Friday, May 17, 2019

Waiting for the Fifth Circuit and Goodbye Craig Phillips

Perdue and Menendez, for the people!

At least, a bipartisan set of Senate Banking Committee members, Sen. Sonny Perdue (R-Ga.) and Sen. Bob Menendez (D-NJ), have recognized the BS in using GSE revenue to fix non-GSE-red ink in the mammoth deficit budgets—which didn’t start with President Trump (originally that was President Obama’s DNA on them), but certainly they have grown larger under the Trump administration. 
However, the problem is this legislative idea is too much "good government," which means its unlikely to get considered. 
Although it’s a righteous idea, I doubt if this proposal passes de novo (especially not if the White House still has plans for that roughly $20 Billion or so they collect annually from Fannie and Freddie for other budget costs) or attached to some other piece of must-sign legislation.
I only hope these two SBC warriors are doing it for the reasons they claim so that G-fees (which are set not by the companies but by the Treasury/FHFA based on capital requirements) don’t rise and push would be mortgagors outside the necessary homeownership income requirements. Also, that the Senate pair stay “GSE friends” if a plethora of related matters come before their committee. 
Mark Calabria from Mt. Olympus!!
The new FHFA Director, speaking earlier this week at the National Association of Realtors (NAR) conference, hurled some headline-making lightning and thunderbolts which got the mortgage financial world’s attention, especially his declaration the Admin really doesn’t need Congress to seek GSE changes (um, who didn’t know that?) and Fannie and Freddie could IPO or start searching for required capital by early 2020 (that’s assuming the executive’s magic GSE reform package is implemented by FHFA and Treasury, to which Calabria now claims in these matters he’s equal)! (I wonder if Mr. and--certainly--Mrs. Mnuchin think that way? Don‘t assume the boss’s wife isn’t important here!)?
Thursday's Inside Mortgage Finance (IMF) reported that some economists in attendance, sharply disagreed with the Director,  apparently after Calabria departed.
Since I couldn’t get/read a copy of that IMF story, I’ll need to see a more fulsome report of those opinions before I can comment. 
Let’s hope a few of those economists--I suspect not one a GSE fan--pointed out the capital flaws in Calabria’s plan; the BS about multiple guarantors if the Treasury still threatens to do away with the GSE charter (what would investors buy?); and the same question, if the WH doesn’t settle with current GSE shareholders. 
Who is going to put money into anything, where that is the risk, along with the chance some future Administration mirroring Bush and Obama chose to aggrandize all of the future profits of the “new mortgage finance system?” 
David Stevens said what???
My friend David Stevens authored a piece worth reading. But it won’t be surprising, the man who spent several years in league with the large TBTF banks, or  “Too Big to Fail,” now argues any Trump regulatory effort should be avoided because it won’t help the GSEs just the behemoth financial institutions.
Say again?
It’s all conjecture on David’s part tied into the belief that GSE mortgage-backed securities (MBS) will lose their national and international investment profile because of the absence of an explicit federal government back up. 
Unfortunately, DS appears to be running with the same old anti-GSE crowd, with his report offering support from “the old AEI fellow traveler” Jim Parrott and then a Moody’s analysis (say, isn’t that Mark Zandi's employer, whose DNA is all over the hugely inflated of bank PLS ratings form 2007-2008).
Dave is and will be a smart guy and I guess his prognosis is no worse than mine, when I say any massive restructuring of the GSEs will produce a slow, cumbersome inefficient set of bank-connected replacements which will cost US consumers tons of money. 
But, I think it easier to look at his column realizing he seems to oppose anything which holds hope for the GSEs returning closely to their former operational roles and with more freedom of movement than they've enjoyed in 10 years. 
On the good side, he did acknowledge that 4.5% GSE capital would be very expensive (and in Tim Howard’s view more than double what’s desirable or necessary).
Stay healthy and well David!
Craig Phillips
Yesterday brought the news that Treasury Secretary Steve Mnuchin’s GSE counselor, Craig Philips, will be leaving his job (which the Admin quickly reported would be when the current GSE housing reform project is completed, which could be “never in God’s lifetime.”)
Thank God, Sarah Sanders didn't say, "Mr. Philips wants to spend more time with his family."
Some Reasons Why CP bagged it?
My analysis of why Philips is leaving, based on my well-known GAPDP (“generally accepted political departure principles”). 
One: he’s tired of his Treasury take-home pay, eating in the Treasury mess, and, publicly tackling the flag, daily, to show his patriotism. New York restaurants and compensation look so good in comparison. Not to mention the low key hum of daily Manhattan indifference. 
Two he’s PO'd having to deal with political buttheads—downtown and on the Hill (can you say Kudlow and Crapo?)--who still pronounce the “t” in mortgage. Phillips can’t understand the reason Treasury is holding back on its perfectly sound GSE reform plan which he helped polish and lock down weeks ago? 
He keeps repeating, “I don’t understand, we didn't operate that way on 'the Street.'”
Three: his third cousin is Judge Margaret Sweeney and he worries if he doesn’t get out of DC “Right &^%$#@* now, his picture will join hers on area milk cartons.
Four The obvious, given the timing, is he thinks he’s smarter, more capable than new FHFA Director Mark Calabria, MC's team and a lot of others who claim to understand the Fannie-Freddie issues and wish to make GSE policy. CP's past few weeks just reinforces that fact.
Good luck, Craig Philips. We hardly “knew ye” and don’t let the GSE door hit you on the way out.
More recent info. Strong rumor is that Phillips lost an internal battle and took the honorable way out, i.e. financial/political DC hari-kari! But, I predict he’ll still have plenty of cache when gets back to the Big Apple.

