Do you think they will fight??

GSE Stuff, with a DJT connection

With no significant GSE news happening—(I don’t consider Jeb Hensarling’s new bill last week or phony GSE reform hearing “significant” or even Freddie’s Don Layton leaving his job He’ll easily be replaced)-- I thought I might speculate on what could be a major GSE political/legislative issue a few months down the road in 2019.

For this contemplation and exercise, I have to give credit to Paul Muolo, Inside Mortgage Finance’s (IMF) primary GSE editor/reporter (who I try and tease mercilessly over his writings about a certain trade association and its past leadership), but who raised this possible clash in a recent column and got me to thinking.

So, here is one observer’s take.

We've been told President Donald J. Trump is not a misogynist or racist and he's never ever used the N-word—just ask his staff sycophants, Sarah Sanders, Kellyanne Conway, or the POTUS himself.(Although as reports from Bob Woodward’s book suggest, the President likely has a “potty mouth.” as my grandkids would say.)

The POTUS/Rep. Maxine Waters (D-al.) Relationship

But what happens next January if the Democrats somehow win the House in November and—OMG--Rep. Maxine Waters (D-Cal.) becomes the next Chair of the House Financial Services (or as I often call it, "Banking")Committee??

This environment could matter “muchly” to the GSE crowd.

Would Trump stay on his staff-reported “high road” and continue to avoid the vile stuff his folks claim he never says/does or would he indulge in the opposite and get cantankerous, ugly, and hostile. (I hope he doesn’t and not just because whatever he says often gets taped or leaked to the media.) 

Back to the Waters’ possibilities. 

Could Trump and his Administration ever work cordially and respectfully on financial services or GSE matters, with Waters, who is an outspoken Black woman, representing heavily minority Los Angeles, California, who in the past has called DJT “Putin’s apprentice,” while endorsing publicly confronting and challenging President Trump’s senior appointments whether they are inside their offices, dining out with their families, or at other events?

Waters also has championed Trump’s impeachment, among her other anti-Trump tirades.

  

For his part, President Trump alleges: Waters is “crazy”; “one of most corrupt women in politics”; has “a low IQ,” and waves variations of these Waters’ putdowns like a red flag at many of his campaign events, to applause/cheers from the MAGA crowd. (What do you really think of Ms. Waters Mr. President?)

The positional juxtaposition of these two protagonists—if Waters gets the Chairmanship--is not exactly a set of circumstances Trump respects or in the past has been comfortable managing.

All of that might make it a little tough for the President and/or more likely Secretary Mnuchin to sit down and negotiate with Waters on the many banking, financial service matters that require House Financial Services Committee approval.

Waters—if a Blue Wave gives her the Committee chairmanship--already has announced she will give high priority to unresolved GSE issues, which I believe means considering legislation to fix the problems associated with both the Bush and Obama Administrations treatment of Fannie and Freddie and their shareholders, and likely demanding more financing of affordable housing.

The Congresswoman likely will seek a way to get copies—through Treasury—of Trump’s tax returns.

She has not been a friend to the big financial institutions, which throw tons of campaign contributions to senior R's and D's on her committee, possibly earning Trump and GOP anger if the banks give the new Chairman lots of cash.

Plus, GOP and Democrat leaders (Speaker and Majority Leader) like to name freshmen to Financial Institutions, because it is so easy for them to raise campaign funds from the many moneyed interests (banking, credit unions, non-banks, insurance, securities, housing, consumer, agriculture, etc.) that look to the Committee for legislative relief or support.

Those campaign cash spigots never seem to turn off and for decades committee hearings which produce major partisan clashes—at least when bank interests are in play--have been dubbed “the best free show in Washington.”

If she succeeds, I expect Waters will inherit all of that.

About Fannie and Freddie, per se, here is what Waters, ranking Committee Democrat said during a Jeb Hensarling (R-Tex.)  “stacked for the bad guys” * GSE hearing this past week.

