Monday, December 11, 2017

Other than that, How Was the Play, Mrs. Lincoln



Not the Best of GSE Times, But..



I AM A LITTLE CONFUSED (some of you quickly will agree), although I may turn out—figuratively speaking—to win all the marbles, yet, if the GSEs against significant odds survive as shareholder owned entities?

Last week was horrendous for the GSEs.

Fatal? Not ready to go there, yet, since unlike any place in the policy world, in our nation’s capital it ain’t over until it’s over and “the Fat Lady sings.”

The bad news wasn’t so much the fevered activity of another Corker-Warner GSE reform bill (“introduction next year,” said one of the principals). Rumors about which have been circulating for weeks (as IMF’s Paul Muolo chided me, “I already had written this story” or bragging words to that effect).

Hensarling Flip

For me, what turned into a GSE no good horrible very bad event was when the massive political leopard changed most of his sports, i.e. House Financial Services Committee Chairman Jeb Hensarling announced he was coming off his total/complete/never more opposition to Uncle Sam having a role in the nation’s primary and secondary mortgage markets and now would support somehis conditional caveat…if his congressional colleagues would join him and kill Fannie Mae and Freddie Mac.

Why Jeb and why now?

There were rumors that Jeb—who earlier this year announced he wasn’t seeking re-election in 2018—had gotten an offer from the Mortgage Bankers Association to succeed David Stevens, MBA’s current President and CEO, who announced his plans to retire in mid-year 2018. In addition,

 Stevens reported seven figure plus salary could have looked real nice to Jeb ergo the latter’s conversion.

In that audition scenario, Jeb’s action just was him trying out and showing his fealty to the MBA agenda, by supporting everything it supports and opposing the GSEs, which, at bottom, is the MBA’s stance.

It also might have been Hensarling’s realization that his old pro-commercial bank MO was so 1920’s and wouldn’t/couldn’t work in the current era, where overly rich and fat banks won’t take normal mortgage risks unless the federal government stands behind their losses, a new feature Jeb endorsed, too.

Senate Contribution

Further muddying last week was Senator Bob Corker (R-Tenn.) and his wingman Mark Warner (D-Va.) declaring they had their own "strangle Fannie and Freddie" idea, leaving the GSEs alive in a transition mode I guess to suck out any remaining mortgage market bodily essences, if their sceheme didn't work..

But it was Hensarling whose epiphany spoiled the GSE picnic.

In the past, Jeb’s insistence on no federal government role invariably screwed the legislative pooch and killed any GSE cooperation from the Senate.

With the sudden Hensarling “born again in support of Uncle Sam as the mortgage provider,” the odds have shifted to some crippling GSE legislation happening next year.

It is time like this dramatic Hensarling reversal announcement when I wish I could question, publicly, the principal and challenge his/her mortgage finance rationale, looking for the inconsistencies and the holes in his answers and shouting them to the world.

It’s like Lucifer Morningstar, the TV show “Devil,” asking the weekly bad guys—staring them in the eyes—“What is it you really want?” The perps melt and spill their guts to Lucifer.

In my dream, throw in Rep. French Hill (R-Ark.), a bank toadie who never has changed his spots from when he was an anti-GSE staffie working for Senator John Tower (R-Tex), then Chairman of the Senate Banking Committee.

French last week said he would or did drop in legislation, resembling Corker’s “GSE Jumpstart” expiring law, which puts shackles on the Treasury in its management of Fannie and Freddie. Hill’s action, I surmise, needed Hensarling’s blessing.

Caveats to the Above Scenario

The most important and necessary item, missing from last week’s mortgage polka party--with the House and Senate dancing guests--was a position from the Trump Administration. They didn’t say much about either the Senate idea or the Hensarling transfiguration.

Staying silent for a bit might be good for Treasury Secretary Steve Mnuchin—despite all of the Admin spinning—who suffers from a shaky rep on the Hill (his wife’s antics don’t help him).

A still breathing Fannie and Freddie—the opposite of what Hensarling and Corker would do to them--continues to represent $100 Billion or more fresh revenue for DJT and the Treasury because of the value of the GSE warrants Treasury holds worth 79.9% of the two.

But utilizing it means the two entities stay alive.

Of course, given how they GOP approached a $1.4 Trillion in deficit spending in their new tax bill, maybe that cash doesn’t matter to these folks????

