Monday, February 12, 2018

Could Mel Watt Save the Day?



GSEs, the MBA, & President Trump




The Mortgage Bankers Association (MBA) and David Stevens their President might be desperate as their very loud voices to crush the GSEs and aimed at Capitol Hill have produced no substantive/immediate response, save huzzahs from the usual suspects.

As most people know, the mortgage lender trade group and its leaders have put a lot of time, effort, money, and skullduggery into destroying the GSEs, which is not surprising given the dominance of the nation’s largest banks among the MBA membership.

But the same actions are very surprising when you realize how much MBA members and lenders throughout the country—big and small--rely on Fannie and Freddie to provide liquidity, manage lender mortgage volumes, and securitize all the loans the banks (large and small) and other mortgage providers prefer to sell or keep on their books as MBS.

(I can’t believe that years of chaos, confusion, and transition, which such a massive legislative transformational shift would produce, is worth more than the “bird in the hand” which the GSEs represent for the MBA and its dues payers. That’s one of the reasons I don’t believe that the MBA rank and file are onboard with Steven’s’ plans.)

To me, the MBA’s fundamental and selfish position, which the trade association speaks about only in code—“The GSEs have crossed a bright line separating primary and secondary mortgage markets” (Huh, the GSEs don’t originate mortgages and their regulator—with the help of the Treasury--sets their guaranty fees!)-- is Fannie and Freddie have too much influence over the loans MBA lenders originate in the primary market which smoothly enter the secondary market where GSE rules dominate. That operational reality has been a very positive national phenomenon when you compare GSE default rates with those of other mortgage guarantors and portfolio lenders.

When the GSEs in 2008 were put into conservatorship by Hank Paulson and the last Bush Administration—with a follow up matching repressive Obama Administration regulatory performance--the GSEs were told to prohibit lenders from processing  “subprime loans”  through the F&F underwriting and securitization windows—and they have succeeded, impressively in doing that.

For years, the MBA has lined up behind every major (and minor) legislative effort to screw the GSEs, including all the variations of the Corker-Warner bills as well as the Milken Institute Michael Bright and Ed DeMarco schemes (and anything Jim Parrott and Michael Stegman endorse), while denying their intent and actions.

Those endorsements were set up and justified  by the over-hyped  MBA “Task Force” deliberations and subsequent report, rumored to be produced from a Wells Fargo provided wish list that backed all sorts of big bank priorities, which at the end of the day meant no more Fannie and Freddie spoiling the MBA’s—and big bank-- soup.

In the past two years, while the MBA mostly has looked to Capitol Hill for relief for their members, the MBA and its leaders are beginning to see that Congress may not do their bidding, despite the continued efforts of the retiring Sen. Bob Corker (R-Tenn.) and Rep. Jeb Hensarling (R-Tex.).

So what could be worrying causing sleepless nights at MBA HQ these days?

Maybe the fact that most in Congress aren’t listening or have many other legislative priorities on their agenda.

Then, how about this little nugget from the National Association of Mortgage Professionals publication??? (See below.)

Fannie and Freddie May Be Totally Revamped in the Blink of an Eye
You may wonder how Fannie and Freddie could be totally changed in a matter of days considering Congress has been stalemated for years on that issue.  That is only the case because Mel Watt, FHFA Director, wants Congress to make the changes.  Next year, President Trump gets to appoint a new FHFA Director who may decide he wants to completely change them.  We have focused on the power of the CFPB Director but the FHFA Director is another unaccountable head of an “independent agency” that can do whatever he pleases. That became abundantly clear in a House Financial Services Committee hearing today featuring Treasury Secretary Mnuchin.  The Director has the unchecked power to take them out of conservatorship or completely change the way they operate. 

Wow, how about that possible gut punch to the MBA’s bread basket??

Could Mr. Stevens and the MBA be displaying its fears that Federal Housing Finance Agency Director (FHFA), Mel Watt—whose term expires in early 2019 and most likely won’t be reappointed by President Trump—has all the legal authority in the world he needs to structurally change the GSEs, end the net worth sweep and restore Fannie and Freddie to their more traditional privately owned roles??

 Will he or won't he, if Congress folds its cards?

It’s hard for me to believe that Mel Watt on his way out the door would shake things up in that manner, but who knows?

He might if he believes his decent legacy of “regulating’ the GSEs could get flushed away by selfish, big bank driven legislation which only rewards the rolling-in-cash obtuse large financial institutions but not the nation’s secondary mortgage market operations or certainly its mortgage consumers.