Rep. Waters:

“I am in support of responsible efforts to reform our housing finance system. I believe we must evaluate what Fannie Mae and Freddie Mac have done well, as well as areas where the system still needs improvement and reform. Contrary to the claims of the Majority, Fannie and Freddie did not cause the crisis. The Financial Crisis Inquiry Commission and others have made that clear. As we all know, the crisis was driven by predatory lending, the private market packaging those toxic, risky loans into securities and then selling those securities to unsuspecting investors. Fannie and Freddie did not drive those actions, but the events that transpired during the crisis made clear the need for their reform.” 

“While the Republican-controlled Congress has yet to act, the Federal Housing Finance Agency (FHFA) has taken significant administrative steps to improve the safety and soundness of the enterprises and reduce risk to taxpayers.” 

“As we consider housing finance reform and work to address the structure of our housing finance system, it is a priority for me to ensure that underserved borrowers and communities are not overlooked. This means that at the heart of any reform proposal, we need a comprehensive strategy around access to affordable mortgage credit, as well as access to affordable rental housing.”

(* "Stacked" because three of the four witnesses were longtime GSE foes,  Jim Lockhart, Phil Swagel, and Ed Pinto.)

CRA Squared?

Without asking her or her staff, I’ll bet I know where a first time “Chairman Waters” would line up on a suggestion I made a few blogs ago, i.e. that the very weak Community Reinvestment Act (CRA) be enhanced so that commercial bankers take on real--not illusory— low-income lending responsibilities and generate sufficient mortgage loans to low-income families in the neighborhoods where they have offices.

Right now, those banks—under CRA--have no numerical, percentage of business, or formal obligations, merely their regulators measure their lending in communities where they have offices as one component of a mix “taken into consideration” when depository institutions seek to branch.

Despite predictable big bank bitching, that’s not much of a hurdle.

Currently those institutions just are “encouraged” but not mandated to do anything, with the only sanctions being possible rejections of applications for failure to serve their old branch neighborhoods.

Since a “new” or reorganized Fannie and Freddie certainly will have national affordable housing goals, why not statutorily integrate that GSE exercise with companion requirements for large banks to produce a percentage of those loans and—simultaneously--reduce the possibility of bank discriminatory credit practices against low-income neighborhoods??

This could be a Maloni-strawhorse, since no such legislative proposal exists yet—and the House still is red not blue--but it's not hard to see a Committee Chair positioned as Waters could be-- and believing what she does-- considering some combination of these options.

Note: The above factors could cause the WH to work largely with the Senate, avoiding Waters and the House until absolutely necessary, or—on GSE matters—just move forward with an executive plan which doesn’t require a legislative blessing.

Major Committee Loss…IMO

When Congressman Mike Capuano (D-Mass.) was defeated last week in his primary election, the Financial Services Committee lost a consistent and informed GSE advocate. I have no idea how good his successor will be, but I doubt any replacement will feel as strongly and positively about Fannie and Freddie as did Capuano.

As the worm turns, "the “Industry Letter”??

Great work all hands to generate a strong interest group stakeholders’ letter to the Treasury and Congress supporting maintenance of the GSEs as bulwarks in the US mortgage finance system.

It’s rumored the effort was led by the “Big Three,” the National Association of Realtors (NAR), the National Association of Homebuilders (NAHB), and the Mortgage Bankers Association (MBA), with 24 additional pro-housing groups and civil rights organizations signing the letter. (I hope the MBA’s endorsement signals Bob Broeksmit’s seasoned hand.)

But, as nice as those multi-signed communications are—having been involved with dozens when I was an active lobbyist--they can’t substitute for those organizations, all, spending time and effort sending their lobbyists and members to the Hill and to Treasury, pounding the pro-GSE message--when it comes to Fannie and Freddie efficiencies and consumer virtues-- into some of the policymakers’ closed minds.

I’ll track what follows. While the endorsement is nice to have it's much better if it reflects big trade association fresh thinking and intent to act.

Jacobs versus FHFA

An audio recording of last week’s oral argument before the Third Circuit.  http://www2.ca3.uscourts.gov/oralargument/audio/17-3794DavidJacobsv.FederalHousingFinanceAgency.mp3

Maloni, 9-10-2018

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