Tutorial: With no GSE “uglies” left, have we finally exposed the bad guys and their transparent objectives?

Who to scourge is less revealing than WHAT is left to destroy and why??

Over my Fannie Mae years, 1983 to 2004, the GSEs were heralded as heroic institutions. Fannie had management books lauding it, succeeded at any number of corporate and mission tests, and birthed its fair share of political enemies, more so Fannie Mae than Freddie Mac, but the Freddie’s contributed a few adversaries, too, often drafting in Fannie’s large wake.

However, the lion’s share of the anger was aimed at “the hubristic Fannie Mae” as one person labeled us. (Personally, I welcomed that primacy because I felt it was indicative of how well we worked.)

We were the 10-ton gorilla, by design, working Capitol Hill and the agencies in support of homeownership and expanding the demographic/ethnic groups historically denied the opportunity to own homes. To succeed, we wore velvet gloves over mailed fists, the political stuff of lies and legends, political fear and respect. (Read some of the literature!) 

We chose to be the largest/loudest voice for housing among some historic major industry leaders, like the Realtors, Homebuilders, and Mortgage Bankers. We succeeded in cooperating with, uniting and organizing those big three--and attracting a host of low, moderate, and middle, single and multifamily housing allies--in a variety of coalitions and advocacy groups, which strengthened the ability of each of us to prevail.

It was a mighty housing fleet! And some DC denizens were frightened by it.

Adding to the DC effort, Fannie had creative national advertising campaigns supporting homeownership, and unique attractive, fresh quarterly business data, packaged in micro census tract formats for every congressional district and state. Those reports allowed us—with great specificity—to show where and how much business Fannie was doing in each congressional district or state for the people that Senator or Member of Congress cared about the most, their constituents. Not surprisingly, it was shared, too, with an additional group of influential community leaders, a boatload of local and state officials.

It didn’t hurt, either, by extension to promote the numbers of associated jobs our new or existing home sales produced among those tradesmen, painters, who supplied furniture, carpeting, electricity, yard work and more for those new homeowners.

We fashioned a smooth machine, based on mortgage facts and making good on our statutory mission promises!

Combining our financed loans’ outstanding principal balances, revealed Fannie often was the largest dollar investor in that particular piece of geography, giving us tangibility. A fact we touted. ("Here is why Fannie Mae should be important to you, Congressman!")

We were relentless in our activism, using grassroots networks which grew up around the 50 or so Partnership Offices (PO’s) we opened around the country, each one had a boutique annual business plan designed to show our intention to grow the number of families we hoped to help secure their own homes. And—every three months to prove the work was legitimate--we reported back through that congressional district’s local media on our success at achieving those numbers.

Both Fannie and Freddie created employee-funded political action committees (PACs), allowing us to join the dozens of interest groups which went to congressional fundraisers and supported candidates; we weren’t shy about identifying those proposals/policies we thought were anti-housing and homeownership.

Fannie won award after award as the best place in DC to work for women, minorities, Gay and Lesbian employees, and workers who bore elderly parental responsibilities.

Fannie gave stock options (no longer done) to every single employee from the cafeteria workers and cleaning crew on up.

(Ironically, Fannie’s common stock today closed Friday at $1.18, just about where it was when I started at the company in 1983, 35 years ago.)

The Fannie style was to overdo rather than under do, throw one brick too many rather than one too few.

It worked for more about 20 years.

However, it caused a few mainly incompetent and vain officials at the original GSE regulator, the born-in-1992 Office of Financial Housing Enterprise Oversight (OFHEO), to live in their fears and frustrations, believing us unmanageable. They lied and sought to pierce the heart of the Fannie-demon in 2004, spuriously charging Fannie senior executives had committed “securities fraud.”

Of course it wasn’t true, but—as often is noted--the big lies travel round the world before truth wakes up the following morning to respond.

It took a federal judge 8 years to throw that allegation out of court but the personal, political and institutional damage was done.

Back then, very few Senators and Congressmen knew exactly what Fannie and Freddie did—and apparently many still don’t—yet, on a major bipartisan basis, they loved the back home GSE homeownership performance, jobs, message, attention, and campaign support.

