Monday, July 8, 2019

Only the GSEs face historic regulatory abuse; will they still?



  
Post July 4, GSE Cats and Dogs

OK, it’s lay off the POTUS week, since he did enough to himself with his “Fourth of Trump” show.
God decided to show her displeasure with his administration/him by soaking the Mall; then the Prez—on his own, with the tanks watching and the jets overhead—waxed ineloquently about airports subdued by brave US warrior forces in the late 1700’s.
Hey, I believe him. That was the teleprompter’s fault, not DJT's lack of knowledge or memory of US history. 
One of these days we will see a decision from the Fifth Circuit Court which, either, blesses the abuse the Bush and Obama teams imposed on Fannie and Freddie or the judges strike a blow for logic and rationality and rule Treasury secretaries cannot aggrandize the profits of the two in perpetuity, i.e. see 2008 GSE Conservatorship and resulting sweep. 
The offending actions—which generated multiple federal lawsuits--occurred when various government officials and courts ignored the 2008 Housing and Economic Recovery Act (HERA) mandate requiring US officials to preserve and protect the GSE assets and return them to public ownership and private management control. 
BS, BS Everywhere 
I still am mesmerized by those who care deeply about this issue (I’m part of that group) doing their best to guess legal timetables and implications of a future court decision backing the investor plaintiffs or one which says, “Nope, you’re wrong shareholders and you lose again.”
We all still guess but we know nothing about the true event schedules or possible judicial results.
I don’t know which is more frustrating, reading about the fantasy financial multiples these folks see as future GSE stock prices--- based on their unique formula and belief of what stock values could be--or how they fashion their certainty about when the Fifth Circuit will speak, employing historic guidelines, phases of the moon, the entrails of goats, all of which are useless when the money and political play is so weighty. Wishing doesn't make it so.
I often write about why—in DC—it’s never over until the Fat Lady sings. Mainly because the Hill and the White House always have innumerable deflating options in responding to offensive or defensive events, including a Fifth Circuit ruling for the plaintiffs. 
And, I still have trouble seeing any Court award numbers in the tens of billions ($100 Billion?) to anyone over anything involving the GSEs.
That doesn’t mean plaintiffs won’t win this case, it’s just that a win may not produce the windfall so many pro-GSE people are predicting/expecting. 
OFHEO, FHFA, the Fed and the Home Loan Bank Board 
As some readers know, before joining Fannie Mae, I worked at two federal financial regulatory agencies, the now gone Federal Home Loan Bank Board (FHLBB), which oversaw thrift institutions, and the Federal Reserve Board, which still  exists and is as powerful as ever. 
I was at Fannie--working assiduously with a wonderful team of in-house lobbyists and lawyers--to cooperate with the Congress to enact the seminal Federal Housing Enterprises Financial Safety and Soundness Act of 1992--creating the first non-HUD GSE regulator, the Office of Financial Housing Enterprise Oversight (OFHEO), and also introducing statutory affordable housing goals for the two secondary mortgage market giants. 
Much of my following commentary—especially the contrast--is based on those experiences and the first dozen years of OFHEO, which in 2008 (four years after I retired) evolved into the Federal Housing Finance Agency (FHFA). 
I mention this history only for what I write, now, about the GSE regulatory scene and why it has and still remains today, different than other financial institutions regulation, mainly in how the nation’s big banks are treated by their federal overseers.
It’s germane now because the ball is in the FHFA’s court--with Mark Calabria, its new Director--as it seeks to finally fulfill a 10-year-old outstanding objective to publish a GSE capital plan, as well as helping shape President Trump’s recent request for a method to end the conservatorship of Fannie and Freddie, a major component of which will be the FHFA GSE capital requirements. 
Let me establish my premise upfront. 
Bank regulators—the Fed, the Comptroller of the Currency, and the FDIC--coddle their regulated institutions, despite industry claims to the contrary. While OFHEO/FHFA has been hostile.
History has shown both OFHEO and FHFA guilty of badgering, pestering, and actively harassing the GSEs and their execs (see OFHEO early 2000’s), and establishing unprofessional behavior, some of which remains ingrained. (A former OFHEO/FHFA Inspector General once wanted to arm her lawyers when they interacted with GSE personnel.)
For me, it begs the question of what “tone” Mark Calabria will establish and what regulatory oversight mantra he will project?
Is he a new broom, with new assistants, seeking a fresh approach? Or will he succumb to the old style and listen to the “old OFHEO/FHFA hands,” who have been around for years and who perpetuated the GSE antipathy, while earning their varsity letters in “screwing over Fannie and Freddie?” 

