Monday, October 15, 2018
Kinda like Banks exist but the Comptroller of the Currency and FDIC are specters
GSEs and the Law, it gets “Curiouser and Curiouser”,
Shot for being a sheep or kill them for being wolves
Previous Administrations told such stunners as “ketchup is a vegetable” and “I didn’t have sexual relations with that woman,” plus “Brownie did a great job.” Welcome to the “new” Washington DC or is it Moscow or Pyongyang, where—if this Administration says so—day is night, black is white, yes means no, and the GSE’s regulator ain’t really part of the official federal structure.
Damn!! The government has argued that Fannie, Freddie and FHFA are not the federal government.
I think everyone agrees that Fannie and Freddie are not "the government;" the issue is whether FHFA as the GSE conservator is?
The first GSE financial regulator, the Office of Housing Enterprise Oversight (OFHEO) was created by Congress in 1992. It begat the Financial Housing Financial Agency (FHFA) in 2008 as part of the Housing and Economic Recovery Act (HERA).
Records show that agency started issuing near draconian regulations in 2008.
But in 2012—as the GSEs just started financial recovering—non-existent FHFA promulgated a contrary regulation which “swept” nearly all future Fannie and Freddie earnings (and protective capital) forever, since that money went to pay for the initial government cash infusion a debt FHFA claims never can be amortized, ergo the GSEs always will be in hock to Uncle Sam.
That’s now a $270 Billion swipe for a thief the government says isn’t part of it.
No wonder the American people are befuddled by Fannie Mae and Freddie Mac? Their own elected/appointed federal officials can’t decide or refuse to admit if Fannie and Freddie, i.e. the GSEs, are federal or not, let alone if their debt and MBS is or isn't guaranteed by Uncle Sam?
The answers here seem to be some existential mix of who happens to be in charge of the government when the question is posed and which Senator, Congressman, or agency you quiz?
That ask often produces the recipient’s demand to, “Tell me/us your specific concern, which debate side you’re on, and how much political weight do you swing?”
At that point, you might get an answer?” But soon, government lawyers will fudge Fannie’s and Freddie’s roots, heritage, and ancestry WHEN THEY ARGUE THAT FHFA IS NOT PART OF THE GOVERNMENT.
Yes, you read that correctly.
As GSE Links and Attorney Peter Chapman summed up so nicely in a post last week—whoever is guiding the Department of Justice’s prosecution of the many GSE court cases it faces over Treasury action—wants federal judges and juries to believe the GSEs are not federal instrumentalities and have no congressional lineage, history, or responsibilities AND FHFA IS AN ORPHAN.
(Yay Judge McConnell's whose latest decision sparked this! You go, man!!)
From GSE Links, with some commentary from Peter Chapman. New updates in Fairholme vs. U.S. Peter Chapman writes, “At page 22 (PDF page 45) of its amended omnibus motion to dismiss (Doc. 421) filed in Fairholme v. U.S. on Oct. 1, 2018, the government provides Judge Sweeney with a long list of cases saying Fannie, Freddie and FHFA are not government actors. As you’ve likely read in the past couple of weeks, that uniform holding was disrupted by a decision in a foreclosure-related lawsuit in Rhode Island in August. FHFA wants the U.S. Court of Appeals for the First Circuit to review a recent decision by the Honorable John J. McConnell, Jr., in Sisti v. FHFA, ___ F. Supp. 3d ___, 2018 WL 3655578, slip op. https://ecf.rid.uscourts.gov/cgi-bin/show_public_doc?2017cv0005-39 (D. R.I. Aug. 2, 2018), holding that FHFA is a government actor for purposes of evaluating due process rights and claims under the Fifth Amendment of the U.S. Constitution. Judge McConnell concluded that Fannie Mae, Freddie Mac and FHFA can be found to be government actors for purposes of a due process claim. Judge McConnell’s analysis and conclusion differs from dozens of other court rulings saying the opposite. FHFA says immediate appellate review of Judge McConnell’s decision is appropriate because (i) it involves a controlling question of law, (ii) there is substantial ground for difference of opinion, and (iii) an immediate appeal from the order could materially advance the ultimate termination of the litigation. Opposing FHFA’s request for immediate review of Judge McConnell’s analysis of the law at this early juncture, Mmes. Sisti and Boss say FHFA’s appeal should occur after a trial. Mmes. Sisti and Boss argue they shouldn’t be forced to engage in burdensome piecemeal litigation. In a reply filed today, FHFA counters that the question about whether or not the housing finance trio are government actors is a purely legal question, therefore militating in favor of immediate certification to and review by the First Circuit prior to a trial in the District Court. (See GSE Links for more on Judge John McConnell’s decision and the government’s reaction.)
