Sunday, March 4, 2018

More GSE Stuff and less Trump...

GSE Things I Think……

On GSE matters, my analysis sometimes hits but, occasionally, I miss…..badly. It’s tough work being a GSE seer (no benefits, no contractual time off, or even healthcare!!).

But I tend to write and analyze instinctively, taking a fact or item from here and one from there, trying to weave a plausible explanation for blog readers based on my history.

I’ll repeat I don’t believe this Congress’s Republican majority is up to any major GSE reform legislation in 2018, given the complexity of the mortgage issues, the chaos and market upheaval embedded in what the anti-GSE interests are seeking, the fact that it’s an election year and the GOP burden of running on Trump’s record is difficult enough, added to the core reality the GSEs are working well and no major operational issues exist. Consumers can get fixed rate financing, generally, from lenders in their own communities at reasonable prices, while credit requirements seem to be slowly widening meaning greater eligibility.

Not that GSE risks have disappeared, they haven’t. Watch this week, if/when Senate Banking does a “reg reform” bill, which could draw something mischievous which seeks to pre-empt any 2018 executive/regulatory initiative.

Sen. Bob Corker (R-Tenn.) to the delight of many in the volunteer state--not the least of whom was Rep. Marcia Blackburn (R-Tenn.) who wants Corker’s job--decided to stick with his plan to retire this year, but he still could make trouble.

However, the general Fannie/Freddie terrain placidity and the absence of jarring headlines, social media emergencies, artificial budget deadlines suggests to me no major congressional “GSE reform” restructuring will happen in this even numbered year.

Now, if we just can get some decent basement furniture for HUD Secretary Ben Carson (and satisfy Mrs. Carson), that department can get back to doing nothing and staying out of the headlines competition with other White House humiliations and dishonors.

I am not going to comment on GSE legal developments and court cases because there is nothing I can add to my belief that the GSEs will get little support from the federal judiciary until the Treasury takes some action to signal it wants Fannie and Freddie around long term. Yes, judges and their clerks read the newspapers and view social media just like others.
Still, reports of Judge Margaret Sweeney’s picture showing up on DC area milk cartons do suggest fears of her disappearance.

GSE fans and GSE Foes

There are two groups of GSE supporters—with the twain occasionally overlapping—investors, who want to see GSE common and preferred stock rise in price, so they can cancel book losses or even make a profit on stocks they’ve held for years and/or bought when the bottom fell out of Fannie and Freddie stock 10 years ago.

The second group is systemic admirers--where I firmly stand (although I also am an investor but with a basis that would not shake my net worth if it disappeared)--those who believe the GSE-dominated secondary mortgage market truly is the most efficient, fairest, and practical method of delivering well priced (for all concerned) mortgage credit to every community in the nation, through a network of primary market lenders present virtually everywhere or via the Internet.

For me, an added bonus is that Fannie's and Freddie's operational systems force the nation’s largest lenders (the “bank financial establishment”) to adhere to the GSE underwriting requirements if they want Fannie and Freddie to bless their mortgage loans converting them to GSE securities.

As long as Fannie and Freddie blunt that inclination, banks can’t run mortgage-rogue, which they surely would with no restraints.

The GSEs act as governors on what I contend is the big banks natural inclination to cut corners and force decisions on consumers which mainly benefit the lender/bank. That control is one of their major fears.

The GSE investor crowd seems to be the lightning rod for negative media and congressional attention largely because some of them include hedge fund interests, while the second group of F/F systemic supporters get steamrolled because most critics don’t understand how the market works or how it did work before 2008. All they know is “GSEs bad.”