Maloni, 5-17-2019

Sunday, May 12, 2019

They'll get us, but your choice is to go as a lamb or a predator; I'll go as a dire wolf

GSE Cats and Dogs, GOT, and the Dire Wolf

 “Game of Thrones,” the 8 year old, coarse, raw, dramatic, erotic, wonderful action show, roars to its still uncertain royal climax.  (Penultimate Episode #7 is up tonight, with Episode #8 being the final, but don’t worry, I am sure we’ll see,  future “prequels” or movies likely with the same characters being performed by mostly different players.)
If you haven't realized, yet, this fantasy series has real parallels to our contemporary culture, as one CRITICAL observer suggested last week.
“Westeros politics (where GOT action occurs) and DC politics are similar in that some people treat chaos as a ladder, to use ‘Littlefinger’s*’ phrase."  
“The most honorable people aren’t always the ones who thrive politically. Power is frequently dynastic and often correlates to those with the most wealth. And big, existential threats to life are ignored until they’re on the doorstep.
(*Littlefinger--for those who don’t know—was GOT’s resident weasel, glad-hander, and frequent turncoat, until he turned once too often and NADA Littlefinger!”) 

I know I want a dire wolf (Canis dirus, "fearsome dog"), male or female, any color you can get. But, if all my readers got together and gifted me with a dire wolf for my birthday later this year, you would make me the happiest man in the DC area.
Reward me with an oversized, alert, fearlessly brave giant wolf to walk by my side--without a leash/harness--protecting me and mine from all threats (including spam phone calls, because he or she—my planned name is for the wolf is “GSE”-- would eat the phones and do away with the spammers), making the world safe again for Fannie and Freddie allowing their mortgage entities to go back to some acceptable semblance of full historic operation.
A question for my loyal reader “Anon,” is that too much to want? (Query your “fellow Anons,” whom I’ve asked to attach a number to their “anonymous” NAME choice, so I can at least sort them out?)
Hope my small fan club can get my dire wolf request right. That will permit me to stop walking my wife’s “must have it now,” six months old, 70 pound Bouvier des Flanders “puppy” (“Look Mommy it’s a bear, a bear”), who is stronger than a horse and now wears a giant cone because of his recent neutering. “Toby Junior” or “TJ,” currently crashes into door frames and cabinets and rambunctiously pulls away from all those who walk him. (Except for the very smart 11-year-old girl, my wife hired to exercise TJ after school.)
Yes, I need a dire wolf or two if you can find them for me. They only obey and instantly do whatever their owner/masters tell them!! 
Some real GSE stuff
I sit here on 5/9, Thursday afternoon, sorting through the latest Fannie-Freddie buzz, like the entrails of a barbecued goat. Drogon (?) , a fire-breathing GOT dragon or I should say “the last surviving GOT dragon?
Following Mark Calabria’s tease, saying the GSEs could be freed without Hill action (who didn’t know that!!??) and, separately, they could IPO by early next year. I am stoked. But, face it we all have been excited before and charged up with F&F optimism, only to be sent home having wet our pants and crying when nothing good followed???
Last week, too—mostly unfounded--rumors circulated of a possible Fifth Circuit decision, "any moment now," adding more GSE momentary luster and rising stock prices.** (“Navy,” please back up those posts with some facts we all can see and enjoy!!)
Calabria’s comments about not needing Congress struck me as an “I accept fate” realization about his situation, as most see it. The IPO—which the Wall Street guys will tell him ain’t that easy—would be a logical follow to his inclinations.
If the Fifth Circuit bails on the GSEs plaintiffs, that makes Calabria’s comment more compelling (since he made them a few days before any rumored court nod.) 
But, a plaintiffs win in the Fifth also could produce immensely positive results).
(**Riddle me this Senator Crapo (R-Idaho). If Fannie and Freddie are not real companies, why did both--as has happened frequently in the past--wind up in the Saturday Washington Post's list of "local gainers and losers," area corporations with the highest weekly stock gains??)
Mark Calabria and Bethany McLean
Bethany McLean, Vanity Fair author with two GSE books to her credit, and FHFA Director Mark Calabria will appear next Tuesday, May 14, at a National Association of Realtors (NAR) event in DC.  (Buy her books!)
The NAR wanted me to appear with Bethany, but unfortunately, I told them I would be busy in Westeros with dire wolf training class, so I suggested, instead, the new GSE kid in town.
Here’s hoping he says something particularly newsy, beyond announcing I have been named FHFA’s new “Director of Culture and Sports Training!”
It was that post or FHFA’s General Counsel--both jobs had been promised to me--but, as everyone now knows, I’m ain’t a %$#@*& lawyer or “AAFL,” so the new Director will have to be content with FHFA’s old GC Alfred Pollard...for a while. (That reminds me, I have to check the dictionary for the word “sinecure,” again.)
I’ll bet Mark Calabria knows some real sharp legal mind --not just yes men/yes women--who have a solid history in securities and financial market operations, not just as posers.
In my new FHFA position,  I will content myself with buying new agency unis and getting rid of the old ones showing bureaucrats strangling what appears to be a Williamsburg-style building!
Don’t know if this is GSE related, but when Mnuchin testifies sparks can fly
Treasury Secretary Steve Mnuchin is slated to appear (again) before Rep. Maxine Waters (D-Cal.) and her House Banking Committee, on May 22. It wasn’t an edifying or pleasant visit the last time he showed, more like a cat fight.
Maybe somebody should ask him if he thinks big banks should have statutory low-income housing goals or if the Volcker Rule should be strengthened not diluted? Nah, ain’t going to happen, but I always can hope.
What if I lend the HBC Chair my dire wolf--order “GSE” to obey her--and see if the pair working on the Secretary can produce some true policy answers or even secure a SM promise to fess up the Prez’s tax returns (“um, they’re being audited”), which shouldn’t bother the President because as we know he has nothing to hide and the Mueller report said “no collusion?”

