Friday, October 18, 2019

One man’s opinion

FHFA = “Wasting Money Is Us!”

I am PO’d but not surprised.
The current GSE regulator (not OFHEO, the first, born in 1992)—the Federal Housing Finance Agency or FHFA--has been around since 2008's Housing and Economic Recovery Act (HERA) 
It boasts some 600 or so employees.
There have been very few departures from this do-little-but-get-paid-a-lot agency. In researching something on FHFA’s website, I saw the various available employee benefits, which makes clear why few people bugout, if they are not canned.
It’s another sinecure and with its track record, but a lame one at that.
And now, Director Mark Calabria’s agency is seeking outside investment banking advice to consult on how to end Conservatorship at the right capital levels, at a cost of somewhere between $20 and $30 million dollars (more?) for that advice, according to Paul Muolo writing in Inside Mortgage Finance. 
In an email with Tim Howard I ruefully suggested be could do that job, start to finish in about 12 weeks, saving the GSEs a lot of money which could be put to needed capital.
Just what have those 600 people been doing for 11 years, if not studying how Fannie Mae and Freddie work and what they do?
We know FHFA cages as much customer information from the GSEs as it can and then reissues it in a variety of formats, pretending its original FHFA work.
Does anyone down there understand how their regulated entities operate and what capital protections are needed to make them safe performers in the international markets, where the sole GSEs assets being securitized, then bought and sold are exemplary and highly liquid US single and multifamily mortgages?
Fannie and Freddie have achieved a highly enviable 10 year track record of minimal losses (not to mention scoring sterling “stress test” results which FHFA just published). How about how Fannie and Freddie each manage their growing low risk securities business, while shrinking their legacy higher risk portfolio businesses?
Seriously, how do FHFA workers spend their days? And what corporate understandings/intelligence have they gleaned from their past decade plus of close supervision of the two mortgage giants?
If the answer is “not many,” then Fannie and Freddie—which cover all FHFA costs—are paying a lot of sloths to shuffle through the halls and spend time in their regulators break rooms.   
Don’t forget, either someone at FHFA  has been faking it or all of the prep the agency conducted for months and months before they issued its much-touted pre-Calabria GSE capital plan wasn’t worth very much. (Probably because it didn’t hurt the GSEs as much as some inside wanted/hoped.) 
It is not quite like the President taking bows and saying “ISIS is defeated,” then flip-flopping and crafting a torturous rationale to let Turkey slaughter the US’s Kurdish friends/allies and turn loose upwards of 10,000 ISIS fighters to go back and rebuild a new a caliphate, drawing inane and ridiculous analogies out of sync with international political reality and the historic US role as an honest broker.
Oh and come stay at my hotel, do I have a room and board deal for you??
But Calabria didn’t do that, his boss did..
He just wants his staff to go back and work with his new consultant to establish the right set of capital numbers and circumstances to end Conservatorship.
So why not try and CUT the cost and seek Treasury assistance or ask the Fed for help, don’t just spend another $30 million, coming from GSE coffers—just like the unneeded Common Securitization Platform, but not as expensive—which denied Fannie and Freddie some $600 million in possible capital, that being the unnecessary project CSP cost?
Bringing in outsiders has value but it also produces a variety of ways to throw sand in the gears of the goal to end Conservatorship, while creating delays and new hoops for the GSEs to run through. Whatever deadline the consultant is given, assume it will go longer and the same thing with whatever the initial cost will be. That’s why they call them consultants.
(Here’s a suggestion: Since the winning firm will have history in investment banking business, ask those competing for this new FHFA contract to take a fee “ haircut” (less money)  based on future profits the broader IB industry will earn when the GSEs start paying investment fees—under the new rules--to raise equity and to issue their MBS.)
The bad news here is this delay gives Mark Calabria more time to figure out where his and the agency’s self-interests are, as well as an excuses to thrust this whole exercise into a presidential election year politics--which likely will, now, feature impeachment issues--solely because the agency which is supposed to know the most of Fannie Mae and Freddie Mac doesn’t and comes up short in more ways than just providing available staff parking spaces.
To test FHFA staff learning or GSE skills’ retention, maybe the GSEs should conduct tests of FHFA personnel on various elements of the GSE business and report those results to OMB and the two congressional Banking Committees to share who knows what and who idling in place just waiting for their federal retirement dates.
And don’t forget the obvious, this drill delay also gives the many GSE mischief makers (whose hearts are not in turning the GSEs loose) more time to drive up GSE costs—including to higher bank like capital—and building in other product and mortgage ceiling impediments (as Calabria has been predicting for weeks as he runs around touting the flawed Treasury Report).
Leopards don’t change their spots!