C’mon, Mel Watt consort with Steve Mnuchin, let him get his $100 Billion plus for Treasury’s worries over deficit spending, while you breathe life into a secondary mortgage market pair that has and will do a better job than any combination of new big bank creations, plus the sleepy-eyed Government National Mortgage Association (Ginnie Mae), which also means the squirming/sticky hands of Michael Bright and Ed DeMarco.


This Week in Trump World


For me, it has been very difficult to concentrate on GSE issues—which means the fate of Fannie Mae and Freddie Mac—while so much else has been going on in DC with the President and his Administration, both of which seem to careen from one calamity to another.

After more than a year in office, the crises seem never to stop, with major allegations from one mess or another accusing senior Trump officials—and then the sloppy Trump handling raising further doubts--as they try and keep up with the mercurial President who seems to be haunted by his own pantry of skeletons and reacts defensively—not like a thoughtful, responsible leader —when one of his team meets trouble.

There is nothing I can or will add to the Rob Porter screw-up which exposed both the President’s lack of understanding/sympathy for the female victims of abuse and the number of WH execs—who handle top secret information—without the requisite security clearances. The GOP would howl if that were Obama’s team.

I would share some different perspectives with those who look at Washington and see nothing wrong with how our President and his team are dealing with the major challenges facing the United States, domestically and internationally.

I’ll share two thought provoking vignettes and an op ed column, describing stuff going on in the White House and behavior from our President.

The first is a quote from a Vanity Fair article—before the Rob Porter incident-- about how John Kelly, Trump’s Chief of Staff, manages his boss.

According to a source Vanity Fair describes as “Republican close to the White House,” things are not, in fact, okay. That individual rather colorfully summed up the situation, telling the publication, “It’s like Kelly views Trump as a mushroom. He wants to keep him in the dark and feed him a bunch of s**t.” 
The second comes from a POLITICO reference to a new book by Democrat political consultant Lanny Davis. 
SNEAK PEEK – LANNY DAVIS in his new book “The Unmaking of the President 2016: How FBI Director James Comey Cost Hillary Clinton the Presidency”: “In 1984, the psychiatrist Otto Kernberg described a severe form of narcissism called ‘malignant narcissism,’ with personality traits that, in combination, constitute a significant pathology and mental disorder. ... 1. A sense of entitlement ... 2. Lack of conscience and empathy ... 3. A sadistic streak ... 4. Egocentrism ... 5. Grandiosity ... 6. Paranoia ... 7. A manipulative nature ... 8. Project their bad behavior onto others ...” 
Last is a link to Maureen Dowd’s New York Times op-ed, Sunday, February 11. 
Trump Shows Us the Way
https://www.nytimes.com/2018/02/10/opinion/sunday/trump-shows-us-the-way.html?rref=collection%2Fsectioncollection%2Fopinion-columnists&action=click&contentCollection=columnists&region=stream&module=stream_unit&version=latest&contentPlacement=5&pgtype=sectionfront




Maloni, 2-12-2018

7 comments:

Ron Haight said...

Mel Watt if he chooses and has the courage to can be the superhero. Restoring the gses should have bipartisan support and be a win/win for all except the dillusuonal that think the private lenders and big banking could take over and not cause a catastrophy.

Bill Maloni said...

What Ron said!!!

Anonymous said...

If the mid term elections results in more democrats in the house and senate, is it time to buy stock from Fannie and Freddie?

Bill Maloni said...

Anon--Sorry, was away without access to my PC over the weekend.

Maybe, but only if this Admin somehow supports disabling the GSEs, then a majority D's could fight it from one or both houses. But, that's not he future I see (although House or Senate could go D after November).

If there continues to be a GSE Hill quagmire/standoff, I think GSE investors are best served by Mnuchin figuring out a way to turn the Treasury's 79.9% ownership of the GSEs into what likely could be over $100 Billion in much needed revenue for the government, which contemplates the Trump Admin monetizing the GSE warrants it owns and keeping the GSEs alive as privately owned institutions (possibly as utilities).

Major l;egislative rewrites scare me because--honestly--with so few people understanding these institutions and markets, serious errors--from either ideological direction--could foul up the mortgage markets.

(Think Stegman/Parrott marrying Wallison/Pinto....poor baby and poor us!)

Anonymous said...

Hey Bill...what's your read on the latest SCOTUS action we got this week? Thanks for all you do - GW

Bill Maloni said...

Anon--

Just underirds my belief---which was written in my latest 1200 word draft blog that I "lost" when I did something technologically stupid--that the courts will be no help. Lamberth gave them all cover forever.

No action in Congress--thanks the heavens--means it's all on Mnuchin who I hope yearns desperately for the $100 billion plus for the Treasury that returning the GSEs to private ownership represents.

Bill Maloni said...

Please remember all I am a (bad) two finger typist and can't do "spell check" on this site, so eternally forgive my typos!