Howard, Rightfully, PO’d; Exposes Phony FHFA Tests
Fannie and Freddie Pass their Stress Test, FHFA Fails
Many domestic and a few overseas publications recently carried a story about the Fannie Mae/Freddie Mac (Government Sponsored Enterprises or GSEs) stress test conducted by their regulator, the Federal Housing Finance Agency (FHFA), an examination called for the GSEs and all major banks in the Dodd-Frank statute.
The Federal Reserve Board carried out those test for the banks, while the GSE regulator produced Fannie’s and Freddie’s.
Most publications carried the main theme of the FHFA studies, i.e. in an extreme financial debacle, the GSEs could need over $120 Billion cash infusion from the US Treasury.
But, I wonder if besides peddling the FHFA oppress theme any of the writers or the venues looked deeply at the tests and understood their components?
But, that finding is bogus, as is the structure of the FHFA study, an agency which—historically—has a somewhat antagonistic relationship with the GSEs and, institutionally, has little reason to show the two are strong and may not ever require help from the US Treasury or the FHFA.
(Note: Currently, there are some 30 law suits pending against the Treasury and the FHFA for various actions applied to the GSEs, since Fannie and Freddie were place into “conservatorship” in 2008 under then GOP Treasury Secretary Hank Paulson.)
Here is a counter to the FHFA work. Some enterprising journalist(s) should ask FHFA specific questions and push them if the agency suggests its actions were legitimate and accurate.
Tim Howard* knows stress test structures/operations and, importantly, shows where and how this latest FHFA examination was “gamed”—with more than $100 Billion in very questionable assumptions-- producing its distorted loss finding.
If you haven’t already, enjoy reading his August 19, 2016 blog.
In a few exchanges with me since Tim posted the blog above, he’s mentioned he thinks FHFA took every subjective number offered by the ST exercise and inflated and distorted it to produce a horrible outcome. Again, a determined questioner should ask FHFA why that was so.
I expect Howard will write more about FHFA’s misleading actions.
Publications and writers covering the original FHFA stress test story.
In addition to Bloomberg’s Joe Light and the Wall Street Journal’s John Carney, here are the names of individual writers or the publications which covered this story. (Some just had Twitter addresses. If you know any of them or can reach them, do so. They might want to read Tim’s views and engage FHFA or in a discussion.)
Name Publication Title Contact
Andrea Riquier MarketWatch housing reporter @ARiquier
Erika Morphy Freelance Journalist @EMorphy
Ben Lane Housing Wire Senior Financial Reporter @BenLaneHW
Thornton McEnery Dealbreaker Editor @ThorntonMcEnery
Wesley Coopersmith Heritage Action Grassroots Educational Coordinator @WesleyCoop
Ryan Rainey Morning Consult Reporter @ryan_rainey
Kendall Baer DS News online editor firstname.lastname@example.org
Phil Hall nmpmediacorp Editor email@example.com
Others, identified by Google, who/which covered the story.
Tennessee Real Estate Rama
Cornerstone Credit Union League
Historical note: *Tim Howard was Fannie Mae’s former CFO and--along with its Chairman Frank Raines and Treasurer LeAnne Spencer Garmon—was forced out of Fannie in 2004, by a specious regulatory charge of “securities fraud,” which later was thrown out court by a federal judge.
While at Fannie for more than 20 years, Howard initially designed Fannie Mae’s original stress test and risk-based capital system. Later, working with Paul Volcker--after the latter left the Federal Reserve Board in 1991—they refined that model and Congress adopted Howard’s plan in the 1992 statute which gave Fannie Mae and Freddie Mac those capital paradigms, a new regulator, and national housing goals.