Maloni, 10-18-2019

Sunday, October 6, 2019

Not much GSE content, but something quite important commanding your attention, if you are a voting citizen

Today’s blog is not a GSE blog, but something very much worth reading. It’s a column by Dana Milbank, which should help you make more sense as you seek to understand President Trump and his disturbing gyrations involving Ukraine and related subjects.

Briefly, on GSE matters, I also have to acknowledge that the Trump Administration has done more to free Fannie and Freddie from Conservatorship than 8 years of President Obama and his band of his WH and agency bloodsuckers, who first hoped to use Fannie and Freddie first as cash cows and then to turn their out of government careers into rewards for being anti-GSE.
Those “Democrat fellow travelers” are on the shortlist of people my late mother’s only living son (me!) hopes require Kaopectate every day for the rest of their lives.

The Milbank article is below.

Maloni, 10-6-2019

Wednesday, October 2, 2019

Such a deal??!! Fool me once, shame on me, fool me....

Le plus ça change, plus c'est la même chose

Yes, I have one…too!!
My cover has been blown and now everyone wants to use my top secret listening and transcribing device (I nicknamed it “Big Ear” and "Little Transcript)).
I’ve used this unique tool to propel my career as an “ace” GSE commentator and, now, it has been outed by those White House clowns advising President Trump, opening him to all sorts of political grief.
It's partly my BAD, I never should have permitted this POTUS to borrow the contraption when he was calling Ukraine, the Saudis, and Russia. I’ve been using mine for years to listen and never got caught “researching” politicians in the nation’s capital. I don’t employ it often, but often enough to maintain my GSE primacy chops!
Then, Huzzah! After two visits last month to the nation’s last remaining Radio Shack, they torqued mine up. What I have now allows me to capture what my subjects are thinking before they say or write it.
That’s why I appear so casually prescient when describing what any individual truly has on his/her mind before they utter it, especially the anti-GSE crowd.
For instance, this weekend Big Ear picked up some juicy morsels from what FHFA Director Mark Calabria’s was thinking before Treasury announced on Monday new mandatory capital deals with both Fannie and Freddie.
Anyway, here are some of MC’s weekend thoughts. 

Zippity doo-dah, zippity…I can’t wait for Monday and those letters go out binding them to yet unwritten to our "other conditions."
It’s all set, Mnuchin has stepped back on GSE issues and I stepped up. Zippity doo-dah. I need to practice what I’ll say to my fans and the others.
Let’s see? Here, here, get them while you can. They may be lightly scratched and dinged—yet we still will call them Fannie Mae and Freddie Mac--they still will be in the mortgage business, but I have a few changes in mind because of which they must signup before I let them apply their skills and talents to supporting America’s low, moderate, and middle income families eligible to qualify for reliable GSEs mortgage loans.
But, don’t ask me for details, as I need to add more scuffs and nicks to them while I can. Just wait until you leap at those first few GSE public offerings of entities, which won’t look just like today’s version—let alone the pre-2008 version. (Weren’t those spiraling down somewhere?)
Let’s face it, despite my breezy language to those naïfs on the Senate Banking Committee, who approved my nomination, I really have little liking nor respect for the GSEs. I know I begged to get a regulatory job with the Trump Admin—anything to get away from Pence-- and my big bank buddies insured me that any damage I can do to Fannie and Freddie will be appreciated (and rewarded) by those same GSE critics and opponents. I know Steve Mnuchin and the POTUS want the GSEs put back in the hands of private ownership (that’s you Mr. and Mrs. Investor). But, yak, gag, barf, whoever heard of a government agency with shareholders??
Yes, they are efficient and better run than the banks. Yes, they stunned everyone in DC, including me, when they paid back more than $310 Billion for Hank Paulson’s 2008 $190 Billion gift and then strapped and carried on their shoulders the nation’s entire conventional residential (non-FHA/VA) mortgage markets, single and multi-family.
But, B.F.D!
Unless I try now to cripple the GSEs, when given this opportunity, who will push them out of the government’s door and hobble them enough so that they can’t still help millions of mortgagors going forward, plus set their new investors up to make billions?? Best of all, with Mnuchin’s help, I’ll make sure Fannie’s and Freddie’s execs will have to comply with all of the “sand in the gears” bells and whistles Kudlow and I placed in the Treasury Report before anything real happens with ending “Conservatorship.” Plus we can snap the regulatory whip going forward to make sure they stay in line.
How can those schmucks stop me or say “no,” I’m their regulator and the Conservator!!
Thankfully, I anticipated this first “public step” to satisfy my longtime goals and helped load up the Treasury’s “Report to Congress” with just the right mix of major new internal costs and delay procedures to achieve my real objectives, had Treasury—with my humble assistance-- demand the GSEs sign up to cooperate on those steps, so nobody can say the Trump Administration blackmailed the GSEs. (I 'll love my new powers and  additional staff  I’ll get out of the deal, because there it is right in the Treasury Report. Screw you Fed, OCC, and FDIC!) How did my big bank buddies put it when I got this job, “Don’t be inconsistent? You need to keep trying to help your friends and destroy our enemies!
”Yep, this Boy Scout is large, in charge, and walking tall! That’s why I insist my FHFA team call me “Buford Pusser!” (Let them look him up!)
Soon I can shrink Fannie’s and Freddie’s size, impact, and foodprint, with nobody in Congress saying “boo,” because they don’t really care or understand the myriad mortgage or capital issues and players running the game today. Some will gripe about “low-income goals,” but Hell the banks don’t want that business anyway so I can give in and make them 50% of the GSEs total annual business, which they were back in the 90’s.
Working on a package of bank-like capital requirements, too, despite the fact I know F&F don’t look or operate as banks will drive up the GSE cost of doing business. And, I can easily hide behind “safety and soundness” concerns, when I explain, With the GSEs, since so many in this town have no idea about the role of capital, one never can have too much capital. (It’s not my job to worry about consumer mortgage costs which obviously will go up.)
And—to my great joy-- it will cost F&F even more when we tell the world the net $120 Billion or so the GSEs have paid back since 2013, on top of the original $190 Billion, just isn’t enough to repay the nation for its GSE support since 2008 and they have to pay us an “exit fee.” Hot damn, that will cause a few sphincters to tighten up!
I hope those Lefties don’t give me any sass about trying to offset those costs by trying to monetize the reverse value the GSEs represented for their liquidity role post-2008 which produced huge affordable mortgage volumes without generating any losses (which—duh-- was how the GSEs paid back all of that money to the taxpayers).
But, as I believe, there will be nobody making that GSE case nor any other when we force them to “negotiate.” There won’t be any give-and-take in those meetings, just us giving them orders and Fannie and Freddie taking them.