Can he embrace his tabula rasa opportunity, or will he reject being a fresh voice, but instead become another oppressor, not championing the GSEs and their mission?
I hinted last week odds are that he will be yesterday’s tyrant, but wear a different suit and tie.
I have to keep pointing to the REGULATORY CAPITAL issue because his first major test will be the capital standards the FHFA Director seeks. 
For the consuming public, i.e. those who need a mortgage to start the wealth-generating cycle of homeownershiphigher  Fannie/Freddie capital is bad because it increases their monthly costs. 
Big bank GSE opponents will offer any excuse for more capital because it hamstrings the GSEs (which their regulator should not want)! 

See a pattern here?



Maloni, 7-8-2019




Sunday, June 30, 2019

To me, it’s cooked that Calabria goes for bank capital for the GSEs—because he’s a bank-backing believer guy



The D Primary Debates and Fannie and Freddie Capital Requirements


Here I sit all broken hearted, waiting for Sweeney or the Fifth Circuit to rescue the GSEs and feeling very thwarted. (Hold the applause for my creativity, thank you!)

I want to offer a few non-Fannie/Freddie political comments before I go full GSE. (Calm down, Anon#1, I’m going easy on your guy.) 

Joe Biden’s campaign may have been dealt a mortal blow in last Thursday night’s debate. A record is nice to have but the longer and deeper it is, the more targets it represents. 

Any prompt comeback will be a true resiliency test for the former VP!

The former VP looked uncomfortable and sounded bad when pinioned by those youngsters competing to represent Democrats next year.


 Andy Borowitz—the New Yorker’s sharp political humorist suggested after the D debate, DJT might want to make a major financial contribution to the Biden campaign to resurrect it and just keep Biden in the race for punching bag purposes.

Watch things change soon among the 23 D presidential candidates, whose names I couldn’t rattle off absent a pictured scorecard (and still I would misidentify a few)!

Based on the early D skirmishes, I look for Warren, Harris, and Buttigieg to strengthen their current positions while the remaining candidates flutter by the wayside.

That large wannabe gaggle is a natural response to the unconventional first Trump term and his “Here I am, warts and all” presidency—which, for many, cries out “anyone but DJT”—yet the POTUS insists on displaying his offbeat and classless presidential side every day (fighting with Megan Rapinoe and joking with Putin about US election interference, which many R's agree occurred; "Hey it's Saturday night, let's go to North Korea and shake some hands and spread some Kim compliments.") which breeds those potential replacements.
Interestingly, the D’s could produce an all-female ticket and ultimately tap Warren and Harris (in any order?) hoping that duo could garner 90% of the entire US college educated female vote and enough moderate D’s and R’s to deny President Trump a second term.
(Not an election recco!) 

It’s clear to me that a Harris/Warren or Warren/Harris ticket is intellectually more gifted than Trump/Pence, more policy-oriented, and more attuned to the lives and worries of those who are not among the nations wealthiest. But, is that enough?

Is the US ready for those smart Y chromosomes?

IMO, that D pair would be strengthened, tactically, if every time DJT uses the “Pocahontas” taunt against Warren—or whatever nickname he will fling at Kamala Harris--they would call him “the Orange Baby” or “a crotch-grabbing braggart,” just to see if he can take what he gives out?

Or, either might just read off the names of the 15 or so women who have accused the POTUS—before he took office--of various types of sexual abuse and at least two extra-marital affairs, since he married Melania Trump.

To gender-balance (and remove some of the white bread and mayonnaise) the presumed GOP ticket, will VP Pence “take one for the team” and sit out 2020 “to spend more time with his family?” Mrs. Pence may not cotton to that.

GSE Capital, calling BS now….

I’m not giving Mark Calabria and the Federal Housing Finance Agency (FHFA) time until they publish their GSE risk-based capital regs (for which the nation has been waiting for a decade or more) to call “Bullshit” on their product, since I predict it will be ugly for Fannie and Freddie and a delight for GSEs opponents. 
If I am wrong, there’s plenty of time to apologize. But, if I nail it now, I’ll be ahead of the curve in calling out their political bias!!
Despite engaging the Wall Street investment bankers who are considered experts in this tricky maneuver—which also will heavily impact how Calabria wants the secondary mortgage market to evolve—I believe the new Director still will try and hamstring the GSEs by insisting they become subject to bank sized capital requirements, not capital measures for what the two legally and practically have become, i.e. monoline insurance companies which only can securitize single and multifamily mortgage loans, with business risks far fewer than commercial banks that can lend domestically and internationally to a variety of customers.

The respective geographical limits, alone, i.e. bank commercial and international lending versus GSEs only financing US-based real estate assets, contains different and multiple unique bank risks that Fannie and Freddie never will/can have. 

Given that reality, alone, Calabria and his team should stop right there, but they won’t. 

Based on his professional history, I think Calabria will take the very political route and call for bank-like capital or something higher than historical GSE loss data indicates.

He also appears to be surrounding himself with a larger FHFA staff posse, part of his reported personal agenda (hubris?) to pre-empt Treasury as the final word on GSE policy. (Stevie Mnuchin, you really going to let that happen, under your nose/? Louise will be pissed!)