But they also understood the scary connotations of the word “fraud.” Even baseless and unproven fraud, when uttered by a federal regulator, was something you wanted to stay away from, far away—and they did!

The GSE ideological, business, and political opponents didn’t stay away, instead they leaped on it—and still are at work.

My point in all of this is 10-15 years after all of that history, the surviving GSEs are political and communication husks.

There are no outsized personalities left. No big-time Democrats running Fannie Mae, "paying themselves large bonuses and stock options and providing jobs to their party friends" (another allegation). There's no longer a GOP- leaning “Mormon Mafia” at Freddie (although there could be a few still running around) doing the same with/for Conservative consultants.

When Fannie and Freddie were put into conservatorship in 2008, the two had their in-house lobbyists, outside political consultants, and political action committees formally stripped out of their lives (there is a First Amendment violation running around in that somewhere). The latter not only didn’t happen to any other financial institution caught up in the 2008 financial debacle, but even federal government agencies have their own lobbyists who regularly promote administration policy to Congress and the outside world.

That all was then, but this is now

Today, Fannie and Freddie have congressional liaison workers who only respond to calls from the Hill but not advance agency policy with those Hill callers.

Respectfully, they’re glorified clerks not lobbyists. (Sorry, hardworking GSE pals over there).

So, no more glossy GSE homeownership national advertising campaigns, etc. etc. No more “hubristic Fannie.” 

What remains only is the GSE STATUTORY MISSION, to provide a liquid, nationwide deep secondary mortgage market, in good economic times and bad,  which supplies  the primary mortgage market—the banks, mortgage companies, thrift institutions, and credit unions offering loans to consumers—with mortgage executions consistent with the market cost of financing.

That leads me to ask—if all of us objectionable bogeymen and women are gone, if all the PR, lobbying, bells, whistles, housing fairs, campaign contributions, if the “look at us” GSE housing promotional material in 12 different languages have long  vanished—why are the multitude of GSE enemies still are out there flailing away at what?

What’s left today just is the basic US conventional loan system, which—because of the GSEs design and operations--is the most efficient, most consumer-friendly, most equitable, most blind to anything but creditworthiness.

Then why is that model so often debased?

Once, because Fannie was created post-Depression as part of the New Deal by the Roosevelt Administration, it was seen as a “Democratic thing,” but the mechanism served all. No mortgage application ever asked for political party or preference. Millions upon millions of low, moderate, and middle-income families were helped for over 80 years.

The system worked and still works, even with all of the falsehoods (still facing court challenges) about its history, bookkeeping, accounting and business losses.

Hank Paulson’s abusively wrong descriptor, “the GSE have a failed business model,” has been shown empty and vapid.

In just the past five years, Fannie and Freddie have produced @$280 Billion in GSE profits going to the Treasury/US taxpayer, not shareholders, after the Obama team rewrote the 2008 repayment rules and expropriated all that money for Treasury. (Cue the court cases.)

The best evidence I can offer for GSE perpetuation is Fannie and Freddie still stand, handcuffed, but functioning and delivering huge amounts of mortgage finance in the face of political folly/interference and dozens of proposals to kill them off and substitute political schemes which never will work as smoothly for American home buyers, if those pet ideas ever get off the ground.

The mega GSE financial institution opponents, still bankrolling the ongoing assault, clearly don’t care about consumers, since they’ve done their very best to cripple Fannie and Freddie, the Consumer Finance Protection Board (CFPB), and what’s left of the Dodd-Frank financial protections, not to mention the big banks still fresh memory of their “PLS follies.”

The banks want to control mortgage products and price which never is good for consumers. They can’t do that now because of the GSEs central positioning.

Policy makers and stakeholders: It’s pretty simple to me—and should be to you who have a hand in the nation’s mortgage finance future—the big bank opponents want the GSE’s market position and their annual revenue, which they hope the White House or Congress will give them with no reciprocal pro-mortgagor actions.

Whether you appreciate President Franklin Roosevelt and his achievements or not, you are staring at the nation's core four generation American mortgage finance system—with Fannie and Freddie as major components--that works and easily can work better, with slight modifications on which reasonable people readily should be able to agree—if they don’t live in the sum of their ideological fears.

Maloni, 12-2-2018



Happy Chanukah!!