(Don't you love the way my targets think in highlights and punctuation marks! WRM)

Maloni, 10-2-2019

Tuesday, September 17, 2019

What good is he if he just fans the fires of ignorance?

Calabria is a Sycophant

In terms of a bountiful and rich GSE communications opportunities, the past several days were fabulous.

Last week—give or take a day--provided three major GSE moments.

First there was the publication of the underwhelming, very disappointing and crudely cut and pasted GSE Treasury Report, which I hoped was going to unveil all the Admin demands to free the GSE’s from Conservatorship, but it didn’t, leaving more questions than answers; followed a few days later by the Senate Banking Committee appearances—coordinated to explain the GSE report, by witnesses Treasury Secretary Steve Mnuchin, HUD Secretary Ben Carson, and the new GSE regulator Mark Calabria, Director of the Federal Housing Finance Agency (FHFA).

BUT, right smack dab in the middle—manna drops from Heaven, possibly surprising to everyone, except for the Admin officials who likely got tipped by insiders to the timing and content of the report—the Fifth Circuit Court issued a decision which favored two key points for the plaintiffs (GSE investors) in the Collins case.

The Fifth found that FHFA’s structure--set out in the 2008 Housing and Economic Recovery Act (HERA)--was not constitutional and the agency overstepped its authority instituting the 2012 net worth sweep.

Both matters were remanded to the lower court for reconsideration.

(The 2012 aggrandizement of all future Fannie and Freddie revenues, the NWS or Net Worth Sweep, which to date has produced $310 Billion going to the Treasury,  not preserved for protective capital or dividends for shareholders was called into question by the Fifth.)

But, unless someone knows what and when the internally competing Administration interests will do in response to the decision, the logical questions everyone has-- not just investors--have no Treasury/FHFA provided answers, yet.

But, like it or not, this all appears to be a 2020 issue, unless another shoe drops or Treasury seeks a settlement, since other litigants may rise to challenge the government in related matters.

This is a good reason for us all to “stop, look, and listen,” as they used to advise us public school students in the 1950’s (and that was before they showed us how to “duck and cover under our desks,” in case incoming Soviet nuclear bombs were soon to drop).

A Brief Blog Look Back 

In my previous blog, I chose BIGLY to call in question the Treasury’s choppy, written-by-a- committee report on its still very vague plans (lots of intent but no action or schedule discussed) to free Fannie and Freddie from their 11 years in servitude, otherwise called “Conservatorship” and what I believed was Calabria’s feckless role as the GSEs safety and soundness regulator but simultaneously a would-be executioner.