That allows Calabria to keep faith with his bank and rightwing allies and is easy to cover his intention by explaining to the Hill and media, “More capital is better protection because, sir….er, oh, and--just like you--FHFA and I want to protect the taxpayers.” 

When you know the answer to that Q in advance, it’s like asking Mike Pence if wearing two condoms, before coitus, is safer and preferable to one (or asking him the same question before going to the supermarket or a gas station). 

Will Anyone Stand Up and Explain, "There is a mortgagor cost to excess capital?"

Will every Senator and MoC suddenly get stupid and ignore mortgage cost reality, to the extent any of them understand it now?? 
Will any of them—any, on either side of the Hill, in either party—point out, if that becomes Calabria’s decision—he and FHFA will make every mortgage loan which Fannie and Freddie can finance more expensive for the mortgagor (the borrower) since higher borrowing rates is what his higher GSE  capital decision will produce?

Lenders will claim, “This loan might go to the GSEs—I don’t know yet—just in case, I have to build in their capital costs on each loan I make or acquire. If I ignore their capital needs, now, it could come later from my profits.”

Is that what it will take for Congress to finally grasp, “There is a cost to (higher) capital,” something most of them don’t seem to understand now? 

Yes, every one of those citizens—every one of those congressional constituents, every one of the mortgagors who vote—will pay more for their home loans if Calabria goes ideological and casts aside GSE loan loss records as the basis for his final F&F capital decision. 

Oh and watch him, the Director seems to support a new federal guarantee for the big banks—as if they weren’t bowlegged from the weight of their existing ones--to cover future private label securities (PLS) losses.
Once again, if he does advantage big banks by weighing down GSE pricing with higher capital, will someone on the Hill or in the media suggest Calabria’s forgotten the colossal 2005-2007 bank private label securities folly and recklessness, which cost the taxpayers more than $500 Billion (in 2009 TARP funds)?

It's curious the GOP and its business and its fellow travelers have the most difficult time remembering those pre-2008 facts. Likely because it blunts their claims that the GSEs caused the 2008 financial Armageddon. 

But for the past two years, lots of smart people—inside and outside of government—have belled that financial depository cat and placed responsibility for the 2008 economic mess at the feet of the nation’s largest banks, which created some $2 trillion of their own flawed subprime MBS and sold those soon-to-fail bonds worldwide, with inflated Wall Street ratings and insufficient financial insurance behind them. 

We have the same set of federal bank-coddling regulators in place now as were there in 2005-2007 and which--then-- overlooked/ missed all of the bank PLS follies, husbanding their regulated institutions not overseeing or spanking them. 

If you hamstring the GSE with unnecessarily high capital requirements, will the banks and their regulators—seeing a chance to kill the GSEs--be any more responsible regarding bank mortgage security behavior now than they were leading up to 2008???

Could I be wrong about Calabria and the FHFA when they publish the agency’s capital rules?

Sure, but I don’t think many leopards change their spots.



Maloni, 6-30-2019



Sunday, June 23, 2019

From Maloni to the Big Guy at 1600 Pennsylvania Ave



Thank you for acting presidential, Mr. President

GSEs, the POTUS, and some Iran stuff……..

