Sunday, April 23, 2017

Same-o, Same-o, MBA True Colors

First they came for the Socialists, and I did not speak out—
because I was not a Socialist.
Then they came for the Trade Unionists, and I did not speak out—
because I was not a Trade Unionist.
Then they came for the Jews, and I did not speak out—
because I was not a Jew.
Then they came for me—and there was no one left to speak for me.

Martin Niemöller (1892–1984) was a prominent Protestant pastor who emerged as an outspoken public foe of Adolf Hitler and spent the last seven years of Nazi rule in concentration camps.

GSE Events/Developments

Major GSE activities were absent last week; most community talk was back and forth over the meaning of minuscule movement in the prominent GSE court cases.

In other words, “nothing here folks, move on.”

But we did have the underwhelming unveiling of the Mortgage Bankers Association (MBA) latest “get rid of Fannie Mae and Freddie Mac” proposal.

The MBA’s scheme (see below) is disappointing for several reasons, i.e. the nonsensical and meaningless “bright line” is back, but predictable in others.

Okay, trade associations do this all the time to promote their objectives, but that doesn’t absolve them from the need to explain what and why they are doing it, in this case a new “reform the mortgage system” design.

In talking to MBA folks over the months while this proposal was incubating in its task force meetings, there was some misdirection suggestions of a major “landmark proposal that would keep Fannie and Freddie functioning,” as in “Sure, we really do like the GSEs.”

But when it came time for the task force to “walk the talk,” that possibility disappeared and the trade group produced a predictably limp “wind down the GSEs” plan, with lots of new creations, financing arrangements, and structures—but the federal government still in it reliable position of holding up the whole shebang. (Hey, no possible calamity here, trust us.)

To me, the trade association’s specific details really don’t matter, when the MBA’s task force’s stated objective is the “post GSE period,” meaning Fannie and Freddie gone. Again, for this observer, how you get there is next to irrelevant.

The institutional hyperbole and short memories, too, are revealing.

It’s very disappointing that MBA President and CEO David Stevens and the task force--about which he was most excited given the quality and talent he said its member reflected—once again put out some principles and talking points, directed at the Congress, White House, other stakeholders, and the media.

I’ll let others comb the proposal’s details for its shortcomings, but my analysis “from 30,00 feet”  raises the obvious and continued questions about big bank dominance; free sharing the GSEs platform and resources; the huge additional capital supply needed for sufficient front end/back end mortgage insurance, if the market chooses not to provide it: and exactly how you force the nation’s largest banks to put up more capital when they—with the help of the MBA—are fighting the surviving Dodd-Frank previsions which would require them to do just that—not to mention the same cabal’s rabid opposition to greater financial regulation?

Why didn’t this august group of mortgage lenders, led by the talented Mr. Stevens (whom I am happy to report is enjoying better health, back at work, and ready to engage on MBA’s behalf) just cobble together a very specific legislative proposal, answering the many question their draft raises or even nail down some choices??

MBA: Let Congress Do It

My advice to MBA and David Stevens is jump on Steve Mnuchin’s broad back.

Letting the Congress do it really is not a viable solution to the GSE conundrum, especially when the new Treasury Secretary announces he is working on a plan to restore the GSEs to operational health, using executive authority.

My answer to why the MBA chose this path, in part--maybe giving the MBA task force too much credit--is it ran into the same market reality the Congress faces trying to solve the GSE Gordian knot when what you are trying to replace works better, more efficiently and fairly--for consumers and mortgage professionals alike—than your replacement albatross.

Currently, DC is filled with the carcasses of empty mortgage reform schemes—like Corker.Warner--most of which lay malodorously decomposing around the Urban Institute offices, with cutesy poo headline creating names about “housing paths forward,” etc.

Congress, caught up in their ideological biases and lack of understanding of mortgage market dynamics, stumbles on this same GSE market reality, offering all sorts of excuses and threats, but never saying, “Hmm, maybe there is a lot to like about the current system and possibly--if we fine tune it rather than destroy it--we might have something that will last for another five decades or more.”

But, that would take statesmen legislators with insight and a sense of history, not foppish characters who might have profited, surreptitiously, from trading in GSE securities.