Before I get into what PO’d me the most about Mark Calabria’s Senate hearing performance, I must note I don’t believe the Trump execs working on the ”end Conservatorship”  task have their collective hearts in the exercise, because that action alone, i.e. freeing Fannie and Freddie from Conservatorship, violates what many  GSE-critics have been saying/seeking for years—and it’s their guys (with a little help from the court(s)—whose DNA will be all over the “free them” rules/requirements.

Last year, Steve Mnuchin brought into his Treasury shop Wall Street’s Craig Phillips largely to draw up Treasury’s plan ending Conservatorship.

Phillips completed his work months ago, then he was pushed out of Treasury. I don’t know why or by who but Kudlow and Calabria, or his Hill buddies, are my prime villains.

Early on, I relished/enjoyed going after Mark Calabria for what I considered his two-face treatment of the GSEs, while delivering his spiel about ending Conservatorship and returning them to full private ownership.

My response was “haff kaff, harumpph!.”  

(For you kids or seniors who don’t remember--kudos to the character Major Amos B. Hoople of “Our Boarding House,” daily and Sunday comics fame. “HKH” was his go to phrase when he was spinning to other renters or blusteringly trying to fake his way through matters he really didn’t understand.)

Calabria's Errors and lack of honesty

A few things also angered me about Calabria’s many public appearances.

He took over his job as if he was coming into a mortgage penal colony, carrying a whip and a gun and somehow believing he had to cage these snarling systemic mortgage beasts. He showed no respect for his job or the institutions.

Naturally, engaging in “Bureaucracy 101,” he first asked Congress for more resources, staff, and authority.

Conveniently, Calabria also ignored GSE abuse at the hands of previous GOP and Democrat Treasury Departments, Congress, the media, and other ideological foes, as well as his own agency personnel.

Since donning his FHFA hat, I never once saw him once given the GSEs credit or kudos for what they’ve achieved over the past 11 years during the harrows of Conservatorship; no good words about the companies or their workforces and what they have produced, like—when times were tough--hoisting the national mortgage system on their shoulders and carrying it, ensuring a constant flow of mortgage liquidity throughout the nation to qualifying families.

Two weeks ago, he did limit some pay to senior GSE execs.

He showed no understanding or appreciation of them generating over $305 Billion in earnings, with all of it going to Treasury via his agency’s 2012 sweep, when it aggrandized all future GSE income.

The Fifth Circuit said the FHFA--now, his agency--violated the law with that action.

He could NOT see or praise, after their hands were virtually tied in 2008’s Conservatorship, when it was alleged both had “failed business models” and  were swirling down the industry’s commode.

Paulson’s Treasury officials, followed by Obama Democrats did the same, building the myth the GSEs were hopeless/helpless. 

But together Fannie and Freddie fooled them all and turned around their financial performances.

That action was aided when those same time-limited regulatory accounting tricks began reversing themselves.

The GSEs suddenly started to make massive returns from new business, along with the self-reversing phony bookkeeping ploys adding to GSE revenue.

Fannie’s and Freddie’s business books, lost their red tinge and turned black under girding the GSEs dramatic financial return, where they’ve been for the past several years.

But Nada recognition from Calabria.

He has spent a lot of time vilifying the GSE and announcing what he hopes to do to them and take away from them, that he forgot—a rookie regulator error—that you can’t talk about taking away valuable pieces of the GSEs and otherwise limiting them under your rule and then try to sell the investing public into putting their money into marginal or partially wrecked mortgage vehicles. And, Mr. Director, if you don’t quickly settle with GSE shareholders, what investors will want to put their money into any other scheme Calabria supports to replace the GSEs, if the record isn't cleared of recent past Treasury/FHFA financial theft.

Mark, choose a Mulligan, try a do-over.

Cheer and cherish Fannie and Freddie and hope the billions of dollars you hope they’ll attract whenever you free them—becomes the much needed capital you keep lamenting they don’t have. Remember, it’s the same investing public hearing your bleating complaints and shortcomings who must provide that needed investment capital/protection.

Do you want to project that Fannie and Freddie are gilt-edged or wobbly needing your fine hands/mind????

Try and connect your behaviors, man, and see how one undercuts the other?

Keep your personal ideological GSE dislike and lack of respect hidden in your closet

With your deeds and words, do all you can to make the world want to own the GSEs, which then makes your’s and the Admin’s job much easier. 

That includes stopping trying to weigh them down with unneeded capital (less GSE revenue means less for new investors); selling Treasury’s 79% piece of the two indicating your support for their future as privately owned institutions and adding that deficit-reducing Amount to Treasury coffers; belay the lower their loan limits and stopping them from issuing certain single and multifamily mortgage products, again big downer to those folks you want to invest hundreds of billions.

