Caution, Caution Anti-GSE Forces
What goes around comes around, unless Donald Trump’s Administration is going to unbalance the world order and prevent those timely reoccurrences.
Former Fannie CFO Tim Howard believes the US mortgage finance system’s future is hazy--at best--if the federal government fails to address the GSE investor claims they were Shanghaied by the US Treasury, first in 2008’s “conservatorship” in demanding a 10% GSE repayment from them (banks only paid 5%) and then again in 2012, when the Treasury changed the settlement plan demanding every penny the GSEs earned going forward.
Treasury now has collected @$265 Billion from the two since 2013, for the $187 Billion infused.
As I have written on several occasion, I believe the current GSE mortgage reliant system—with a few alterations—is the most efficient and fairest (for the public, the lending industry, and its builder, Realtor, insurer components) of all the multiple “successor to the GSEs” options being pushed.
Not surprisingly the “kill the GSEs” sponsors and advocates mainly are the foremost financial interests and ideologues that covet Fannie’s and Freddie’s market position and revenue. (Psst. The “GSEs set the broader rules on loans banks sell the public. That fact chafes lenders.)
But, as Howard wrote to me, “A legislative reform plan that does not deal with the uncertainty surrounding the current lawsuits is going to face a challenge of getting the requisite amount of capital into the envisioned new system.”
“If Fannie’s and Freddie’s regulator legally can force them into conservatorship when they meet all of their regulatory capital requirements, then —once they return to profitability—seize all of their profits in perpetuity, why would potential investors in successor entities not fear that the same fates could befall them?”
It would be shortsighted to ignore those possibilities for future mortgage market players if Fannie and Freddie do get offed with no relief for their investors.
If I was a surviving mortgage market player (or their friends/patrons), I would worry about their own coming “day in the barrel” (look up the old joke), when the inevitable inheritor to the Trump Administration and this Congress emerge.
Since, at some point—sooner or later-- there will be a successor to the current regime.
The next congressional/WH political winner/winners easily could lust after the behemoth bank income and market position, just like the “Too Big to Fail” institutions and their political and industry toadies have pursued Fannie’s and Freddie’s for the past 25 years.
Will/Can WH Support the Rule of Law?
If the Trump Administration fails to support the “rule of law,” except when it can be twisted to support its non-mainstream policy choices—and screws GSE shareholders--where does that leave us as a law-abiding nation?
See the succinct answer the esteemed Professor Richard Epstein delivered to a recent financial forum on the issue of “takings.”
It’s relevant because our Constitution (remember it?) prohibits government takings.
Let’s Play “What If?”
When the political tides turn and the sides get switched, how lame will the TBTF banks sound saying, “It isn’t fair what the government is doing/did.” (That’s just what the GSE investors have been saying for years?)
All of those banks and the bank allies hoping/trying to rally around the MBA or Milken “kill off Fannie and Freddie” legislation should remember one salient fact, despite their GSE ideological blindness. Nothing is forever.
If the Congress, trying to write legislation or the WH considering some new regulation--does not figure out how to mollify GSE investors, who have a variety of legitimate lawsuits against the US Treasury--the US could face monstrous mortgage system challenges, beyond the chaos, uncertainty, and delay in implementing future models in a $10 Trillion mortgage market.
The first will be Tim Howard’s, i.e. from where does any new mortgage money come?
Which rational investors will risk their dollars when a new Congress in 2018 or 2020 or a new Administration in 2020—either or both of which could be more progressive--decides the post Fannie and Freddie mortgage system sucks and works only for the big lenders but not for consumers?
The Big Banks and their friends may argue Constitutional “takings,” but will sound foolish and tawdry when—because of their support—the government’s taking of hundreds of billions of Fannie and Freddie investor dollars got ignored.
A Future Admin and Congress?
Do you think President Cordray or Kamala Harris, or Senate Banking Committee Co-Chairs Sherrod Brown and Elizabeth Warren, let alone or Treasury Secretary William “Torch Them” Maloni, won’t use all of the GSE precedent the big bank and bank-lovers endorsed against the likes BoA, Wells, Citi, Goldman, et al.
The ABA, Financial Services Roundtable, Mortgage Bankers Association and other bankers wrote that playbook.
Hey big Bankers, want to see my financial regulatory “fastest draw in Washington D.C? Want to see it again, heh, heh?"
Be careful for what you wish and what standards you support.
If those who chose to ignore the Constitution and ideologically steamrolled GSE investors, there certainly will be future consequences for bank advocates.
Look around you at what’s happening (beyond Virginia and New Jersey politics) and see what "trends" may be trending?
Except for a shaky current GOP congressional majority and the souless and “just focus on me/DJT” administration, those abandoning GSE shareholders and expropriating their funds could be seeing their future, no matter what they call the mortgage entities they hope to dominate, once Fannie Mae and Freddie Mac are scuttled?
Anything done legislatively can be undone by a new D-controlled or just progressive Congress and that includes passing new laws which expand previous SCOTUS decisions and, in effect, overturn those high court verdicts.
Be careful--when you bet your federal banking charters and back extreme legislative or regulatory action--the same fate won’t happen to you.
My latest letter to the Washington Post, unprinted by the newspaper
President Donald Trump says:
"A pedophile is a better Senate choice than a liberal Democrat.”
"I believe President Putin that Russia did not interfere with our elections.”
“When hearing him say these things, what else do the American people need to conclude that Donald Trump-- and his acquiescent congressional allies—have failed to represent the best interests of the American people?”
Wm. R. Maloni
Russia Had/Has Leverage Pressure over Trump??
Why the GOP Tax Bill Deserves Senate Defeat: It’s a fraud built on a Lie: Our kids will pay for this corporate giveaway, which will not and never has produced the GOP–predicted historical gains (NYT-Editorial)