force Fannie and Freddie, while in conservatorship, to participate in Treasury’s Home Affordable Modification Program (HAMP) and Home Affordable Refinance Program (HARP), which resulted in more than $46 billion of losses that the companies would not have otherwise incurred?
- Why did mortgage-backed securities issued by Fannie and Freddie perform dramatically better than private label securities issued by big banks throughout the financial crisis?
- Why did federal regulators settle litigation cases initiated by Fannie and Freddie against major financial institutions for significantly less than what other similarly situated plaintiffs recovered?
- Why did federal regulators seize more than $18 billion in litigation proceeds recovered by Fannie and Freddie to date?
- Why did federal regulators order Fannie and Freddie to delist their securities from the New York Stock Exchange in 2010?
- Why did federal regulators prohibit Fannie Mae from selling $3 billion of Low Income Housing Tax Credits to third-party investors?
- Why were Fannie and Freddie, while in conservatorship, forced to divert billions of dollars in guaranty fees to Treasury to offset the cost of a payroll tax cut?
- Why did FHFA, as conservator, force Fannie and Freddie to gift all of their capital and all future earnings to Treasury in perpetuity?
- Why were Fannie and Freddie, while in conservatorship, forced to pay “voluntary” cash dividends to Treasury if funds were not available and the regulated entities were “not in capital compliance?”
- Why did FHFA force Fannie and Freddie, while in conservatorship, to issue debt in order to monetize their deferred tax assets and pay the proceeds to Treasury in 2013, particularly when FHFA had previously stated that deferred tax assets “[could] not be monetized?”
- Why did Fannie Mae CEO Tim Mayapoulos describe the Net Worth Sweep as a “positive change” with “a lot of good in it” in his August 2012 announcement to employees? Was he coerced by federal regulators?
- Why has the Securities and Exchange Commission permitted a single controlling shareholder (i.e., Treasury) and its affiliates to simultaneously act as director, regulator, conservator, supervisor, contingent capital provider, and preferred stock investor of two publicly traded companies?
- Why do some Treasury officials question the sustainability of Fannie and Freddie’s earnings power in the years ahead, when Treasury’s own 2014 Annual Report indicates that the companies will be consistently profitable for each of the next 25 years?
- Were certain federal government employees who crafted
the Net worth Sweep acting at the behest of crony capitalists seeking to
displace Fannie and Freddie?
It will be great fun when we get some answers to some or all of them!!
Vice President Joe Biden
From me, Joe, please don’t run.
I guess Maureen Dowd thinks differently, or maybe for her, it’s (ABK) “Anyone but Hillary”
Trump sends best wishes (and the finger?) to other GOP candidates.
“I wish good luck to all of the Republican candidates that traveled to California to beg for money etc. from the Koch Brothers. Puppets?”
Wash Post says Fannie/Freddie earnings coming at the end of this week, but who knows? They’ll probably be decent but someone will complain or denigrate. It’s only the GSEs!!