I KNOW IT’S A LEGAL DISTINCTION BUT THE HYPOCRISY/HILARITY—ON THE FACE OF IT—WOULD BE LAUGHABLE IF THE STAKES WERN'T SO TRAGICALLY HIGH.
We’ve seen decades of the GSEs AND THEIR ATTENUATING OVERSIGHT APPARATUS viewed as part of the government.
In my 50 years in DC, first working on Capitol Hill, then with two federal financial regulatory agencies, and finally 35 combined years lobbying for and writing about Fannie and Freddie, I figure 98% plus of GSE beefs, complaints, challenges, etc. etc. are because the two were perceived/argued to be part of the federal government and/or enjoying government subsidies/benefits that big banks didn’t have (a myth because huge federal bank subsidies exist-- and always have existed in far greater numbers than GSE benefits).
With the Bush Administration’s 2008 “GSE conservatorship,” the GSEs were deemed federal chattel; ill-treated like the proverbial red-headed (federal financial) stepchildren; cut off and demonized, disproportionately punished greater than any US financial institution; blamed for events in which they had a role but not the featured one (see commercial bank $2.7 Trillion PLS activity leading up to 2008 meltdown); and charged double by Treasury the lower interest rate banks were assessed (10% to 5%) for the own unique federal financial support received (the Troubled Asset Relief Program or TARP).
Then, in a bizarre premeditated regulatory twist—just as they were about to turn profitable (as the government knew)--Fannie and Freddie had virtually all of their prospective earnings (and capital) confiscated/expropriated to repay debt that never could be amortized, under a 2012 “sweep” arrangement (Senior Preferred Stock Purchase Agreements or SPSPA), which now could unravel since a jury—as opposed to a cabal of judges—gets to see the facts and hear the real story of conservatorship. (See recent Judge Lamberth ruling mandating a jury trial.)
Ergo the need for the government to argue FHFA is not part of it!
It has worked for them arguing against Fannie and Freddie, why should the government's attorneys stop now trying to apply the same argument to the GSE regulator?
Why the history of factual chaos and distortions??
How many Members of the House and Senate understand what statutory national role the GSEs play or that Fannie’s and Freddie’s $5 Trillion in assets and liabilities are not on the federal budget, let alone why?
The Conservative press, think tanks, business antagonists, and mostly R public officials have pummeled the GSEs for a variety of false and spurious federal ties to justify their desire to cede the nation’s secondary mortgage market to the nation’s behemoth financial institutions.
Their anti-GSE lies flow easily.
Fannie and Freddie critics display little thought for stopping their favored ersatz GSE replacements, which would repeat many of the grievous errors the same big bank/rating agency/investment bank cabal committed less than 10 years ago.
But that hasn't stopped the “bad guys:” from perpetuating any myth to bury the GSEs.
Those F&F institutional troublemakers also denigrate past GSE successes—offering some hoary self-serving explanation (ironically, often tied to the GSEs red, white, and blue history)--and ignore or distort why the home-buying public seems to like having Fannie and Freddie around, i.e. GSE efficiency, lower prices, market access, consumer fairness, reliability, and more.
I never thought I root for angry GSE bad guys who call all things GSE part of the government, but I will now if federal lawyers—to fend off GSE plaintiffs--have decided to ignore history and allege the FHFA is not part of the federal apparatus.
I guess they also want us to believe –weirdly--all the Fannie/Freddie shade thrown for decades have been misdirected, a mistake, wrong, an error of gigantic proportions—even when pitched by many officials in Treasury and DoJ.
Yes, since a law passed in the 1980’s GSE every debt instrument and mortgage-backed security (MBS) carries some version of (paraphrasing), “This security is not the full faith and credit of the federal government,” but nobody--even my most diehard allies—ever suggested the GSE regulator is a fatherless alien.