Back to your wimpy performance before Senate Banking. For my readers to see for themselves, below is a verbatim transcript with Calabria and Senator John Kennedy (R-La.), a clearly GSE-misinformed solon, ranting and making up scenarios which easily you could have corrected and educated him, but in doing so, you would have had to straighten him out and also laud some Democrats who helped drive super beneficial  systemic risk-reducing mortgage market changes before Donald Trump was elected.

Instead of telling Kennedy how well the GSEs did on the GSE stress test which your own agency conducted and published the germane results just a few weeks ago, how consistently each of them for the past 10 years have produced extremely low losses, have benefitted from the CFPB and QM mortgage market changes (before 2016) which prohibit PLS mortgage loans (with incomplete docs or no incomes)  coming into the GSE market (but still persisting among private banks), you fawningly and uncourageously punted and agreed with Kennedy suggesting the GSE mortgage market is not well.

Instead of disagreeing with Kennedy and, gently, saying he wasn’t describing today’s GSE mortgage market but one more than 11 years old, you nodded in agreement with him and never said a word about his mortgage market ignorance.

I'll let readers go through your exchange and decide how honest you were with Kennedy about the GSEs and about the oft-told GSE lies which you didn't try to correct.

Senate GSE Hearing (9-10-2019), total exchange between Mark Calabria and Sen John Kennedy (R-La.)

KENNEDY:  Thank you, Mr. Chairman. Mr. Director, as an American do you believe that I have a right to own a home even if I can't afford it?  
     CALABRIA:  I -- I think you have a right to own property, yes. Own a home, no. Whether you can afford it is -- opens up to whether you can actually buy that home. I mean it's -- it's the same in terms of view of the right to -- you have the right to drive a Mercedes. Whether you can afford or not's a separate question. So I'm not sure where you're going with the question, Senator. Be helpful for me to parse that out.  
     KENNEDY:  I just want to -- want to understand your philosophy. Do you -- do you -- do you think that as an American, if I can't afford a home I have a fundamental right to have other Americans subsidize me?  
     CALABRIA:  Thank you for the clarification. The short answer would be no.  
     KENNEDY:  OK. Yet, I think everybody on this -- this committee -- I think everybody on this panel believes we ought to do everything possible to make homes and mortgages affordable.  
     CALABRIA:  Absolutely.  
     KENNEDY:  OK. We can agree on that, right?  
     CALABRIA:  Absolutely. 100 percent.  
     KENNEDY:  Why would a lender make a loan without verifying income.  
     CALABRIA:  Agreed.  
     KENNEDY:  Why would they?  
     CALABRIA:  I think the only reason that lender would reduce due diligence like verifying income is because they can pass that risk along to someone else --  
     KENNEDY:  Yes.  
     CALABRIA:  -- like the taxpayer.  
     KENNEDY:  Yes. (Inaudible) because they can -- they can sell it (ph) to you guys.  
     CALABRIA:  Absolutely.  
     KENNEDY:  I mean, isn't that the fundamental problem here? How we got in trouble, was underwriting standards?  
     CALABRIA:  Absolutely. We are the ones holding the bag at the end of the day, after everybody else in the process has made money and walked away, it is the taxpayer holding the bag.  
     KENNEDY:  Well what have you done to fix that?  
     CALABRIA:  Well Senator, we've begun -- I guess tomorrow will mark 5 months on the job. We've already started doing a bunch of due diligence internally, try to make sure that we have the regulatory (inaudible) –  
     KENNEDY:  That wasn't a fair question. What did -- what did your predecessor do to fix that over 11 years?  
     CALABRIA:  I -- Senator, I think that to me, I'm looking at what needs to be done going forward. I -- obviously I would have preferred to inherited a different situation than I did but -- 
     KENNEDY:  Excuse me for interrupting, but you know, we're limited on time, Mr. Director. Have underwriting standards gotten any -- any more realistic?  
     CALABRIA:  They've gotten worse, not better. Certainly at the GSEs. We saw massive expansion the last two years, at least, where a whole lot of high -- high income -- high DTI loans were done that weren't previously being done. So underwriting standards have eroded.  
     KENNEDY:  Yes, that's what I thought.
  CALABRIA:  And it concerns me greatly.  
     KENNEDY:  Well, this is just one -- one point of view. This whole thing is a car wreck. It's a dumpster fire. We spent $190 billion of taxpayer money and we're in worse shape.  
     CALABRIA:  Agreed.  
     KENNEDY:  Now, here's what I think we ought to do. I'm not in love with every aspect of your plan, but I'd encourage you to get somebody to put it in the form of a bill if you haven't already, get it introduced and let's mark it up in this committee, Mr. Chairman and Mr. Ranking Member. Let's -- let's put it in front of the committee and let senators be senators, and let's try to put out the dumpster fire. What do we have to lose? I mean, how long have we been talking about that? Doing nothing is hard. You know why? You never know when you're finished.  
     CALABRIA:  Senator, I couldn't agree more.  
     KENNEDY:  Now, if that doesn't work -- and I'm not going to mislead you. It's going to kind of be like slamming -- trying to slam a revolving door, pass a bill through the Senate. I would encourage you, Mr. Director, to saddle up and go. Tell me what you can do with your administrative authority to put out this dumpster fire.  
     CALABRIA:  Well, the first thing we're hoping --  
     KENNEDY:  And by that I mean encouraging people to make loans to people who clearly can't afford to pay them back.  
     CALABRIA:  Senator, we will be de-risking the GSEs, particularly in the --  
     KENNEDY:  What does that mean?  
     CALABRIA:  That means that on one hand, if your leveraged 1,000 to one you can't make loans that are almost guaranteed to go bad, so we have to be able to improve the quality of the lending of the GSEs in a way that is sustainable, that doesn't end up -- I 100 percent agree. If we do nothing, this is going to end very badly and --  
     KENNEDY:  Well of course it is. We're going to have a recession at some point.  
     CALABRIA:  Absolutely.  
     KENNEDY:  What was the leverage ratio, Mr. Chairman? $0.19 for every $100?
     CRAPO:  That's what I understand.  
     CALABRIA:  1,000 to one at Fannie Mae.  
     KENNEDY:  Now let me say it again -- I got one second left. Let's put this bill in front of this committee, Mr. Chairman and Mr. Ranking Member, and let's see what we can do. I listened to Sherrod's (ph) comments. He made some good points. I don't agree with all of them, but I think we ought to flesh it out. But if we're not, let's just admit that Congress is just going to sit on it's ice cold lazy butt, do nothing and you need to get started trying to fix this car wreck, Mr. Director. Thank you, Mr. Chairman.