My Calabria management hope

My premise is that FHA Director Mark Calabria is a smart guy; he has some traditional conservative views which resemble what big banks and the Right Wing have said in the past about the GSEs; and he espoused some of it, given his variety of past jobs. But he's already stated (paraphrasing) "the 2012 sweep wrong and a mistake" and I suspect he is learning not everything he thought coming is accurate or plausible from a policy perspective.
He's learning or soon will appreciate the GSEs do a hell of an operational job, a major complicated one (made worse by regulatory interference from intrusive political nerds with agendas who never worked in a major financial services business) as they manage their legacy portfolios and newly acquired securities. And he knows that—without the GSEs—there really is no long term fixed rate mortgage financing which the US consumer celebrates and wants. I suspect, too, he is awakening to the realization that he doesn’t want his DNA among the detritus of those "just kill the GSEs efforts," since those won't succeed.
I don’t see Calabria becoming a flaming GSE housing advocate but realizing they are more desirable achievements in the mortgage finance world than being defined by all of the “get rid of the GSE schemes” because Fannie and Freddie do a great systemic job and provide something no amalgam of other financial institutions can, because the banks are reluctant to take it on without Uncle Sam writing them a large cashable financial diaper. 
Again, I hope Calabria surprises and becomes an honest broker and doesn’t engage in ideological fantasies or caprice with our nation’s $10 Trillion system mortgage finance system, a potentially monstrous middle-income jobs/wealth generator and purveyor of the “American Dream,” which has been put in his care.

Maloni, 5-12-2019

Happy Mothers' Day ladies and thank you for all you do for the many people in your lives. We--and the nation--need and rely on you!!

Sunday, May 5, 2019

Will one of you #$@&^%*, please, just act??

“You first Mr. Secretary; no, You go first your honors,”