Yet, the GSEs now finance a greater part of the nation’s mortgage market than they were eight years ago.
But, we’re asked to believe their congressionally designed regulator—which is paid for by the GSEs, is under the congressional appropriations process, and told to report to Congress—has no nexus to the government or anything else. Bwah-ha-ha-ha!!
But, the government keeps telling whatever tall tales it needs to, to stay one step away from a major pro-plaintiffs decision. Will future regulatory judicial appeals have to be made to Martians? (There’s a Uranus joke here somewhere?)
There you have my latest rant--or hopefully don’t have it--because I hope some future jury (or judge) won‘t buy the government’s claim and will reach the most obvious answer, which is that the GSEs and the FHFA are soaked in red, white, and blue, and he/she/they must return Fannie and Freddie to practical mortgage operations.
The current DoJ hopes to have them disemboweled or legally neutered, after arguing disingenuously the GSEs just are shadow regulated orphans which showed up in DC one night after falling from the back of a garbage truck and their overseer is an extra-terrestrial ghostly non-entity.
Tuesday, October 9, 2018
GSE News is thin....and we suffer a terrible Loss
While most of the GSE plaintiffs have added to their cases the Lambert opinion calling for a jury trial, little has changed as the government seeks more time to plot its next moves against those remaining Fannie/Freddie court cases, that seek relief from either the conservatorship, the PSPA “sweep,” or both.
A longtime acquaintance—reflecting one of my fears—suggests scuttlebutt is Ginnie Mae’s Michael Bright is prepping himself as is he soon may be nominated for the Directorship of the FHFA and –if that happens—still be permitted by the Trump Admin to hold onto his current Ginnie Mae job, as well.
Why waste a steady GSE critic?
The precedential reason why that might work for this White House is the dual role OMB Director Mick Mulvaney has spent as acting head of the Consumer Finance Protection Bureau (CFPB), dismantling as much of it as he was able until his anti-consumer successor awaits final Senate approval.
For months, Mulvaney has worn two hats, torturing CFPB and its allies, and toiling at his day job presiding over the Trump budget concerns and pooh-poohing all the Admin’s red ink generating activities. The latter is a toll on our kids and grandkids, which grows daily as the Republicans in charge of the House and Senate put in place more deficit spending and tax cut plans.
Bright has been a major activist for large doing away with Fannie and Freddie and substituting a larger and more active Ginnie Mae, despite ignoring the many problems associated with thrusting this sleepy government agency, with no institutional experience—let alone depth of talent or even employee numbers—in securitizing non-government insured and guaranteed mortgage loans—not the large and more numerous conventional financing (a mortgage industry technical term)--which have been the exclusive province of Fannie and Freddie, while Ginnie contented itself with its sole mission of packaging government-backed mortgages, with most of the front end and a lot of the back office work done by mortgage lenders not Ginnie staff.
That’s the Bright dream, it has his name on it, when he was employed elsewhere and working with and for people who did not have the consumer’s best mortgage execution top of mine but were/are desperate to gut the GSEs.
Last week, a wonderful, beautiful, intelligent, thoughtful, supportive and dedicated wife, mother, sister, volunteer, and friend, was taken from us far, far too early.
Three hundred people attended her services, cemetery burial, and went to her home to celebrate her life. Each memorial segment superbly conducted by her brave and grieving family with the grace and class she epitomized. Abby, your husband, children, grandchildren, sibs, their loved ones, as well as your many, many friends—and the senior citizens mishpucha you succored and sustained—deeply/dearly will miss you.)
Even at such a sad occasion, I engaged in one non-funereal thought/dream/fantasy, after seeing dozens of current and former Talented senior mortgage professionals collectively grieving.
There were multiple ex-CEOs, CFOs, Marketing and Credit EVPs, Single Family and Multifamily experts, several lawyers, General Counsels, Communicators, women and men of all ethnicities, part of a prior era’s dream team.
I felt if I could gather them as a group, walk them into Fannie Mae, today, they would have it running precision smooth for our country, if permitted to employ all of their mortgage finance experience and entrepreneurial skills with minimal regulatory interference.
