Wednesday, May 3, 2017

GSE Arrow Points Down

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.

One Man’s Opinion; GSEs get Skunked;
GOP Politics Buries Recap and Release,
If R&R has a’s Faint and Ebbing

I don’t know about Steve Mnuchin’s pre-Treasury relationships with major GSE advocates, investors, and Trump allies like Bruce Berkowitz, Bill Ackman, Carl Icahn, John Paulson, Gary Cohn, etc. etc. But those close collegial campaign-contributor ties were offered up by many as the reason Mnuchin and Trump would save the GSEs from the Obama Admin calumny and return the mortgage giants to active function.

See/read “Nooch” in November, 2016.

No, the soon-to-be Treasury Secretary didn’t endorse recap and relief, specifically, but most knowledgeable observers realized he had executive authority to end the “earnings sweep” and give the GSEs a new capital base from which the other wishes he expressed easily could follow.

But I think Mnuchin’s Maria Bartiromo interview torpedoing GSE “recap and release,” shows you how quickly Washington politics can curdle and compromise principles and principals—not to mention shrink their gonads.

GSE supporters may not realize it, but we just got assailed with what, in my youth, we called an “orange goozie mae-mae,” i.e. something bad and penetratingly uncomfortable.

Mnuchin (see above link), before he got buried in his Treasury job, was quite adamant about how he was going to get the GSEs out of government control and back operationally as private owned institutions supporting the nation’s need for fair and equitable mortgage financing.

I know that kind of talk just pissed off many in the GOP congressional world. I am certain—once they mutually realized that Mnuchin would need these guys down the road for many votes--the Secretary was told his preferred executive GSE-tango wasn’t on the Hill's dance card.

So, over the last few weeks, he’s seemed to back off, first on his timing, from as soon as possible to sometime later this year, and now on his approach. (I’m sure the $20 Billion the GSEs ship Treasury annually got his attention, too.)

Mnuchin: “I didn’t say recap and release” (No, Mr. Secretary but you sure implied it or some other form of quick substantive relief.)

With all of Mnuchin’s current unrealistic silly talk about bipartisan compromise—which does not exist when GSEs are the subject-- the Secretary, instead of acting boldly on some available regulatory action, which would make good on his word, now suggests he will lend his support to some soggy scheme which can't/won’t look like Mnuchin’s original announced goal of keeping the GSEs alive and entrepreneurially working in the nation’s mortgage finance system.

Scared investors, seeking something on which they can hang their GSE investment hooks, appear instead to be scrambling away from GSE stocks, although at the end of the day—because the “GSE preferred” may be inviolable contracts—those owners might get a few bucks on their investment. But, that’s only some $30 Billion tops of what some felt would be legal settlements and rewards of more than three or four times that figure.

And, with this Justice Department, a Treasury still in need of revenue, and the cowardly courts, full price on preferred might even be an unreachable dream, because this is Washington where everything is negotiable and part of a “deal.”

And yes, the courts still could produce some GSE plaintiffs’ victory but the record to date cannot offer any confidence of that, in fact just the opposite.

Nooch—who may be a wonderful individual--is showing why Washington DC, often, is the city where courage and integrity go to die.

Stevens/MBA Unload on Recap and Release

At an MBA event, predictably MBS President David Stevens unloaded on suggestions that Fannie and Freddie should be recapitalized and released.

The MBA  put out its own Task Force recommendations to create several guarantors—with the federal government insuring those single and multifamily securities—which I challenged in my last blog.

I took issue with a veteran industry reporter who covered the Stevens/MBA story and who suggested that only major GSE investors supported the GSE R&R revitalization. I objected and shared with the reporter the following opinion of that position and the source.

You should be questioning DS (motives) not those who seek recap and release.

I am one of those R&R supporters and am not a major investor (personal Maloni comment about stock ownership) but believe the GSE arrangement is more honest, more efficient, more pro-consumer, and more easily accessed by all mortgage professionals than any alternative replacement plans I've seen.

Do any of those Urban Institute proposed gaudy replacement schemes, with their uncertain costs and financial relationships, appeal to your sense of value and efficiency.

Plus, at day's end, the big financial behemoths will control whatever is the MBA's new arrangement, with Uncle Sam standing behind it and them.

Since the current financial regulators won't stop them, who acts as governor against the next bank driven mortgage excess, unless it's the GSEs? You saw the PLS debacle, which was worse than anything F&F may have done. Plus, you can't ignore that the GSE regulation has been tightened significantly in the past nine years.

BTW, if the government succeeds in keeping all of the GSE income, no matter its rationale, will the next group of investors be so sanguine about putting their billions into mortgage finance, all of that "private capital" David (Stevens) brags his plan will draw, which--again--is designed for his largest members?

Look David Stevens and the MBA have an association mission and are free to publish what they want and endorse what they wish, while I am equally free to say I don’t buy their task force proposal rationale.

Simply stated, I believe a not very intrusive fix of the status quo—for how Americans finance their mortgages and who qualifies for available mortgage credit--is a better repair than most ideas coming out from the MBA, GOP, and urban think tanks.

They and other GSE opponents--seeking massive legislative change--have no way of knowing if their multifaceted stratagems ever can come together, effectively, and deliver to consumers better, more efficient, and more available mortgage financing.

Yet they want to dismantle/obliterate what we have and what works. Sounds like spoilers, not progress makers.

Likely, especially when Washington is involved in massive statutory mortgage reform, you have partisan, industry, income and racial/social operational kinks and twists—invariably flavored with some Member/Senators special interest needs—that invariably screws up, delays, adds cost, excess regulation (or no regulation as seems to be today’s congressional theme) and looks nothing like that the advocates start from—but “pays off” enough somebodies so the omnibus package can slither forward.

That’s why I was confident in what I said to the reporter above. Because, with the GSEs you have a near 50 year working mortgage model which produces huge amounts of desirable mortgage credit.

Its success can be and has been observed.

There is a better way. It’s easier to fix any remaining flaws in a GSE-centric model than to blow it up and pretend you’ll get an improvement by starting all over.

Congressional creations just don’t work that way, whether you are a Democrat or a Republican.

That’s another reason—because the GSEs are working—the pressure is off Mnuchin and this Admin . Trump can doddle and rack up another $20 Billion annually in GSE revenue to cover swollen federal budget red ink, sorely needed if those Trump tax giveaways ever become law.

With capital running to zero in 2018, if either Fannie/Freddie show any losses, Treasury and the White House will finesse and play it down—because the GSEs still will be producing lots of mortgage finance and the public won’t care/know—while Mnuchin declares he is working still on a "bipartisan compromise" to reform the mortgage finance system.

In other words, “Move along folks, nothing to see here!”

Maloni, 5-3-2017


Anonymous said...

Thanks, Good reporting, enjoyed reading.

The long time dislike of major financial establishments for FnF is a very clear and good indication that FnF are good for the common people and economy. If you ask these people on how their plans are going to help the common people and economy, then they will give you the same false narratives of protecting taxpayers. The biggest risk to taxpayers is these financial establishments themselves in addition to fake conservatorship.

If there were any viable alternatives, why these people have taken almost a decade and still searching for answers. DS/MBA tried under previous FnF unfriendly adminstration and it did not work, the chances under DJT administrations are zero.

Bill Maloni said...

Anon--Thinking the same thing this morning.

None of them are honest brokers in that regard.

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