Why Senators seldom get smarter?
Because they are lied to, often by Administration witnesses (from both parties), and enjoy their smug ignorance.
Do you think anyone, on the Committee staff or his personal staff, will tell Sen. Kennedy how in the dark he is, or ask him how two companies can build capital when a series of Treasury officials have taken $310 Billion away from them at least $120 Billion now could be protective capital?
So much for ideological car wrecks and dumpster fires!!

Saturday, September 7, 2019

Treasury Reports Shows FHFA Head to be Anti-GSE

Fifth Circuit to Mark Calabria: Take that!
(Blog below was written before Friday night's BOFFO  5th Circuit decision came out! More on that in my next blog.)

We all should have seen this coming--although I sensed it--when newly minted FHFA Director Mark Calabria arrogantly began talking like a big bank attorney laying out a writ against the GSEs.

His large piece of the Treasury report ( although all of it is his) shows him not to be thoughtful government executive responsible for fostering the GSEs return to financial health as privately owned, appropriately capitalized financial institutions, able to carry out their national mortgage liquidity role, but as an angry avenger seeking  instead to turn them into perpetual wards of the federal government under his fat FHFA thumb.

Yes, the Treasury Report says they want to re-privatize the GSEs but the Devil is in the details and I don’t find their details attractive. It's a potpourri of hobble Fannie and Freddie--and help the big bank-- memes dressed up as thoughtful proposals.

IMO, it should have been a tip-off after his Senate approval when he told the press that ending Conservatorship might take his entire five-year term.

Forget what he told/promised the Senate Banking Committee during his nomination hearing. (Please God, let them believe everything I say and not question me too closely. Of course, my Republican allies won't but those damn Democrats might force out my real opinions!)

It also appears as if Steve Mnuchin meekly has ceded GSE authority to Calabria--traditionally Treasury's turf--a GSE critic, far less interested in how an unencumbered Fannie and Freddie can help more American families to get their share of the American Dream but instead how he can tilt the mortgage market in favor of his longtime allies the nation's TBTF banks.

The Treasury report is a piece of crap filled with hostile ideological GSE flotsam and jetsam labeled as needs and recommendations.

Its sloppiness proclaims it was written disjointedly by a committee, HUD, NEC, Treasury, FHFA, filled with more caveats and ineffective directions to other government elements seeking help to damage or derail the GSEs.

How many trees had to give up their lives for most of this ineffective report to see the light of day?