Brett Kavanaugh’s wife and I cross paths (or packages)
After returning from the sad experience discussed above, I found a package left on our front porch.
We get lots of packages, tons of packages, and--because there are two houses with the same numbers in their addresses on streets either side of us--we often get packages meant for other families and not just Mrs. Maloni and me, whose combined habits can wear out delivery services.
This was the case last week, as I glanced at the box, saw the common numeral as ours in the address, noted it hadn’t been addressed to any “Maloni” and decided I would leave it undisturbed until the next day and take care of it with the local community office identified on the label with the same shared number as our address.
When I went out the next morning to get the newspaper, I stared at the box and noticed the addressee was “Ashley Kavanaugh,” a name I recognized as the wife of the Judge and while the labels were formal, there was handwriting scrawled on the package suggesting “open with care.”
I may have come to town on a potato wagon, but not the night before.
Cue my paranoia!
I hurriedly ran from the package on the porch, went inside and called the local police and in less than five minutes the Chief was on my porch, with one of his guys, eyeballing the package.
After perusing it, he suggested I stay in the back of the house until “they” determine what was in it. Since it was no time for amateur hour, the Chief proceeded to call the US Marshall’s office, which I guess is the explosive tech experts.
I stayed far back in the house, away from the front porch, often on the second floor, until the package was removed.
The Chief later called to assure me there was nothing dangerous in the package, but didn’t tell me what was in it. That worked for me.
The POTUS and Judge Kavanaugh
I wrote a draft blog about this matter a week ago—when it was front page--intending to include a lengthy piece in the newest blog, but decided to cut it short, since everything had been said, on both sides, with Kavanaugh now approved but still trailing smoke.
I have no idea who was right when Dr. Ford first testified and Judge Kavanaugh followed, each delivering conflicting statements. Neither side nor their advocates would back off.
But, I do fault the President for not standing up and providing leadership the moment he saw the nomination hit the skids and take on its hostile controversial form.
Donald Trump could have gotten almost any candidate he wanted on the Court, had he quickly moved away from Kavanaugh.
Instead, rather than use this evolving ideological warfare to rise above it and display the needed presidential character our nation seeks, President Trump failed, chose to stick it to his opponents, and threw gasoline on hot coals by ridiculing Dr. Ford during a campaign trip.
There was nothing in Brett Kavanaugh’s judicial history which made him head and shoulders above any of the other members of the deep GOP bench the Republicans can turn to for judicial candidates.
The President could have pulled the Kavanaugh nomination—because of the flap-- and instead appointed any one of those deserving GOP judges/lawyers to the SCOTUS and still achieved what only really concerns him, a steady vote for the social, political and commercial positions his base supports, meaning a guaranteed fifth vote against any and all governors or filters on this Administration’s financial, consumer, gun control, immigration, environmental, and broader healthcare limitations.
Another lost opportunity!
Monday, October 1, 2018
Did the “Good Guys” Finally Get a Court Win??
It would appear that way.
Yay Judge Lambeth…I think.
Last Friday, Judge Royce Lamberth—the infamous and original “GSE Hanging Judge” rejected three fresh plaintiffs’ arguments in his latest ruling but OK’d sending a fourth to trial.
OK, but bang the drum slowly!
Lamberth was a little murky in his overall commentary, yet he did open an important door to a possible resolution—the possibility that a jury will reach a different conclusion than the previous GSE cases heard by a single judge or appeals court judges
I am admitted cynic about legal GSE victories—because they’ve been absent or pyric-- and I don’t pretend to comprehend the interstices of what Lamberth decided, except for sending one issue to trial where plaintiffs’ facts heretofore denied by the federal government can be presented.
One way to share/explain what happened with Lamberth—which still is open to some confusion, save for the future trial—is to post a link to Tim Howard’s blog where questioners and Howard have commented in rich detail on Judge Lamberth’s finding.
My one true, additional offering, based on what some smart people have told me this past weekend, is that there are major investors who are ecstatic about this latest Lamberth action. (They trust juries more than judges.)
Some GOPers Never Get Any GSE Smarter, Just IQ-Molt in Place
I first met French Hill when he was a Senate Banking Committee staffer in the early 1980’s, working on GSE issues for Sen. John Tower. Hill was a smart, affable, bubbly fraternity guy (like so many Republicans), but dead set against anything Fannie /Freddie and active in his efforts to throw as many obstacles as possible in our way (“our,” since I was an active lobbyist back then, working with Hill and others).