And to the MBA and the world, all of your poppycock about ending the risk to the taxpayers goes right out the window, the moment you have—as the MBA proposes--Uncle Sam on the line insuring the single family and multi-family securities in your “get rid of Fannie and Freddie” ideas, especially when all of the bank players—many of which have non-banks subsidiaries--have reduced capital and most enjoy FDIC insurance for which they’ve not adequately paid because of that hidden federal subsidy.

The task force. absent virtue, prattles about reduced risk to the taxpayer, when its goal is a system which produces voluminous amounts of fixed rate financing. Our history shows only the federal government’s presence or backing can guarantee that result

That fact isn’t allayed by all of the plan’s admonitions for strong “capital supervision and regulation” and “minimize transition risks to avoid market disruptions.”

Let me repeat the nation’s biggest, strongest banks are right now fighting greater regulation and capital demands but is the MBA--a big bank-centric trade group--suggesting the behemoths will stop all of that because the MBA throws out this mortgage mélange?

The MBA implicitly demeans the existing system—which, yes, could use some slight changes—and ignores the copious amount of fixed rate financing Fannie and Freddie currently produce with only a marginal connection to the federal government, and calls for a clone but with the big banks and their brethren playing the traditional GSE role.

The current GSE federal protection could be even less chancy if the government would allow Fannie and Freddie to keep some of those $260 Billion in GSE profits the Treasury has sucked in—or excuse me “swept in”—since 2012. (I guess I missed the MBA’s discussion and opposition to that little item which, by itself, would help reform the nation’s mortgage markets without any legislative help, since the latter just becomes interference. Also missing was any discussion of the last time “big un” banks were give carte blanche to issue PLS.)

Why, MBA??

However a deeper question for me aimed at the MBA and its task force is why do you have to destroy that which works and has worked for your industry for almost 50 years? It can’t be all of those nifty task force meetings held in posh places, no doubt, free meals etc. etc?

Top MBA staffers understand the chaos, dislocation, confusion, increased costs, loss of efficiencies, and uncertainty inherent in any change the magnitude of which the task force proposes. In their opening principles, the MBA offers the forlorn wish that Congress and the White House will lessen the inevitable mortgage bedlam, with what…more regulations and do’s and don’ts? Will the big lenders listen?

So why make all of these recommendations, when tweaks not sledge hammers are available?

The big banks still are making money hand over fist and still complaining about excessive federal regulation and capital requirements. The mortgage banking sector of the economy has done well for the past few years. So exactly what needs fixed?

What parts of the Fannie/Freddie operations doesn't the MBA like and for what reasons?

Fannie and Freddie are regulated (excessively) by several hundred people at the Federal Housing Finance Agency (FHFA). How many more will be needed when/if your task force proposal law and a new regulator or the new regulatory employees at the existing agencies decide to flex their muscles?

How about some mortgage banking industry candor? (Even though the American Bankers Association and the Financial Services Roundtable will be happy, you know the small lenders and the community groups will oppose. And there is even some possibility that your current Herculean effort might not gain the support of the other big housing trades in town, because of the obvious consumer costs, bank giveaways, and embedded uncertainty which never is good for business.)

I am still back to my old wish/suggestion to see if all MBA members—especially the non-big bank shops--support your task force recommendations?

Poll them on whether they truly desire Fannie and Freddie wiped out with your task force recommendations’ resulting systemic financial disorder, before the inevitable big bank take over occurs of both the primary market and the GSE secondary mortgage market. (It won’t surprise me if the MBA demurs because of the old wisdom, “Never ask direction from somebody to whom you must listen.”)

I’d love to see America’s consumer weigh on that question, too.


POTUS Trump, his First Hundred Days

(I am going to limit my Trump commentary this week to offering various links to media others produced. I especially liked the George Will and David Shapiro columns.)

George Will

David Shapiro

100 Days Report

Russian election plan

Trevor Noah on O’Reilly

O’Reilly, Redux

What goes around….Judge Curiel

Maloni, 4-23-2017


Anonymous said...

One of the main reasons govt has kept the GSEs in status quo for so many is the lack of reform consensus. At least that’s one of the excuses govt uses to keep the GSEs in conservatorship while their profits are swept.

Your reaction to MBA’s proposal is part of this problem. Instead of starting with some sort of agreement on the possibly few good things in the proposal (ending the conservatorship and reprivitizing), you take a knee-jerk reaction and proclaim “from 30,000 feet” that it’s a stinker.