Put Ginnie Mae--an on-budget federal agency--into the business of securitizing bank originated conventional mortgage-backed securities, with its meager staff which never has worked on anything but FHA/VA/Ag Department government-backed loans????? (There’s the bone to Michael Bright)

How does that create more private capital and avoid possible Uncle Sam losses? (Stuff like that make the report take on the elements of a garbage bin, hardly thoughtful recommendations.)

Give the nation’s behemoth banks a new federal loss guarantee for their private mortgage-backed securities. (What have the big banks done to deserve any additional federal largess?)

Where in the plan is the answer to Steve Mnuchin two-year-old promise to quickly free Fannie and Freddie, as well make good on what DJT says is important?

Specifically where in the plan’s vagaries are what Treasury and FHFA will do to facilitate that grand Conservatorship objective??  Where is the step by step discussion of the needed choreography each agency will perform to free Fannie and Freddie which the Admin claims are its priority??

Everyone, including the Admin's wool heads know Congress isn't going to work across party or chamber lines to facilitate what Calabria  dictates, especially Calabria, himself, a child of the Senate Banking Committee staff, who counts on SBC Chairman Crapo and VP Pence as his political Godfathers.

Yet throughout this report is loaded with useless demands/dictates that, "Congress should do X, Y, and Z!!"

Where is Calabria's honesty about higher across the board mortgage costs if he gets to stick the GSEs with bank-like capital requirements or capital levels which their recent low credit losses and stress test results indicate are needed?

Naturally, leavened in with his GSE animus/arrogance is the bureau-piggy suggestion that FHFA and Calabria need more authority to make their desired massive market changes which Congress never in the past thought necessary for a second-tier regulatory agency which now seems to have Fed-like aspirational delusions.

But hey, channeling his best Jim Lockhart/Ed DeMarco grander powers (which means more staff and less money going to the Treasury) and ignoring GOP small government hypocrisy, Calabria wants Congress to expand his turf and let him work his will.

I hope observers saw the initial rejections of the Treasury reports by House Banking Committee Chairman Maxine Waters (D-Cal.) and the Snare Banking Committee's ranking Democrat Sherrod Brown (D-Ohio) and early indication of what most Democrats think.

A rumor still circulates  that former Treasury executive, Craig Phillips working for Steve Mnuchin, crafted a solid end of Conservatorship plan, but got muscled out of his job by Calabria and his allies, paving the way for Calabria to make multiple changes to Phillips work--as Secretary Mnuchin  was looking elsewhere busy on more important Trump Admin priorities.

It certainly would be revealing if the Hill would demand a copy of Phillips original work and what alterations the FHFA and its new Director made to it.

I guess a real test of Calabria's brooding about sufficient GSE capital will be tested at this months end when he has a chance to allow the GSEs to retain their earnings, or, once again  force them to ship that cash to Treasury  with the @ $300 Billion already shipped over since 2012 to pay off the original $190 Billion debt. (Please note the "2012 in perpetuity profit sweep" still is being argued in federal courts.)

I wanted to get this off my chest so before the counter ass-kissing comes from the happy with the Treasury report trade associations and other interest groups start their chirping, although most of the news going forward will be about the Fifth Circuit's pro-GSE decision yesterday.

Besides the predictable partisan happy talk, let’s see if any of these matters come up next Tuesday when the Senate Banking Committee hosts Secretary Mnuchin, HUD Secretary Ben Carson, and FHFA’s Calabria or as someone tabbed them, "Hear no evil, see no evil, and GSE Evil."

Maloni, 9-7-2019

Tuesday, August 27, 2019

Keeping my eyes on the bad guys and other things…..

“Jots and Tittles,” F&F minutiae, and some GSE things I think

For those of you who read my blog's comments section, you're aware that my major blog-friendly protagonist--Anon#1--and I have agreed on a significant matter.

Based on history (my rationale) and intuition (likely his reasoning), something BAD is due to upset the GSE applecart which has been moving along quite nicely based largely on news suggesting a pending Admin announcement of its plan to free Fannie Mae and Freddie Mac from "Conservatorship."

Not sure exactly what will occur when, but I suspect Fannie/Freddie detractors will assemble a “not now” list and pitch a “wait longer” agenda.

Last week, Sen. Sherrod Brown (D-Ohio) suggested financial chaos if the Admin released the GSEs from Conservatorship, although he and his staff must have missed the past 10 years’ worth of tight regulation and de minimis GSE credit losses as well as their superior and low risk “stress test” result just reported by their regulator, the Federal Housing Finance Agency and its new Director, Mark Calabria.

Plus, nobody I know recommended getting rid of their regulators, as Brown suggested. The GSEs, Treasury, nor the Federal Housing Finance Agency certainly haven't.