If you’ve seen my last few blogs, read my answers to questions in my blog "comment section,” you’ll understand why I think the wheels have come off from Treasury’s plan to end the GSE “conservatorship” and return Fannie and Freddie to some form of private ownership, through a recapitalization plan. 
In hoping to raise the tens of millions needed to achieve what government officials have proclaimed, Treasury and the GSEs regulator--the Federal Housing Finance Agency (FHFA) and its new Director Mark Calabria--still have to publish a new capital plan for the two enterprises and, likely, settle with shareholders of the original companies currently suing the government in a variety of cases. 
BUT, I think something has happened in the past few weeks to take the momentum from that promised action and created what appears to be discord between Treasury Secretary Mnuchin and others from the Administration. 
A constant among GSE opponents has been the nation’s largest banks, the various right-wing think tanks, media, Senators and Congresspeople who oppose the Mnuchin idea (which reportedly largely was shaped by his former deputy Craig Phillips, who seemed to have been forced from the “DC in crowd” or just got fed up and left the Admin). 
So in this blog, which starts with my serious “thanks” to the President, I thought I would share what I am seeing on the GSE scene and hope word gets to the POTUS that someone on his team isn’t doing their part. 
Your guess on who that may be is as good as mine, but I’ll accept your guesses in my comment section.
Back to my Trump thank you and connected matters.  
I sit here writing, on Saturday evening, June 22, one day after my wife and I celebrated our 50th wedding anniversary, just nine days after our 7th grandchild was born to Dr. Kryssy Cates Maloni and our third son Bill Maloni, Jr.
We’re traveling to Philadelphia tomorrow to meet/see Molly Kathleen Maloni, her parents, and Baker, the family Rottweiler (our own “Good Dog Carl”).
It occurred to me as a parent, grandparent and active citizen concerned about the future my sons and their progeny will encounter, I want to thank President Donald Trump for making a decision not to retaliate against Iran’s destruction of one of our drone airplanes and risk  escalating a fight he started and then rhetorically ratcheted up. I hope he doesn't deviate.
War should be unthinkable, a last resort, Mr. President, absent a huge and extreme provocation.
President Trump, your early moves involving Iran were questionable, as they baited the Iranians. But, your second moves last week were prudent, better, and more surefooted.
Don’t renege on your latest more statesmanlike position Mr. President.
From what I’ve read your instinct about opposing wars is right, unless faced with an incident in which there was serious deadly damage to the United States, its citizens, or our national interests.
A lone drone being shot down ain’t one of those. (BTW. Someone might want to handcuff or arrest John Bolton, until you can develop your secondary and tertiary Iranian planning. Talk more, threaten less.)
You are surrounded by some whacky staff people and I worry the foreign policy stability and breadth of experience you need in these times may not be present in your one-dimensional war council or inside your own family. 
Widen that circle of advisors. There are plenty of thoughtful Conservatives with whom you can counsel without appearing like you’re knuckling under. Talk to your presidential predecessors. Include a few Democrats—inside the Beltway and a few more outside-- and earn credit for bipartisan discussions. Show patience.
I’ll stop with the praise and kudos and just hope your angry side doesn’t overwhelm your thinking side and we find ourselves in a war that quickly escalates and could turn nuclear. 
Iran isn't Grenada! 
A GSE winner for President Trump... 
A matter far less cosmic but just waiting for you to intervene and indicate your wishes, Mr. President, is what appears to be an internecine battle within your Administration--between Secretary Mnuchin and “others”--who are grappling with Treasury’s decision to free Fannie Mae and Freddie Mac (the GSEs or government-sponsored enterprises) from their 11-year-old federal conservatorship,” a Treasury promise which has been sitting out there for most of the past two years.
But that "stopped financial traffic light" still exists, sir, unfixed.
An executive action plan, designed by Treasury--with ample input from most stakeholders--is ready to operationalize.
But your team has some foot-draggers.
Conservatorship is a pretty word describing that Fannie and Freddie were nationalized by Treasury over a decade ago, with their financial assets expropriated, boards neutered, and management marginalized. Operationally, however, they still support—quite successfully--the nation’s homebuyers, providing billions in liquidity.
The GSEs structurally exist, but in that operational purgatory where all key decisions are conveyed to them by government bureaucrats and regulators.
The nation’s secondary mortgage market sets the rules for the nation’s primary mortgage market, controlled mostly but not exclusively by our country’s large commercial banks, which for years have tried to displace Fannie and Freddie but have failed. 
Banks can’t match the GSE efficiency, desired consumer access, and pricing.
Given your real estate development history, the importance of people owning the roof over their head, and your chagrin for turfy federal bureaucrats, a bold domestic action ending the GSE conservatorship, Mr. President would be overwhelmingly well received by those whose votes you hope to get next year.
Also, that one step alone could be a huge economic stimulus, with a flood of new good paying jobs, when homes are constructed, sold, furnished, and older homes are prepared for sale to the millions of low, moderate, and middle income families still aspiring for their share of the “American Dream.”
You could do that with one meeting when you slap down those slow-walking the Mnuchin plan, and who seem to worry more about their personal political agendas than yours.  
Freeing the GSEs is a political and domestic policy winner for the nation and for you. But, know the nation’s largest banks may not agree. 
The wrong people in town seem to have gotten their hands on this proposal’s procedural throat and are looking to throw sand in the gears of this overdue “fix,” not carry through with Secretary Mnuchin’s sound idea and instincts to fix what, a few weeks ago, you told the Realtors is a “pretty urgent problem.”
The Wall Street investment “experts”--who you told the world are being consulted--appear to support the Mnuchin plan. But, some ideologues within your Administration don’t.
I think those interests need to see what an angry President Trump does when his will is being ignored or worse being buried by excuse-making incompetents.

Maloni, 6-24-2019




Monday, June 17, 2019

Dad said it's my turn to drive, not yours; it's mine; No, Dad said.....




Mark, Steve, maybe Edith (?),
Who’s leading this GSE dance?


It’s fun and enlightening to read the various GSE blogs, websites, and commentary to read the intensity of the many folks who just flat out disagree with each other over what is or may happen, but are certain that their view of what’s coming is the correct one.

On any one of them you can read a gauntlet of opinion, from hugely optimistic to “bigly” pessimistic, with nobody consistent in their position, plus hoping people won’t remember what most said a week or a month before.

The bottom line on GSEs seems to be that nobody knows who has the cudgels or what’s going on within the ADMINISTRATION, WHICH IS WORRISOME.