After French left his committee job and worked for a while at Treasury and elsewhere, he went back home founded a bank in Arkansas, later sold it for a huge profit, and got elected to the House of Representatives.
I lost track of him until he returned as a Congressman from Arkansas a few years ago and wound up on the House Financial Services Committee, still dogged and ineffectual in his opposition to all things GSEs.
Recently, this former Senate staffer, Treasury official, and banker, penned this article--sometime before last week’s GSE Committee hearing—to which I wrote the following response (that appears here as an “original” because Hill’s chosen venue had no section for comments).
POOR, POOR FRENCH!!
My French Hill response.
Poor French has been on this "kill Fannie and Freddie" kick since he was a Senate Banking Committee staffer for Senator John Tower (R-Texas) in the 1980”s.
He's was wrong then and continues to be factually wrong today. Plus, it appears as if he's failed for more than 35 years in his quest to abolish the GSEs from the nation's mortgage finance scene.
Let me employ some of his own written words to show you how vacuous they are and he is, worse now that he's a Republican Member of the House Financial Services Committee, which among others things has GSE jurisdiction..
Here's a sentence/paragraph Rep. Hill wrote:
"The longer they (the GSEs, Fannie Mae and Freddie Mac) sit in conservatorship, the more taxpayers must pay."
Really French, really??
Someone might want to clue this self-appointed mortgage finance solon that: 1) the GSEs—not the government, pay for their own overhead, and 2) since 2013 Fannie and Freddie have pumped some $270 Billion into the US Treasury—not the reverse--more than repaying the $190 Billion forced on them in 2008 by Treasury Secretary Hank Paulson and the Bush Administration, under very questionable surroundings. (See recent Paulson comments below.)
Those circumstances still are the subject of several large and outstanding federal lawsuits against the Treasury and the GSE regulator, the Federal Housing Finance Agency (FHFA). (Re-read Lamberth comments above.)
The single year borrowings to which the Congressman Hill refers, came as a result of the massive GOP tax bill--which lowered all corporate tax rates including those the GSEs pay—and caused a variance and temporary GSE tax restatement from past years (because of the higher rate they paid earlier), an anomaly which quickly righted itself once the new lower corporate tax kicked in and the GSE profits continued, with even more cash going to the US taxpayers.
In a bizarre way, Rep. Hill easily could blame Congress and its rush to cut corporate taxes for that brief GSE tax glitch.
If French was honest, he would note the GSEs are the most tightly regulated mortgage finance entities in the nation and have de minimis mortgage credit losses, numbers that are the envy of the nation's largest banks, which still produce mortgage banking red ink multiple times larger than the GSE numbers. (Their rigid oversight has been one of the reasons the GSEs have been effective, profitable, and able to pay back the taxpayers so much money.)
Plus, in the 10 years, Fannie and Freddie have been in conservatorship, every single busy deal or operational matter has been approved by their regulator, the FHFA, including blessing Fannie’s new building (for which Fannie is paying) that so rankles the Arkansas Congressman. He should know, there is no significant management discretion any longer nor GSE lobbyists making his current job more difficult.
It's a shame and indicative of his bias and his one-sidedness that a sitting US Congressman—who serves on the House’s most noteworthy financial committee--needs those facts pointed out to him.
Was Hank a lying manipulator and conman?
HANK PAULSON’s 10 YEAR PERSPECTIVE (He now admits the GSE business model worked/works!)
I hope Mnuchin and Congress realize Paulson’s perfidy by now
Treasury Secretary Hank Paulson looks back to 2008
"I would say this that when we nationalized Fannie and Freddie no one thought at least I didn't think that they're going to continue in their present form right ... because it was a flawed model and no one was defending it at the time. But frankly it works so well that there was no ... no compelling reason to change things and as you said once they were stabilized they generated income ... which helped reduce the deficit ...(and) went into the national coffers and so you know am I unhappy am I surprised that there's been no permanent reform put in place yes ...”
ICYMT, Some logical advice from Landon Parsons, Moellis & Co.