GSEs, GSEs, GSEs, blah, blah, blah. Steve Mnuchin, for two years now, has been saying "free the GSEs!"
When is it going to happen, man?
Only the very politically naïve believe every single individual at the reputed “independent institutions” in the nation’s capital, like the Fed, the Supreme Court justices, or other judicial officials don’t read the newspapers or follow political events and developments.
Not in this town, because where you sit is where you stand.
In my last blog, commenting on when we might get a GSE decision from the en banc Fifth Circuit judges--which could turn upside down the 2012 Treasury cash sweep of all future Fannie and Freddie profits--I admitted that nobody knows the court’s schedule, let alone inclinations.
Also pending is a GSE case before US Judge Margaret Sweeney, which reportedly now has her court assistants putting tiny mirrors under the judge’s nose—just check if she is breathing--since this case has been pending for as long as GOT’s “Night King” has been threatening Westeros.
(Apparently, just last week there were reports of DC area 7-11 stores selling cartons of milk with Judge Sweeney’s picture on them!)
OK, those were(bad) jokes!
However, the delays the two legal actions are experiencing caused me to wonder if the judges in both cases are waiting for the Administration to move with its “GSE regulatory fix,” which reportedly has been in percolating stage for a dozen or more weeks and now is bouncing around between FHFA’s Mark Calabria, Treasury Secretary Steve Mnuchin, and Larry Kudlow, the latter writing the memo inserting himself in the review of the proposal? (I am sure that fact just made Mnuchin’s day.)
I’ll bet every big trade association has seen/heard some of the WH plan, which is probably why they are so twitchy!
BTW, the longer these non-judicial delays, including whatever is holding up the WH, only plays up their embedded  conflicts with  traditional GOP and Right Wing themes and what the latter hope to get out of a future mortgage finance system. Not that anyone seems to care what is best for the American consumers! (Shhh, it rhymes with "GSE.")
Then there’s this reality, the federal government must settle with GSE shareholders since the public’s junior preferred stock represents a “contract” with federal government.
 Any Treasury Department hope to create new “mortgage guarantors” to compete with the GSEs—however Treasury would do that—begs the questions of why would any sane investor put her or his money up when Treasury in 2012 aggrandized all future GSE earnings from Fannie and Freddie shareholders, without any forewarning or compensation?
That’s a lousy precedent to draw fresh money into the mortgage market through some banker’s and mortgage banker’s wet dream to abolish the GSEs.
Flash to the future from Secretary Mnuchin: Please Ms. And Mr. Investor, forget all about Hank Paulson, put your cash in these new whiz-bang thingy do’s and, trust me, I never will take your money from you, honest!
Keep that in mind when the anti-GSE TBTF bank crowd clamors for more private capital but also wants new federal guarantees for their own (which are not truly private) mortgage securities, because it’s a (not!) commercial bank standing behind that bank PLS. (A little more on that point, later.)
Riddle me this, guys, how would elements of this new bank legislative demand reduce the government’s “at risk” profile in the mortgage market?
Oh, I get it, those new Uncle Sam bank benefits (see the latest “Crapo principles”)—just like the bargain basement FDIC insurance it gives the depositories—can’t be considered a federal benefit, especially when the banks say, lamely, but “we pay for it?!!” (The last time I checked, about $7.5 Trillion in bank deposits was being protected by a $100 Billion FDIC fund!! Talk about leverage.)
Where I am headed with all of this is to suggest maybe this WH loves the GSE current status quo, feels no need to change anything, because its total focus is on the 2020 election.
Hurry up Fifth Circuit and/or Judge Sweeney, nothing but a positive plaintiffs’ decision could be big enough to move these Admin guys from their GSE reform odyssey taking real action.
But then—think about it--maybe the courts are waiting for the White House and the Trump Administration is waiting for the Courts, to provide cover with the Right, which may not like Treasury’s plan to privatize or recap and release Fannie Mae and Freddie Mac, about which I’ve often written, since nothing done in DC would surprise me.
Christopher Whalen, GSE Critic
I don’t often agree with Christopher Whalen, a dedicated “only in God’s lifetime” GSE critic. In fact I sharply disagreed with his ignorance/feigned avoidance of how deeply the nation’s banking system is riddled with federal bank subsidies.
But his article did contain this prose with which not only do I concur but I offer because it makes extremely difficult the task of those who would replace Fannie and Freddie with one of their “reform solutions.”
“The fact is that the GSEs are creatures of Congress and are de facto backed by the full faith and credit of the U.S., regardless of what the law may say. Welcome to Washington. Mess with this convenient fiction and liquidity in the secondary mortgage markets will be vastly reduced. Without the subsidy provided by the federal government, the revered 30-year mortgage will likely disappear as the market for secured mortgage finance evaporates. As the old saying goes, be careful what you wish for Secretary Mnuchin — you may get it.”
Thank Chris for an effective warning and reminder—from a GSE opponent--you offer the pols and DC stakeholders of what screwing with the current system could produce.
And—having little to do with Whalen—the political reality for the GOP and its allies to remember is that you can’t legislate or regulate memories away.
Until Treasury Secretary Hank Paulson, seeking to implement his ideological scheme to neuter Fannie and Freddie--and serve the TBTF institutions, while claiming he was protecting and preserving the GSEs—harassed and blackmailed their boards to accept his $189 Billion ersatz solution 11 years ago--neither Fannie or Freddie ever required emergency federal financial support (and, as the courts now are haggling over, maybe didn’t need it in 2008!!).
The GSEs—which printed the factual law at the time “not the full faith and credit of the federal government” on every debt instrument or security-- covered all of their own losses from earnings before the infamous Paulson Shanghai.
I may be repeating stuff said before but it never hurts to separate the honest facts from the storm of distortions from the big bank, anti-GSE crowd since they keep spreading all town, along with a lot of campaign cash.
For the Record:
In a previous blog, which I think I nailed, I suggested if Donald Trump’s two Federal Reserve Board candidates—Herman Cain and Stephen Moore-- not make it, Sarah Palin, with her rifle rack in hand, still is available for Fed service. Especially, if DJT just wants someone to follow his lead and screw up the Fed’s culture and works.
Well, with Trump’s recent “let me attack the Fed through idiot appointments” now behind him, several new names have cropped up who would support the President on anything he wants and are deserving, since he self-proclaims that he  nominates “only the very best.”
Highlighting my list of colorful potential Fed Board candidates are: losing Alabama Senatorial candidate Judge Roy Moore; former Arizona Sheriff Joe Arpaio; current Alt-Right fuhrer Richard Spencer; front line white supremacist, anti-Semite, and ex-KKK Wizard, David Duke; for balance there’s Louis Farrakhan, not a white supremacist but certainly an anti-Semite, ready for a Faustian DJT appointment deal; and there’s both Marcus Bachman, former Rep. Michelle Bachman’s husband (if he will give up his lucrative practice urging his clients to “pray away homosexuality” or as they call it “Pray out the Gay”--and former Congresswoman Bachman herself, would be good, since she served on House Banking and once visited a bank. Plus, if the Prez chooses Palin, Ms. Bachman  could team with the former Alaska Governor as a cabaret pair, “Fed ditzies for Trump;” last, there’s Ronald McDonald, but he has a good paying day job and gets to wear a neat outfit!
Since all Fed Board nominees require Senate approval, it shouldn’t be difficult to prep any of those “best” folks on the nation’s financial services system, US monetary policy, and the role of the Federal Reserve and related issues, since all would represent blank slates.