I got that vibe last week in talking with some GSE “thinkers” and media, whom I consider well-tuned into the various shakers and movers on both sides of the GSE question.

I’ve blogged before about the various red flag stances of Treasury, the FHFA via Director Mark Calabria’s latest public rhetoric, which has produce d a lot of hot air, but no action.

Plus, we had the President’s near vacuous comments/promises when he appeared at the NAR conference postulating how important Fannie and Freddie are and the need to fix them. Still waiting.

Using the only measuring tool the average man or woman has—stock values—the current look is a bit bleak, as last week GSE stocks showed red ink, after weeks of forward movement.

People are asking themselves—and speculating—“What in Calabria’s statement and those of Mnuchin have I missed?”

You could start with both of them calling on Congress to act, when the world knows Congress ain’t acting on any GSE legislation as we cruise into an election year?

As one very bright/capable GSE solon said of the Administration and their business ideological, business, and media allies, “They don’t give up, do they?”—since most of the recent reporting has been GSE-negative.

Nope, my friend, they don’t.

Maybe, the nation/world needs a bold, new book, which convincingly shows Fannie’s and Freddie’s public and systemic value??

Looking back, I had and still have a feeling that Treasury’s Steve Mnuchin had (and still possesses), a pragmatic, workable, mostly cooked GSE fix which might have been dealt some blows when his deputy Craig Philips was dispatched and Mark Calabria arrived. Pretty suddenly, the new FHFA Director showed himself to be much more pro-big bank than most of us hoped (Mnuchin, too?).

Have the GSE stocks hit a stone wall?

It doesn’t take much of Calabria talking/preening attaching bank size capital for the much lower risk GSE business activity—indicating his bias-- or asking, not so slyly, for more congressional-mandated power, all of which screams to investors and others--“PROCESS SLOWDOWN, TAKE YOUR MONEY AND RUN!”

With no powerful political "housers" demanding an end to conservatorship, you get delay which means different things to people, depending on whether you are pro-GSE (bad) or anti-GSE (good).

If the more pragmatic Mnuchin prevails and there is an end to conservatorship, I believe Calabria and friends still will seek to create as many operational impediments as he can, obstacles to GSE success as his sentiments clearly communicate.

Remember, there is nothing clean in DC where one side prevails and their very powerful opponents get totally shut out.

It’s not difficult to see Calabria publicly wishing/hoping to end conservatorship but, simultaneously, seeking GSE operations-killing bank capital as well as a bunch of new competitors, so he can light his victory cigar.

[Quick non-GSE comment. Not dumping of the POTUS (Anon1!) but there appears to be a lot of major issues—far more compelling than the GSEs--where nobody is sure who is in charge and what is the plan, with Iran, China, Russia, immigration, healthcare, abortion, being just a few of those. It’s how business gets done or not done, today.]

But, will Calabria’s ideological leanings cause him to gloss over and ignore other systemic problems/inefficiency/delays his possible actions might produce?

That’s why some people in those senior managers often are called ideologues!

What I would love to see is Director Calabria appear on a panel of two, debating with a capable GSE advocate, in a true test of who best can make their case and/or factually blow holes in the other guy's position.

But that won’t happen, since a legitimate open forum and debate would reveal the emptiness of some of the Director’s ideas and the inherent market principles clash or unworkability of what he promotes.

For instance, clever people are doomed when they seek to attract “new money” (as if institutional investors are broken into young and sophisticated and old and dumb) to their future mortgage finance system while waxing about their real preferences to deep six the model they’re pitching!!

Possibly, House Banking Committee Chairwoman Maxine Waters (D-Cal would be open to hosting this exchange/discussion?

I keep sensing Calabria daily is playing mental tennis with his policy and political choices, going back and forth in his mind  where to lob his next shot—or offer his latest pronouncement--and still uncertain where he wants it to bounce.

Adding to the uncertainty is the much-discussed Fifth Circuit Court hearing on the Collins appeal, the size and scope of which is unknowable, yet, but which could give Mnuchin cover to push his GSE hope.

Much of the speculating on the en banc panel focuses on the leadership of Judge Edith Jones and her history of expertise on FDIC matters of conservatorship and receivership—which are the Collin’s case core issues--that could produce a dramatic, timely, and consequential decision rewarding plaintiffs and pre-empting Administration options or at least making them tougher.




Maloni, 6-17-2019







Thursday, June 6, 2019

Just geezing! Is he or ain't he??


(Official communication from 7-11 Dairy and PR Departments to Fifth Circuit Court: Urgent, possibly will need an en banc photograph of judges for upcoming milk carton production. Please contact our New Orleans office ASAP.) 

Calabria: Honest good guy or Golem? 