Or, maybe it still does and to the extent that “Nooch” has thought creatively about the GSEs (which I doubt he has time to do, only because of everything else on his plate), he might play for time before committing.

The other GOP consideration is one I’ve stated before—MAJOR POLITICAL RISK.

The voting public is a little unhappy and maybe rebellious with the sole party in power.

Do the Republicans, have the stones to destroy the GSEs in the 2018 election year, no matter how they flatter and praise the big banks—the GOP’s all dominating successor to Fannie and Freddie--plus the inevitable chaotic transition where banks hold all of the mortgage finance cards and the consumers have few if any (remember, the GOP just buried the Consumer Finance Protection Board (CFPB).

What federal agency will stand up to the banks then???

Answer, none of them.

Fannie and Freddie can, did, and do act as governors against bank penitent to cut corners, because the broader secondary mortgage market players, now, require GSE underwriting standards on all originated loans which the bankers, mortgage bankers, and other lenders pay Fannie and Freddie a small fee to guarantee.

If the lenders produce crap, that garbage doesn’t get a GSE securities “wrap,” which right now the national and international mortgage markets desire/require.

GSEs and the courts

While outstanding GSE court cases still exist, I doubt any federal judge wants to be the first one to oppose the original Lamberth finding and go against this Administration.

Federal judges live for their legal decisions to promote them to a higher judicial level and—unless this Administration clearly indicates it wants the GSEs around—don’t look for that court help, anywhere, including at the SCOTUS, "them boys have been trained well."

Where does that leave the GSE supporters, hoping for Senate Democrats to show GSE resolve/understanding; some clever and creative political or media source (Investors Unite, small banks, plus Tim Howard writ large) to keep thundering at Congress why the big banks ---based on their sordid anti-consumer and law breakings pasts, remember the PLS content, not just their brigandry—never should be put in total charge of the mortgage finance chicken coops.

Those financial foxes are not worthy and sooner or later, they’ll go for the jugular and violate any market they control, especially if Jeb, French, Corker and Warner also give them new federal loss protection for the mortgage backed securities.


Just like the ill consequence of huge tax cuts for the rich and not much for the little guy, the public won’t realize the GSEs inherent value until they’re no longer around.

Of course, there’s always hope for Democrat political wins in 2018 and 2020.



Maloni, 12-11-2017


12 comments:

humble warrior said...

good synopsis of last weeks events. Thank you. I also heard rumors that Hensarling could be up to replace Watt or to take over the CFPB. The latter of which would be a great choice from the conservative republican perspective .That would give the banks more rein and get him out of the GSE issue.From what I can tell so far, it does not look like Tim Howard or Investor's Unite have much impact on things. I was hoping Mr. Howard did ,but I am not so sure ( probably a bad thing to read his great posts as i think it only gives me false hope the Gov't will do the right thing for the economy and more importantly the people) . And you are right , outside of a peep at the hidden docs it is unlikely the courts are in the decision picture. Judge Sweeny still needs to make a decision whether to dismiss or not.I wonder how that will go? Also a wild card is what role Bright and Ginnie Mae may play in this picture? What I see a a positive is the role of Paulson and Icahn as informal economic advisors to the President,assuming they still hold common stock (? bought around $4). And ,also as you have pointed out, there is is the potential for a large financial windfall ( which could solve a lot of capitalization concern if the warrants are converted and executed ( ie Moellis plan with Paulson and Blacstone support )>

humble warrior said...

Further , and perhaps not as well thought out, are the repercussions of jumpstart #2 and legislation favoring Wall St. and the the TBTF banks that could come about,pariculary if Moore loses and McCain fades ( as did Ted Kennedy with the same diagnosis) . Already ( based on polls ) the majority of Americans feel the tax bill does little for the middle class and the poor.What will they think of the proposition of taking one third of the economy and trying to place it in the hands of TBTF/Wall St. as well. Will this all together give the beaten down Democrats the tools followed by redemption come mid terms.Warner may end up standing alone here as a Democrat. I certainly would value your thoughts and insights on tis aspect.

Bill Maloni said...

Thanks HW—

Had lunch today with a few former colleagues and was told Michael Bright--whom they describe as incredibly unctuous and arrogant and who likes to brag he's never stayed in any job for more than two years (ignoring his four(?) years with Bob Corker-- has his eyes on the FHFA job, when Mel Watt's term ends.

That would imply F&F still would be around, but Bright would be a cruel FHFA director, which continues to house a rabid squad of anti-GSE bureaucrats. So, Bright would fit in.