Maloni, 5-6-2019

Sunday, April 28, 2019

..because that's where former regulators go for their next breadbowl!

Color me GSE-confused, but that’s not new

(Make sure you read Tim Howard's new blog, published this morning.)

As with most of you, I am attempting to deduce/interpret what happens next in the Fannie and Freddie world between a possible Fifth Circuit Court decision, White House calls for a plan to get GSEs out of “conservatorship,” and (confusing and sometimes incompatible) comments Mark Calabria made in a WSJ article written by Andrew Ackerman.
Tim Howard’s adroit comments on Calabria’s statements tell a far better story than I, so you can read them in this link to his blog.
As I told a blog commenter last week, Calabria’s academic achievements, his time on the Hill, work at CATO, and whatever he did for Vice President Pence suggests—but doesn’t necessarily prove—he understands markets or their interplay amid shifting GSE politics.
Listening to his public remarks reveals to me, as their primary regulator, he hasn’t clarified his role or what he wants to do with the GSEs although—at the end of the day--everyone knows Treasury will pull all of the strings and FHFA is the passive tail wagging dog.
But to say he wants the GSEs free and out of “conservatorship” and seeks the Hill‘s help to get there is either boilerplate institutional BS or utterly naïve about the Congress and Wall Street.
Calabria just should keep reminding himself, “Senator Crapo (R-Idaho) and Chair Waters (D-Cal.)” and drop the "congressional help" line and remember “money wants to make more money.”
Since the new FHFA Director hopes investors will provide $100 Billion or more in capital for the GSEs to operate—which Calabria says is core necessary--he can’t suggest to those who would invest, he also wants to pull the Fannie/Freddie charters, largely the only thing worth buying!
That’s like trying to sell an exclusive Mickey Mantle or Babe Ruth baseball card, but only after you ask the buyer if your kids, first, can paint on it and your dog chew it?
The Director soon will learn there is nothing easy involving the GSEs and nothing which, politically, doesn’t create rancor on either side of what he proposes or supports.
Even though he’s been in town for years and babbled in his interview about those clashing objectives, I give him a pass because he’s new to the position and, likely, just realizing how few options he might have, given what he’s written/spoken about, i.e. ending the “sweep,” GSE privatization, and dozens of other related things.
Good luck, Mark and lean on your new assistant, former Fannie executive Adolfo Marzol.

One of these things is not like the other...