It may be too soon to ask this, but is Federal Housing Finance Agency (FHFA) Director Mark Calabria being “too cute by half,” flying a “black flag,” or at least false GSE colors?
Just wonderin'?
All of the big news has been Calabria’s several prominent public appearances and bold annunciation of his plan to free the GSEs from their 11-year conservatorship, resurrect the originals, with variations of recapitalization and private ownership thrown in.
Indeed, most of the pro-GSE crowd has gone gaga happy over his comments, because the media coverage has juiced GSE stock values.
But if you believe “leopards never change their spots,” you have to remember Calabria was a member of the Senate Banking Committee staff (seldom GSE-friendly when the Republicans ran it); claimed he helped write HERA (not GSE-friendly); worked at CATO (never GSE friendly in God’s lifetime); worked for Vice President Pence (not GSE friendly); generally has opposed most things Fannie and Freddie in his multi-employer career; and keeps on saying things which suggest that Fannie and Freddie should  be capitalized like the nation’s biggest banks, which is a flawed assumption based on any logical comparison between the GSEs and banks.
Despite all of the discordant right-wing noise from the Pollocks, Whalens, Pintos, Carneys, etc, hoping to weigh down Fannie and Freddie effectiveness, by demanding bank-like capital standards lashed to the GSEs, Fannie and Freddie are not banks and don’t operate as banks do. 
Banks are depository institutions, their consumer accounts, i.e. checking and savings are insured against loss by Uncle Sam ($250,000 per account). Banks use that money, along with other resources, to provide individuals and business customers domestic and international loans and investment products. Those loans have a complex variety of inherent risks which the bank must properly capitalize against. 
Those institutions also offer home mortgage loans, but that’s a secondary business. Most—but not all of their home loans—are sent to Fannie or Freddie for conversion to very liquid mortgage-backed securities that get sold to institutional investors.
Under the FHFA, since 2008 the GSEs have become monoline insurance companies, with no ability to hold loans in portfolio except as a process of selling them off to reduce risk.
Today, with their home loan guarantee authority, their clients are mortgage lenders, for which Fannie and Freddie create mortgage-backed securities—from batches of whole loans--and earn revenue from fees they charge to originate and guarantee payments from those mortgage bonds to major investors.
F&F's primary risk is credit risk, meaning mortgage borrowers approved for GSE financing, could—but seldom do--fail to pay their loan monthly because of excellent underwriting. 
Those who advocate treating GSEs and banks as operationally identical or similar, do so--generally--to financially harm the GSEs. 
Those gremlins know there is a cost to excess capital (in higher borrowing rates on the loans they securitize), which in turn would make the GSEs less competitive and injure Fannie’s and Freddie’s ability to widely help US mortgage consumers who would pay more. 
Tim Howard, who understands and writes more coherently about the nation’s secondary mortgage market, repeats this fact over and over in his regular blog. 
JP Morgan’s CEO Jamie Dimon discussed the need for accurately measured protective capital last month in his April newsletter to shareholders (P.31), in discussing mortgage capital. 
“In the early 2000s, bad mortgage laws helped create the Great Recession of 2008. Today, bad mortgage rules are hindering the healthy growth of the U.S. economy. Because there are so many regulators involved in crafting the new rules, coupled with political intervention that isn’t always helpful, it is hard to achieve the much-needed mortgage reform. This has become a critical issue and one reason why banks have been moving away from significant parts of the mortgage business. That business, in particular, highlights one of the flaws of our complicated capital allocation regime. The best way to risk manage a bank is to use risk weights that are actually based on risk. However, since most banks are also constrained by standardized capital (a capital measure that does not risk-adjust for the lower risk of having a properly underwritten prime mortgage), owning mortgages becomes hugely unprofitable.”  (Thanks, BE!)
The relevant financial capital point is Fannie and Freddie only deal in prime mortgages, the risk on which is far lower than commercial loans and other bank credit extensions.
The National Association of Realtors (NAR), which strongly endorsed Calabria’s nomination, warned him in a letter this week about his GSE agenda—which appears frenetic like the new Director is running before he walks—when he talks about multiple GSE changes he would like to make without understanding the impact on consumers of his decisions. Politely, Realtor trade association called his actions "aspirational," not employing a bunch of less flattering adjectives and adverbs.
Calabria might be playing a teasing congressional game, seeking new authority to create GSE competitors, where he has no authority--but, in the media, asks Congress for the same--even before he makes good on his/the Admin’s plan/offer to free Fannie and Freddie from the conservatorship yoke and return them to private ownership and functional market operation.
(Hey Mark, some additional advice, your fellow federal financial regulators may not like the brash new kid on the bock upstaging them and boldly using his sharp elbows to ask Congress for new powers, at their expense.)

Calabria is Coming From Where??