But, it is that kind of off-the-wall bloviating which derails trains and schedules.

On the other side—far more tactical than strategic--in a periodic development at which I often point with greet glee** to showcase media hypocrisy, Fannie and Freddie, led the Saturday (8-24) Washington Post stock market table of "local gainers and losers" each with 24% percent growth over the previous week. 

(**The Post for years has been a GSE-opponent, often arguing against the GSE mix of public mission and private ownership--at least until the 2008 conservatorship, which took away most of the GSEs private control--yet still reports on them as if the two were totally shareholder-owned, in a way making my primary point that their private ownership drives their success. The alternative GSE replacement being some configuration of the nation’s largest banks or some purely government HUD or Ginnie Mae concoction which for good reason Congress rejected in 1979, when the original Fannie was recreated/rechartered, and I strongly believe would still do that today.

The horns of the Post’s “dilemma” are not unlike the federal government’s own, because of the inconsistent (“Are they government or not?”) longtime ideological treatment of the GSEs. The Congressional Budget Office (CBO), a historical (and hysterical) GSE critic, still treats the GSEs as if they were part of the federal government (“private shareholders, what shareholders?). While the Office of Management (OMB)—which, is seldom GSE-friendly, and fashions the Admin’s annual Budget—treats them as private entities, even after the 2008 Conservatorship.

Welcome to federal government accounting schizophrenia GSE-style.

For more detailed understanding of this bizarre ying-yang treatment—which makes it easy for F&F critics to hide behind one or the other formal mistreatments of the GSEs, read the CBO document which elaborates on the historic conflicting budget treatment. (This doesn’t occur anywhere else with multi-billion financial institutions and the Budget.)

Also, remember, if you treat the GSE as one of Uncle Sam’s parts, you would need to put all of their debt and MBS on budget, which is a $5 trillion “add on” matter no pol wants to touch even for consistent federal accounting purposes.

Say it ain’t so

While shopping last week, I bumped into an old acquaintance, who for the past 20 years or so has worked for the GSE regulator at OFHEO/FHFA and—as with most employed there---never has been a GSE supporter.

After making agency small talk with the person, I asked, “How is it working for the new Director, Mark Calabria?”

The concerning answer was, "Oh he's fine, reminds me a lot of Ed Demarcotouching this little thing and that, always trying to make small things work!"

In view of the fact that most people looking back at Ed’s tenure think, “Only termites were more destructive to housing than Ed Demarco's GSE time,” I didn't react warmly to the veteran regulatory employee’s analysis.

Say it ain’t so, again (the Return of "User Fees?")

A few years ago, the Obama Administration started tapping the GSEs for non-housing, non-GSE purposes, to wage war against their deficit spending. It employed a 10 basis point fee which went to the Treasury for deficit reduction purposes.

But one mortgage policy analyst, Cowen Associates’ Jaret Seiberg  believes the matter could get back into a Trump budget if the Admin needs additional revenue to pay for an election-year tax cut.

JS says using the GSEs as cash cows, just as Obama did, could be in the cards. 

In my Fannie lobbying days when similar issues arose, we coined the derisive term “homeownership tax,” to describe and defeat (for several years running, every time it came up) a Reagan Administration proposed 25 basis point fee on all Fannie and Freddie debt and securities. 

It was a very successful meme which allowed us to rally housing organizations and consumer groups across the nation--as well as the media--to denounce or editorialize against any similar mechanism, instantly making most in Congress very hesitant to endorse it.

Interestingly Cowen (Seiberg) quickly jumped to the same conclusion/rationale we did --possibly because he was around way back when and saw it in use--when he wrote, “What starts as a temporary 10 bps hike could become a material and permanent tax on housing.”

Also, remember, if you treat the GSEs as one of Uncle Sam’s ribs, you would need to put all of their debt and MBS on budget, which is a $5 trillion add on matter nobody wants to touch.
Over the weekend, the Trump team said a new tax cut was “off the table,” but I suspect that means for the nano-second it took Kudlow and others to correct the POTUS.

New Fannie Board Appointee

The Administration named former FDIC head Sheila Bair to the Fannie Mae board, a collection which seldom says anything or does anything for their $125K-$150K annual base comp (just like their Freddie counterparts).

These rubber stamp entities represent (R's and D's, when they hold the White House) sinecures to be ladled out in return for past party allegiance, which is why—if Conservatorship ever ends—new shareholders will elect different directors.

Maloni, 8-27-2019

(Thanks, again, MrF for your invaluable help; while "jots and tittles" is a phrase a brilliant former Fannie boss, Bob Zoellick, used to describe important but small details.)