I had an interesting exchange with one blog reader and explained my perspective on how large banks and GSEs contrastingly are regulated at the federal level.
Basically, in sharp contrast to what I’ve observed of GSE regulation since 1992—which I saw as interventionist, controlling, and sometimes hostile--in TBTF bank regulation, the banks are welcomed, adopted, shepherded and cared for by the Comptroller, Treasury, and Fed (looking ahead to post government jobs?).
Despite constant industry bitching, moaning, and whining, bank regulation is soft, big bank regulatory treatment is almost benign.
Despite $175 Billion in banks fines for breaking laws and regulation, since 2008, which big banker has gone to jail, let alone trial??
My advice to Director Calabria, wait a few weeks before giving interviews and broadcasting your grand schemes (too late???). Wait to see where your Admin bosses want to go, then travel there with them. If you don’t like where they are headed, announce your disagreement and then resign.
If he wants, Calabria can/should help make the GSEs operationally free, again. He can be supportive.
He can remind himself of the GSE’s community importance and the very clear practical reality (and history) that the American consumer and every professional in the mortgage finance chain succeeded and were profitable during the GSEs halcyon years, including the nation’s largest financial institutions, which still are doing well (see revenues, profits, and happy shareholders).
Calabria can grasp it’s not a zero-sum game unless the big guys get even more greedy. When the GSEs are free to do what they always have done for those seeking mortgage finance, the mortgage market is buoyant and uplifting and there is no incentive for lenders to return to fraudulent practices.
Thoughtful regulation already has squeezed much aberrance from the mortgage industry.
The housing/mortgage finance industries benefit from a healthy Fannie and Freddie involvement, but more importantly, so does the nation and its mortgage seekers. That’s far more desirable for Calabria's resume than,  “He succeeded in frustrating the GSEs return to operational success.”
Contemporary legal matters
First off, a reminder, I ain’t a *&^%$# lawyer, now shorthanded to “AAFL.”
(But, I did learn that Judge Margaret Sweeney’s photo has been put in the latest Funk and Wagnall’s encyclopedia under the term “not in God’s lifetime.” You be the judge—Sorry, I couldn’t resist that line.)
The Fifth Circuit en banc review of the Collins decision still is pending. 
GSE hope springs eternal in this season of renewal.
If there is a Fifth Circuit decision for the plaintiffs, i.e. the investors’ side, the government could appeal to the SCOTUS, unless the finding is benign enough to accommodate whatever Treasury, FHFA, and Crazy Larry Kudlow support.
I also was told a favorable ruling for the plaintiffs ending to the sweep would happen immediately, with future earnings going to the companies for capital purposes.
"AAFL," but any of you who is, might want to answer—if the Court decides for the government—what would make a SCOTUS, which can refuse to hear an appeal, hear this one???

Historic legal matters

An old friend and GSE savant, who calls himself "Doc Cartoon" and produces GSE artwork, came up with a rare find, something quite useful especially for that DC audience still very ready to believe any criticism of GSEs, even the distorted suggestion that 15 years ago, Fannie’s mortgage operations featured mismanagement and legal violations.
Most of that original noise stems from actions of a gaggle of lazy and weak GSE regulators at the FHFA predecessor, the Office of Federal Housing Enterprise Oversight (OFHEO).
In 2004, frustrated because certain Fannie execs refused to hew to OFHEO’s cant which sought to substitute  inexperienced regulators’ business thinking for management’s expertise, OFHEO decided to willfully retaliate and announced the company’s senior leaders were guilty of “securities fraud.”
Doc's find was a legal publication’s article discussing Federal Judge Richard Leon’s dismissal of those charges against former CEO Frank Raines and former CFO Tim Howard (as well as a third Fannie official, Leanne Spencer Garmon).

It took eight years for that malignant Fannie claim to be rejected by the courts, which is proof of the adage (attributed to Mark Twain), “A lie can travel halfway around the world while the truth is putting on its shoes.”

But also be alert this smear and variations still are employed today by the anti-GSE crowd.

Maloni, 4-28-2019

Monday, April 15, 2019

Fifth Circuit and other meanderings...

GSE Scuttlebutt and other Informa$ion, some interesting!!

First off, I have a tiny clarification to last week’s blog, where I mentioned the world might hear a decision from the Fifth Circuit Court “in the next couple of weeks.”
That was accurate, but it also was pure guesstimate/speculation on my part.
Nobody knows when we will hear a Fifth Circuit decision and nobody knows the parameters of same—although a decision indeed could be coming shortly.