Let’s imagine for a second that someone scratched the new GSE regulator deep enough and unmasked a dyed-in-the-wool GSE opponent--and a fellow traveler with Fannie’s and Freddie’s MBA and TBTF and ex-Obama spoilers--facts which most of Calabria’s prior professional career argue is his correct portrait.
If he is not operating with the Treasury’s approval, then his performance will invite a smackdown from an angry GOP superior.
If he is being directed from above, then the game’s over—despite all of the Admin hot air about ending the conservatorship—someone powerful wants to prolong the GSE indentured servitude. 
If not, then he is freelancing.
How/why would Calabria slow the progress of what Mnuchin and others have indicated they want to happen soon???
Hubristically, Calabria might pretend he needs new authority to make the mortgage world more competitive and attract his phantom private capital dream--as well some yet-to-be-created GSE clones—while informally soliciting his Senate R and media pals to trumpet his request. 
That would slow things down and make some senior  Cabinet heads look foolish.
If that's his game, Director C should practice threatening to hold his breath and turn blue, when the House Democrats suggest Calabria first climb a rope and, next, do something, reportedly, that’s anatomically impossible but often advocated by one’s foes?
If grilled mightily and exclusively on higher GSE capital—before the GSEs are freed and urge to raise fresh capital—Calabria would have to justify (something beyond “more capital is better, Senator”) why he endeavors to jack up capital levels on a company which just announced a superb past 10-year delinquency record (2009-2019) of .33 on all of their mortgage activity.
One-third of one percent delinquency rate--not a failure rate, just borrowers who are payment-late for whatever reason--is pretty impressive over the past 10 years and a performance any bank would love to have. 
To the point. A company which achieved that exemplary performance easily can protect itself--and the taxpayers--with 2.5% capital rate, but hardly requires a burdensome 6% or 5% provision.
If Calabria chooses an excessive capital number in the bank range, he knowingly would sabotage the GSEs, which just is what the big banks want. He might, but while hinting at it, Calabria hasn't called specifically for it.
But, I could be wrong. I have been once or twice before. Is there hope for the FHFA’s new Director? Nothing in DC is over until it's over. 
Calabria’s heart-warming nomination hearing story regarding his hardworking single mother and the importance of meeting their family's monthly mortgage payment indeed was worthy of repeating. Thank you for sharing it, Mr. Director.
But remember, sir, there are millions of American families, similarly situated or worse off, still trying to secure that piece of the American dream. If your FHFA actions make it harder for Fannie and Freddie to do for them what the GSEs have done for millions and millions of other U.S. families, your aspirational talk rings hollow.

Maloni, 6-6-2019*


(*Pretty important date for me, as it is my beloved, late--and only sib--brother Lou's 82nd birthday. You're deep in our hearts Bro.)




Thursday, May 23, 2019

There still are GSE damage seekers; plus Don Layton stayed too long



Jingle your pockets, yes; but pay attention to still present GSE worries

(As I publish this on Thursday night at 11PM, eastern time, comments are flowing on several Net sites about a possible Fifth Circuit decision coming on Friday. Hope it's legitimate and is pro-good guys! See you in 10 days.)

  