I'm still trying to determine whether Corker is in bad shape or decent shape with the Admin (I'm leaning toward the latter).

Corker's putdown of the POTUS hurt him with DJT, but his "no" vote on the tax bill was preceded by a far more potent and valuable "yes" vote in the Budget Committee. His vote broke a 10-10 partisan tie, allowing the fund-the-rich-bill to go to the Senate floor, where the leadership gave Corker a large symbolic "no" vote, because they didn't need his actual vote to secure the bill's passage...

I just hope--if there is some anger/lack of trust aimed at Corker, it blows back onto Bright, who is very busy looking at ways Ginnie Mae can succeed the GSEs or siphon lots of business from them. (Someone tell him Ginnie is a small part of HUD, and a backwater, understaffed, federal agency, with marginal talent and few skills needed to operate in the contemporary securities world. Better yet, don't tell him and let others inside the Trump WH spring that on him, when he seeks geometric budget increases from OMB.

humble warrior said...

I agree , I don't think Bright would be a wise choice. Need a Mulvaney (?sp) type. I agree with your lean on Corker. it does appear to be that things were staged somewhat. Still trying to understand the purpose though?I would think Trump? Mnuchin could see through Bright and look beyond and at the whole both short and long term picture of the implications of housing finance reform. Thank you again for your insights.

Bill Maloni said...

We'll see, "types" like MB wear very quickly, when you think/act you are the martest guy in every room you enter.

That was on display when he patronized Housee committee members in his testimony.

Although he has a fan for that behavior in the WH, but those sitting between MB and the Oval Offcie might not be since the MB types always are looking to promote themselves and what they claim they can do.

Bill Maloni said...

Small corective point, but Sen. John Tower (R-Tex)--for whom urrent Rep. French Hill (R-Ark.) worked as a subcommitte staffer, was a snnior memebr fo the Senate Banking Committee but never full committee Chairman.

Bill Maloni said...

My deep thanks and praise for the voters of Alabama.

They rose up and did the right thing for themselves, nation, and it's people.

Watch for more reports of Moore's cannodling now that the locals don't have to hide.

Bill Maloni said...

Trump and Bannon, who knew, they could unite the people of Alabama in this positive manner??

Anyone hear from Kellyanne this morning??

Anonymous said...



Yea, Roy Moore is defeated and all is good with convicting a man through media pundits after forty years of silence. And now Liberals many establishment Republicans and elites have their man who will support fetuses being vacuumed out of the womb, keeping minority folks in their place, supporting the idea that a man putting his penis in a rear end is normal, turning his face on the laws of the land and honors those who dishonor our country.
Congratulations.

Bill Maloni said...

Welcome Anon--

First off, the people of Alabama voted (for Doug Jones and agaainst Roy Moore).

I suspect in that state, they knew more about Roy Moore than any of us non-Alabamans did.

And isn't that exactly what DJT, "Biscuit" Sanders, Kellyanne Conway, and other WH spokespeople wanted, i.e. the people in that state making the decision? Well they did and now you are unhappy with them?

Where I also lost you....is in whose rearend did Roy Moore insert his penis and what else besides admiring Putin and believing that Muslims should not be able to serve in US public offices has he done to dishonor our country--besides pretending he knew how to ride a horse?

Anonymous said...

It’s shocking how hardened your heart is at times. From your picture, you look like an age that someone could accuse you of something 40 years ago? How could you possibly exonerate yourself? I am not saying he is innocent, but isn’t someone innocent until proven guilty? Can you imagine how a rumor can crash your own reputation?
Doug Jones stands for NOTHING good.

Bill Maloni said...

He ran a "clean race," without resorting to the same invective and ugly rhetoric and innuendo that Moore and his supporters employed.

Despiet all that was said about Jones, a lot of it coming form the highest office in the land, Jones stayed "classy."

When he was an attorney and a resuident of one of the reddest states in the nation, he went after and prosecuted the Klansmen who bombed that Birmingham church and killed those little girl, where there was very little symopathy for the bomb victims. And you claim there is "nothing good about Doug Jones?"

How about he wasn't accused of objectifying and chasing young girls, wasn't on a police watch to keep him away from malls and places where kids congregated, and offered no history of scandal or wrong doing?

And why did the POTUS warmly welcome him to Washington in tweets and phone calls??

C'Mon Anon, get over it and him. About what are you really worried?