That hostility also is ironic because the anti-GSEs battalions have tons of multi-billion dollar financial institutions and their equally fat and wealthy senior execs—whose combined wealth overwhelms the GSE investors--but those folks never get GOP mention or abuse because critics act ignorant if their true objective.
In seeking to vaporize Fannie and Freddie, despite the MBA’s and bigun's rhetoric, the TBTF banks want the GSEs revenue and market place. It’s a simple explanation. The battle is all about the money!!
Triple irony is that most GSE Hill critics lamely would claim, “Well Fannie and Freddie are part of the government,” without realizing that the big banks get and always received far greater subsidies from Uncle Sam than the GSEs, making them far more red, white, and blue. . But try and explain that to Congress, since most banks don’t accept that reality and never inform Congress of that bank business fact!

And that problem potentially worsens, since most of the GOP-drawn GSE alternatives come with even grander federal loan loss guarantees for bank mortgage backed securities. But what’s another hundred billion or so to the guys who recently blessed two trillion in additional red ink with their “tax reform” giveaway.
The  congressional GOP seems to draw distinction between which zillionaires they like and admire and those they dislike and jape, i.e., the hedgies and others who bought GSE stock when it was dirt cheap, hoping it would grow in value. (That used to be country club Republican behavior, but I guess not anymore?)
Systemically and analytically, I most vexed by GSE opponents who can’t describe what F&F do but believe, instinctively, whatever the GSEs do and the way they do it is wrong. The latter’s ability to reason is badly dysfunctional.
I keep trying to think of ways to get through to these elected representatives to focus on, operationally, on what’s best for their constituents, not just on how much the big banks can contribute to their political campaigns.


Two themes seem to be bobbing up and down in DC, in various manifestations, and to me that’s a very good thing.
The first is the “bad guys’” focus/fear that either FHFA Director Mel Watt or Treasury Secretary Steve Mnuchin—separately or together (I just can’t see Watt moving dramatically without Mnuchin agreement) will move through executive or regulatory action to provide GSE relief and therefore remove the restraints allowing GSEs greater freedom to serve the nation’s mortgage finance system. (See legislative caution mentioned above.)

In past blogs we’ve noted that is hopeful (for the “good guys”) and why the optimism exists, i.e. Congress incapable of slicing the GSE Gordian Knot. It’s heartening, but never underestimate the power and tenacity of the big banks and their allies  to suborn any GSE positives.

For me hope #2 is Mnuchin coming back to the GSE warrant values and the $100 Billion plus in fresh revenue it represents for the Treasury, and its “General Fund,” if this Administration chooses in a meaningful way to keep F&F alive. (Just like Watt needs Mnuchin’s blessing, Mnuchin needs Trump’s approval.)

The Treasury and the White House would gain a big slug of money soon and perpetuate a fair and efficient GSE system, which currently is appropriately regulated, although slightly overdone and rigid. The GSE system, for nearly 50 years, has been good for consumers,  the mortgage finance system, and its professional players. The post 2004 segment was an aberration, easily explained by the dastardly political interference which deprived Fannie of experienced and proven leadership as subprime lending heated up. (Read “The Mortgage Wars” for the story.)

Again, despite their constant laments, big banks have earned plenty of money in the GSE dominated secondary market, while they own the primary market.

Another plus, but just beginning to blossom, is the echoing of an argument that Tim Howard and others have made. “Future investors in mortgage debt, securities, and guarantor operations will be quite leery and most hesitant, if the federal government fails to address and re mediate the Fannie and Freddie precedent of Treasury blithely aggrandizing billions of dollars from core mortgage market principals and keeping that money.

Interest rate and credit risk are home loan market issues, but government theft by political fiat is tough to predict and protect against, strongly arguing to crucial required mortgage participants, “Just don’t gamble with that possible jeopardy” and look elsewhere in the economy to put your money.