I’ve already established myself as a cautious Cassandra or Pollyanna on future GSEs matters, although my hopes and expectations are for the two to have a maximum return to something resembling their pre-conservatorship (2008) roles, as privately owned entities. 
My ongoing fear is that too many GSE fans are looking at the rising share prices and seeing welcome dollar signs but are forgetting or not paying enough attention to Fannie's and Freddie's effective operational/functioning side which makes the GSE mortgage executions more efficient, fair, and superior to any other market competitor.
Lose that and we'll lose what makes them special, distinct, and financially valuable.
Fannie and Freddie offerings, executed through the variety of primary market lenders--which now, always, and only should continue to deal directly with consumers--I'll repeat, are more fair and consumer-friendly than those outside the GSE system.
You hear ignorance when the ill-informed bloviate, “Well, we don’t want the GSEs just to do what they used to do and have the same problems, right?” 
They ignore the fact Fannie and Freddie carried on their institutional shoulders the nation’s primary mortgage market for the past 10 years and before then, making needed liquidity broadly available. 
Also, there exists, today, which didn’t exist then, protective new government lending rules that prohibit low-quality primary market mortgage originations or subprime, from going through the GSE systems. So what's opponents real issue?? Answer: the same old one, $$$$.
(Duh, and if the GSE business models were so bad, how do you think they have been able to generate $300 Billion in after-tax earnings, since 2013, and repay the government for the $189 Treasury gave them—or forced them to take!--in 2008?)
It’s that kind of GSE ignorance which exists in huge quantities among observers and, worse, mortgage market policymakers.
So while everyone’s focused on their current Fannie/Freddie financial profits, the anti-GSE elements still are working the Treasury, FHFA, the Hill,  the White House, and the media, hoping to cripple whatever survives of the mortgage giants, if executive action is forthcoming, before or after, a pro-plaintiffs court action
(OK, it’s safe, you can come out of hiding now Fifth Circuit!) 
Recent events argue you don't have to win on the Hill to still win in a major way.
History lesson: Go back and look at how—after trying to vitiate it on the Hill and largely succeeding—the big banks went after the Dodd-Frank legislation and its Volcker Rule through the regulatory process, squeezing the Obama and now Trump Treasury departments.
Too much money, big bank political smack, ego and reputation at stake for Fannie and Freddie (and their shareholders) to emerge from a new WH reg change or even court win as the only and clear victors.
Washington doesn’t work that way. As I said, if all you want is more money for your GSE shares than they cost, you might not care, But, I argue your attention and support still are needed.
Remember, it’s easy for this WH or any other to give away a little cash. Mortgage finance systemic control--which is what's at stake here--is another matter. 
Freddie’s Layton at the Atlanta Fed 
The Atlanta Fed has never been a pro-GSE facility, having a few prominent researchers publishing papers which seldom came down on Fannie’s and Freddie’s side. (I am speaking about you, SF!)
Freddie Mac’s outgoing president Don Layton spoke at the Fed regional bank this week and delivered what I have come to expect from the guys from Virginia.
As I emailed to a GSE friend when he sent me the news story,
“Give me your headline because nobody at Freddie impresses me. I constantly question their motives, which--even before conservatorship--always were closer to the government's while trying to outflank Fannie.”
Don didn’t disappoint, unless big picture FHFA butt-nuzzling helps, yet to be fair he was informative (if you haven't been following GSE matters).
I could be all wet in my criticism but instead of using his platform and pushing the Treasury/FHFA/WH to put out their long awaited and finished GSE package, Layton just predicted lamely it won’t happen before he leaves and it could take years before the GSEs can be recapitalized. Gag, yak!
Hey Don, if you get another opportunity—be a dire wolf—suggest something like (connecting your departure with an action you want), “It would just super for US mortgage consumers and all the Realtors, builders, lenders in the nation’s mortgage finance system, if President Trump, Secretary Mnuchin, Director Calabria unveiled their much touted GSE reform proposal shortly and receive the acclaim they would deserve. A move I will loudly applaud before I leave Freddie in July.”
(Speaking of which, it’s stunning to me that the WH--which obviously is concerned about the 2020 election--does not implement its GSE plan and take credit with the nation’s middle class and lower income voting families for expanding homeownership opportunities for them and their children, plus all of the associated jobs that would flow from new homeowners moving in, fixing up, and furnishing their homes??)
Use your departure as an advocacy tool, Mr. Layton, you don’t need to ingratiate yourself to anyone, any longer. You’ve done fine in the Freddie job to which you were recruited.
BTW, Layton mentioned the cost of the common securitization platform was not the early report of @$400 Million but “$2 Billion.
Label those GSE profits, poured into the “help Freddie because they can’t/won't  help themselves” project, as money which didn’t go to the taxpayer, just to outside contractors.
On their always fat bank side of the ledger, you’ll want to add these federal taxpayer benefits (from GSE revenues), because—in addition to not paying for it--the FHFA’s plan is to allow private securities issuers (think, banks and investment banks) to use the GSE-financed CSP.
Layton said the mandated joint project took about seven years (with  Fannie slow walking it every step of the way I hope). 
Fannie always had a better mortgage security design, while (typically) Freddie insisted on clinging to their 1980’s model, which made its “pc” or participation certificate less financially attractive.
So Fannie is the CSP loser here and Freddie—which will get a better MBS vehicle--and the banks win, when the latter get access eventually to issue their own securities. (never paying for any of the development costs).
Don Layton may have said too much at the Atlanta Fed….
Layton said some other things which caused me to question his "inside the Beltway" common sense.
He marveled to the bankers about all the GSE politics he encountered in DC and kept referring to lobbying and lobbyists. 
Don, Freddie is HQ’d in the DC area--where everything is politics and disdain--it makes $billions per year, and you and Fannie have a legion of business, commercial, and ideological foes which never stop targetting you. For years before you arrived, they have been trying to eliminate the GSEs.
And you're still shocked at the politics of everything? 
Were you expecting picnics with sessions of “bean bag” (in a nod to the late Speaker Tip O’Neil who reminded all of us what politics is not)!*
And, unless your employees have been sneaking around the law, the Conservatorship took away Fannie’s and Freddie’s right to politically lobby Congress, the Administration, or anybody else; no advocacy through communications, etc., either. That included the GSEs retaining political consultants.
Mr. Layton, IMO what you did by innocently mentioning your personal awe at DC GSE political actions—mostly aimed at the GSEs, no longer Fannie and Freddie pushing for relief--is confusing and just will convince some in DC that the GSEs still try and twist arms on the Hill and elsewhere.
Enjoy your retirement, Mr. Layton, try not to do any harm as you leave Freddie.
(*Tip O’Neil, quoting “Mr. Dooley,” said “Politics ain’t bean bag!" The entire sentence is worth looking up readers, just Google the four words I’ve quoted.)

Maloni, 5-23-2019