From this point on in this blog, I am practicing-without-legal-portfolio, SINCE I AM NOT A LAWYER, a factoid I will reduce to an acronym for my future blog purposes (“AAFL” or “ain’t a *&^$#@^” lawyer”).
Court Cases
In the shareholders wet dream, the Fifth Circuit Court will find the federal government guilty of an APA violation or possibly “takings” under the Constitution. The remedies are more vague and multiple but—if the sweep is ruled illegal--one form of relief might be Treasury writing checks to Fannie and Freddie for their past payments over and above what they would have paid under HERA’s original pre-sweep dividends (2012). That development could mean payments of @$60 Billion for Fannie and $45 Billion for Freddie.
But the same decision could end the sweep but produce a tax credit which would wipe of the Treasury’s senior preferred, leaving Fannie and Freddie with future tax credits of @$10 Billion each, but could open the way for profits staying with the companies to build capital.
Part of my conjecture is will the WH want to engage in any operational step that adds to the deficit immediately, which check writing post Fifth Circuit decision to the GSEs would do?
If the judges decide for the plaintiffs (the shareholders), the Admin could appeal to the Supreme Court or—if the judicial resolution and financial hit to Treasury was more attractive to the government--possibly because it was consistent with some aspect of its Mnuchin/Phillips/Otting/Calabria GSE fix, which now might need the ideologically unstable Larry Kudlow’s blessing--the government might accept the court’s ruling and seek to implement it.
If the Fifth Circuit decides in favor of the defendants, the federal government, the logical legal procedural remaining to the GSE crowd is an appeal to the Supreme Court, which may or may not agree to hear the case.
If the Administration opposes the Fifth Circuit’s decision and chose to appeal, while it sucks, I expect the “Supremes” will hear the case in a heartbeat.
Big Kahuna, indeed!
The stakes involve maintaining Fannie and Freddie in some measure of their original form, doing what they do best for the people of the United States—or swapping over a long time—a mortgage financing arrangement everyone knows for a scheme they don’t.
Not to mention the billions of dollars at stake when and if, a court finally decides on the legality of the “sweep, “issues still present even if the Fifth Circuit doesn’t favor the GSE forces.
Let me dwell on a more propitious near term outcome, a court finds for the GSE plaintiffs which includes true Fannie/Freddie operating space and real capital generating capacity.
Note, this could come either from a favorable (Fifth Circuit or even SCOTUS) court decision or from an Admin plan removing Fannie and Freddie from Conservatorship and recapitalized. Fresh capital could come from legal damages accrued, future earnings not offset by weird federal obligations, or just fresh GSE stock issued.
In this example, don’t look for the GSE opponents to walk away empty-handed. Those forces are too DC present and give too much campaign money to totally be stoned by the process, judicial or political. That’s especially true if we get a regulatory plan, where the Trump Admin it can decide winners and losers.
Someone in the GOP/trade association cabal will attach some obstacle, limitation, or handcuff to any GSE freedom.
Don’t ask why, it just always happens.
(Good time to point out a quote from Paul Muolo in last week’s Inside Mortgage Finance, when discussing the GSEs, he called them “the straw which stirs the mortgage banking industry drink.” It’s a fact and makes me/you/one wonder, why the MBA, then under David Stevens and now, Bob Broeksmit, always can be found in rank opposition to the GSEs on any variety of issues????)
Related/Unrelated—Maloni on “Clean Political Kills”
The reason for what I just wrote is that there are very few clean political kills or one-sided wins in DC, although every DC lobbyist (including this former one) will swear they produced or help secure one or more.
Where that was true, they were small compared to the issues discussed here and the massive dollars and systemic changes implicit—the nation’s $10 Trillion mortgage finance system and billions of dollars embedded in the remaining lawsuits against the Treasury, not to mention ongoing efforts to try and replace the GSEs with something which won’t be as efficient or fair, will be more costly and not as good for consumers (who vote!!), and predictably will get screwed up in implementation.
Think “Obamacare” and how clean that was and is.
My point being, Washington never does anything simple, neat, and starkly correct.
I hate to skewer more windmills for the good guys, but think of what I’ve written when you see those discussions of hoped-for GSE stocks prices in the hundreds.
Remember, before I get any complaints about 5th Circuit or share prices….AAFL!!