Staying (largely) Quiet on Trump

I promised myself and others I would lower the volume on my President Trump objections and I will.
I just hope the nation sees and appreciates the institutional chaos, as well as political and policy damage, this tweeting shoot from the hip President is inflicting on the nation and world.
The government is filled with personnel vacancies and the Trump Administration can’t attract quality people to fill them.
Just read the papers, watch TV (seldom FOX) and contemplate if the guy at the top is damaged and inoperative, aren't multiple segments of the federal government likely to be as well?
Where do we see that stability, not the White House or any of the domestic agencies? We’re hoping it exists in the judicial, FBI, and national security agencies, but what if things are shaky there, as well?
These anxieties also are happening among Republicans, just waking up to DJT’s worrisome antics, whether it’s gun control (he’s been on several sides of this matter), military parades, Jeff Sessions, $25 Billion for the “wall,” immigration matters, Hope Hicks, nepotism, i.e. Ivana and Jared, foreign trade, unlimited presidential terms,and more.
Please stay tuned and dedicated to playing your role in our democratic system, meaning educate yourself and vote!

Maloni, 3-4-2018


Glen Bradford said...

look at the screencapped mnuchin quotes i the S&C.

this is a recapitalization--- after this bill works through... sometime in 2018

gse jumpstart already expired, why would they renew it now?

they control the ADMIN... you act like repubs and democrats are going to come together and prevent a majority administration from implementing its own solution

Unknown said...

Awesome as usual!

Anonymous said...

"Now, if we just can get some decent basement furniture for HUD Secretary Ben Carson (and satisfy Mrs. Carson), that department can get back to doing nothing and staying out of the headlines competition with other White House humiliations and dishonors."

FHFA has direct origins in HUD and Housing is the core responsibility of of HUD as the name suggests (US Dept of Housing and Urban Development). FnF were part of HUD and never part of Tsy. Despite this, currently HUD is sitting in the back seat and allowing TSY to destroy affordable Housing including FnF in favor of loan shark banking.

When will HUD Sy Ben Carson say something about ending fake and lawless conservatorship?

Bill Maloni said...

Glen--All the facts in the world, most of which we, i.e. "the good guys," have, and what's it done without the politics supporting us?

There's a reason why they put the worst at HUD.

It's all Mnuchin and what the warrants represent. If that doesn't sway him and his boss, nothing will.


Anon--See my answer to Glen. Carson has no real influence in this Admin or on the Hill.

Repeat, it's all about Treasury.

Unknown said...

Your last paragraph is an absolute head scratcher, it doesn't fit anywhere in this post, other than to say. "as an aside, I hate Trump"

Mike Cain said...

Bill Maloni's

Fist time I read any of your blogs. Found it informing and interesting. I would like to respond to your analogy on Trump, you say

"I promised myself and others I would lower the volume on my President Trump objections and I will."

If you truly want others to honestly respect your views of what you are blogging you should have omitted the Trump bashing.

I am bipartisan, having voted many different parties in my 52 years of life I truly believe that this F&F fiasco would be a much tougher road regarding a positive outcome for home buying taxpayers and investors if a Democrat would be in power. Your last paragraph could have been omitted, it really does not add anything of value to what I thought was a well written blog. Just my opinion, take it for what it's worth.

Mike Cain, Virginia Beach VA

Bill Maloni said...


Thanks for reading and commenting.

I don't know if you are a regular, but in past blogs I have vented--mightily--my frustration with the President, his policies and programs. I am not a fan. I think he is a destructive personality. (See hsi tweets today about BHO and HRC. He's the Presidednt and they're out of office. He's won, get on with your day job!)

The blog's concluding thoughts--which represent maybe 200 or so words in a 1600 word blog--is a placeholder and prompt for readers.

It's a reminder of why the one democratic thing we can do is vote against DJT's congressional (and state) enablers from office and, eventualy, go against him, if he chooses to run again.

Anonymous said...

I hated Obama so much for the GSE issue that I did not vote for another Democrat Hillary.

Bill Maloni said...


Not a surprising statement. I'veheard it often.

What I've since come to realize is that many citizens feel just as strongly about Trump that many of you felt about Obama.

That's our national burden right now and, somehow, we as citizens need to figure out how each of us can reduced that chasm, because the leadership isn't coming from the White House or Captal Hill.

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