Well, you’ll get what you want. No negotiations, no attempt at consensus, just name-calling and crossing your arms and saying ‘no.’ And more of the perpetual conservatorship.

Anonymous said...

MBA has big credibility problem.
Will MBA's also submit proposal on how to protect taxpayers from MBA members along with a list of MBA members fined for various banking and mortgage related violations.

Bill Maloni said...

Anon 1--I plead guilty.


Anon 2--Surely you jest? (And no, I didn't just call you Shirley.)

Bill Maloni said...

Anon !--I saw your comment and responded as I was rushing to an early morning medical appointment; you deserve a more comprehensive answer.
Without being patronizing (I hope) I doubt fi you ever negotiated on high level GSE matters. I have and that was back when Fannie and Freddie were the good guys and had political support, but that didn't stop lots of demands and concessions which produced anomalies..

The problem now is that, save some in the White House--who likely has a lot of irons in the fire and the GSEs not being one because the system is working--there are no GSE fans among the negotiators.

There certainly aren't any on Capitol Hill where the GOP would control all negotiations and the rules of same; look among the GOP leadership and tell me which man or woman would step up and argue for the benefit of some variation of the current system or why it is far superior to a bank controlled system?

Again, without talking down to you, this Congress and GSE spell "disaster" for the GSEs, which is why I long have advocated both in the Obama and today's DJT Amins an executive action which could clear most of the major issues and insure a solid system going forward, in which the big banks would significantly participate but not control. The latter is crucial for so many reasons, most of which have appeared in my blog over the years.

Please look yourself. I haven't made up all of the bank legal transgressions for which they have paid billions in fines in just the past nine years.

The industry is welcome as a participant in the mortgage finance system but would be terrible as the stewards, which is what most (not all) of the "reform" proposals would produce.

Happy to engage with you further.

G. Buckman said...

Bill, nice work. Really like how you took the MBA and it's latest plan to task. I have a feeling you'll be waiting a long, long time for that member survey you keep asking for though. :-)

Bill Maloni said...

So, you're saying I shouldn't buy any green bananas?

Bill Maloni said...

Not that it will come as a shock to the people who read this blog and follow GSE issues, but Barack Obama's admonition today about "special interests" at work in our nation's capital still is worth noting.

Anonymous said...

I haven’t negotiated "high level GSE matters."

Since I haven’t done-it, I’m unqualified to have an opinion - got it. The familiar formula of "looking down”, in character with the haughtiness of pre-crisis Fannie Mae.

Tim Howard today published his take on MBA’s white paper. Being intellectually honest, he begins by recognizing the good and workable, then point s out the bad. Objectivity, not a blanket knee-jerk reaction, gives credibility to his criticisms.

Anonymous 1

Bill Maloni said...

Anon 1--My bad. My comment was less about you than how those meetings work.

I should have elaborated. With no pro-GSE stakeholders in that room, save Treasury which can't afford to alienate too many Senators and MoC's given other issues at stake: the congressional GOP--which consistently has and continues to vilify the GSEs--controls the process and have more approved reps present, if it comes to an actual vote in the negotiation; the companies don't participate,just are present for answering Q's; and the FHFA, while better under Watt, won't turn on its roots and still has plenty of anti-GSE types in their ranks, that procedure likely won't be fruitful.

I am glad you mentioned Tim, whose work I also read today.

While he hands our more daisies than I did to the MBA, please note where he and I agree, i.e. you don't need--or want Congress--given Secretary Mnuchin's regulatory capacity/authority and inclination.

Here is an excerpt from Howard's blog for those who haven't read it.

"In my view, all of the MBA’s stated objectives for mortgage reform can be achieved administratively, without incurring any of the complex risks involved in a transition from the existing Fannie and Freddie to new (and essentially identical) companies created through legislation. The MBA acknowledges these transition challenges, but does so only in concept, offering principles it says should guide Congress, FHFA and Treasury in addressing them. That is not enough. Before any legislation is proposed, let alone passed, advocates for replacing Fannie and Freddie must show that they have identified and understand all of the related transition issues, have concrete and detailed solutions for them, and can demonstrate that the benefits of what they propose outweigh the risks."

Keep reading and writing.