Maloni, 4-15-2019

Tuesday, April 9, 2019

Congress is back, hide the women and children

Cats and Dogs to the Second Power:
Some silly GSE stuff and other matters

OK, let’s get right to the Fannie/Freddie issues of the week, of which there aren’t too many since Congress is returning from its Spring break and needs some time to decompress. 
Bulletin, Bulletin, Bulletin: “Federal Reserve Board Nominations...” 
This social media flash just in: After hearing President Trump announce he planned to nominate to the Federal Reserve Board both Stephen Moore, conservative commentator without portfolio and admitted federal tax scofflaw, and wealthy pizza magnate and briefly 2016 GOP presidential candidate, Herbert “999’ Kane, former Alaska Governor and John McCain’s 2008 vice-presidential choice Sarah Palin announced her availability, too.
The latest, in this already confusing story, came when Palin today told the media--in a hastily generated Hopscotch, Alaska, press conference (attended by two reporters and an unemployed Iditarod mush dog)--if there is a third Fed vacancy she, too, is ready to serve on the nation’s central bank’s Board.
She reminded the gathered reporting pair (and, presumably, President Trump) of her pluck, reprising and updating her self-comment from 2008, “I can be a sycophant, too. If Trump wants me and has the monetary rifles, I have the rack!”
(Why not Sarah, Herb, and Stephen? Moe and Curly had Larry??)
Just because the Hill mostly is GSE comatose, there still are some major events to keep an eye on, like the..... 
“Button, Button, Who’s Got the (GSE) Button?” competition
(Cue the GSE stuff..)
Okay now, participants, this is FATE asking if everyone is in place for a fierce elbows-up match of “Button, Button, who’s got the (GSE) button? (Youngsters, go to Google and review the rules.) 
Clerk, call the toll.
Senator Crapo? “Here Fate”;
Chair Waters? “Here and hear Fate”;
Secretary Mnuchin? “Here Fate”;
Messrs. Otting and Phillips? “Here, here, Fate”;
Director Calabria? “Right here, finally, Fate”;
Mr. Kudlow? “ZZZ. Yo, here, Bro”;
President Trump? Mr. President?? “I am “%^$#@*& here, but I don’t want to be; don’t ask me again, just talk to Newstein, Nuisance” or whatever his name is; you know the one with the ditzy Limey wife, he’s our numbers maven? (I only hire the very best in lawyers and accountants, but I never can get this guy on a Sunday night, he’s always “out for Chinese?”)
Fifth Circuit Court judges? “Collective roar, HERE, Fate.”
Chief Justice Roberts? Chief Justice Roberts? Silence. (Clerk, report the Supreme Court is biding its time, watching but not playing, right now.)
Now Fate,  will walk among all of you—as you have your hands pressed together, as if praying (as we know all GSE investors are)--and will deftly drop into the clasped hands of one of you, the GSE Magic button which opens the door to the GSE future.

Game/Landscape Observations

Now those keen of eye and knowledge will note that neither the media nor the big banks are actual game participants at this stage, although everyone knows they easily can influence the Magic Button recipient.
So keep an eye on them when the game begins and play moves forward.
Maloni—not Fate, this time—will set the current game’s political terrain.
SBC Chairman Sen. Mike Crapo (R-Idaho) held his GSE hearings—which got him a lot more (thumbs down!) than he bargained for—and those sessions are over. Enough people questioned Crapo’s “GSE principles” that I suspect he won’t return to them for a while, save rhetorically.
I don’t think HBC Chair Maxine Waters (D-Cal) will do more than hold GSE hearings, emphasizing her interest (need for more affordable lending) but not try and write new legislation for which there likely is no Senate audience.
Although she always could borrow Maloni’s idea to boost low-income lending by giving all mortgage lenders some housing goals statutory requirement on loans which the GSEs then could acquire or securitize. Maybe as soon as Wednesday when she has a gaggle of bank CEOs before her committee?
Everyone assumes there is a Treasury “GSE fix” awaiting public unveiling, but still has some “missing jots and tittles”—likely because of uneven internal GOP support--which possibly new FHFA Director Mark Calabria can add?

Sometime in the next couple of weeks, we’ll see a decision from the Fifth Circuit Court’s en banc consideration of initial Collins decision which could accelerate action, decide much of the future action, or just leave behind the slackers. 
I won’t/can’t predict who among the above button seekers, preemptively, will move first and when, but will caution an announced Fifth Circuit Court decision would have massive political impact--on GSE structure, revenue allocation, and procedure—especially if the judges rules for the plaintiffs, possibly taking away much of the current “screw the GSEs”  ardor.
That also puts most of the players chasing the dogs in front of them, sniffing…..!
If that happens, the DC pols will scramble to get in front or accommodate the court’s legal implications in any way they can. (If the Court majority rules for the government, the issue, likely, is headed to the Supreme Court.)
Not being a lawyer (what a great defense when you discuss the unknowable!) and not knowing what flexibility (I assume a lot!) the Fifth Circuit has if it overturns Lamberth, I’ll ask does this Admin—apparently once inclined, before adding so many chefs to the policy kitchen—wake up and smell the Spring flowers, finally move and introduce an executive regulatory package, which resurrects, sans restraints, much of the quite well regulated, very successful GSE structure and operations by yanking back the unjustified Conservatorship? 
The Devil always is in the details—and even though major, major big dollars are involved and deep unfounded GSE animus exists that most in congressional R's have but can’t exactly identify, save, “They were run by Democrats, they made it too easy for poor (read minorities) to buy houses, the big banks tell me Fannie and Freddie are the Devil, etc. etc. etc.” 
Probably won’t hear too many knowledgable observers loudly declare: the GSEs operate fairly, with great efficiency, keep down the price of financing a home; they stop the big banks from discriminating in mortgage pricing and mortgage availability; operationally, they are very transparent; they work and have worked for years; there is no mortgage market emergency, except in the minds of those who will use any argument to replace the GSEs with wasteful, uneconomical, and unproductive—in comparison--Fannie and Freddie, so why waste even more time and money attempting to squash them??
Hopefully, long-suffering GSE fans—not to mention the nation‘s future homebuyers--will get answers to these matters, when the Magic GSE button settles in the hands of an interest that will use it…wisely?

Maloni, 4-9-2019