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.)


TruGld said...

just my two cents...but wouldn't the fact he just tries to concentrate on making the little things work would probably mean the changes we are all speculating on are probably minimal or even for the most part left in the hands of Mnuchin?...

Bill Maloni said...

My bad for not clarifying, I was really concentrating on the Ed DeMarco comparison. I should have made that more clear.

If you remember Ed's record, it was hardly pro Fannie/Freddie.

But, I'm still waiting for Calabria's clear GSE advocacy or even something close, rather than the constant effort to treat them as escaped penal colony prisoners.

Jeff Wood said...

I didn't even know you had a comment section! Been reading for years! Not exactly observant, am I.

Bill Maloni said...

JW--I suspect you're part of a not very exclusive club.

It's at the end of every blog, with Q's and my "A's" the last one had 45 (or more) offerings.

Anonymous said...

One of the most fair, balanced and informative article in a while and why I and many others come here. Bravo!
One day when this is over, win or lose, I’ll be sending you a gift for all your hard work. Something nice that only an Independent Conservative would give.

Anon #1

Bill Maloni said...


That's very thoughtful and I would welcome your gift, since gold bullion always has been a favorite of mine.

Anonymous said...

At this time, the gift in heart and mind Is afford bullion soup. Funny how 10+ years of c-ship affects the gift purse and petty cash flow.

Please deliver an article on how the former FHFA and Treasurers should be ashamed of their involvement with this ongoing saga and the communist style approach to Shareholder involvement.

Yeah, I think you could put together a great read.

Really like your subtle humor - what do you attribute that to?

Bill Maloni said...

Anon, thanks--

Your answers. Childhood beatings, following the 1950's Pirates and SDteelers. Jerry Lewis movies and Mad Magazine.

Besides you and me, who would care another rendition of what appeared in Tim Howard's book and now blog, as well as most of my 600 separate blogs?.

Looks at the years and years of Fannie/Freddie ill treatment and have you ever heard of anyone losing a job over GSE abuse or insensitivity?

The disparate treatment of the GSEs (banks pay back 5% of their TARP assistance, GSEs pay back 10% until the government decided to take all future earnings, etc., etc., etc.).

GSEs lose lobbying rights, big banks face no diminution of theirs.

It's part of what I call the "GSE Shit Wall" and why I am counseling patience (and hope) because, over the years, good things haven't happened to them.

Instead, it gets many of the thugs public notice, promotions and more $$$, i.e. Bob Corker, Ed Pinto, Michael Bright, Ed DeMarco!!

Thanks for reading and writing.

Anonymous said...

At this point, I just don't trust Trump to follow through on anything. How many times does he change his mind, on anything? Trying to keep hope, but I still think the only way the GSE's are returned, is by the courts. And I don't trust them either

Anon Ray

Bill Maloni said...

Anon Ray--You are reprising behind the scenes conservations conversations going on now, between Treasury, FHFA, OMB, KUDlow's shop, about "how free to make the GSEs?"

Mixed in with all of the "We don't want them to do what they did in the old days," is the realization unless you recreate their franchise values, you can't get investors to buy the needed recapitalization on which any plan rests.

I think variations of that dilemma will slow things down, even following any announcement of "the plan," since we know where the Devil is in these matters.

It's a challenge for the Administration and those who want Fannie and Freddie to emerge from "Conservatorship" dragging operational anvils, and the more practical who understand throwing too much sand in their gears defeats the exercise.

I doubt Congress will be much of a player since disparate forces control members in both chambers.

Anonymous said...

Looking forward to the next few weeks to see if something happens. After 6 years of this, I'm starting to feel like Charlie Brown anticipating kicking the football and Lucy pulling it away...over and over- Anon#2

Bill Maloni said...

Anon#2--Someone who thinks the way I do posted this on another site today.


Next week should be fun, since--if for no other reason--I'll be at the beach with family.

IF there is "an Admin end conservatorship" announcement, it will have more holes than a sieve, vagaries, and create more questions than answers.

First shot out of the box won't be their best effort and will be designed to draw flak, so they can say, "Look at all of the/our interests who don't like this."

It's inevitable and predictable.

But, between all of their talking and the realization, it's the Treasury which needs to show something or risk being overtaken by the courts or just looking dumb for proposing matters which the market won't accept but which politically satisfy the anti-GSE zealots.

If this White House were smart, it would implement out a simple "end Conservatorship and recap and release" and--looking at 2020--chalk it up to a big win for consumers.

But, it hasn't shown itself to be very adept at managing these issues and I expect to see lots of dangling threads when and if "the plan" is revealed.

Anonymous said...

Chicago labor-day-weekend-35-shot-7-killed
Where is the MSM, Hollywood outrage and Democrats to ban the assault weapons? To busy on Martha’s Vineyard or at the Border?

Bill Maloni said...


Wolfie said...

Enjoy the beach Bill! Not sure which as more bluster...Dorian or the Admin's upcoming announcement.

Bill Maloni said...

The weather has been fabulous and I'd like to go home Thursday, but darling wife wants to stay until Sunday midnight or thereabouts.

The woman has no fear.

As for "the deal to end Conservatorship," see Chair Waters' next week's GSE hearing.

I would be stunned if their plan has no "hooks and barbs" in it, along with the rudiments of GSE freedom based on conditions, which is where the Devil will be hiding.

There will be a plethora of "affordable housing questions," but I worry if the Committee will get beyond those into capital, structural, and industry issues.

Bill Maloni said...

My bad, it's the Senate holding a GSE hearing next Tuesday.

I am sure the Hosue will hold its hearing soon thereafter.

Anonymous said...

Bill, this "plan" is what I expected. Calabria and Kudlow have very diff idea from Philips and Mnuchin. Some big Trump donors must be disappointed at him. He didn't help even though he could. Now wait for 5th Circuit. Then the battle shifts to 2020 election.

I'm just happy the GSE will retain capital. Final victory will come after 2020. TINA!

Bill Maloni said...


I just wrote nearly 800 words on the "report," which I'll publish before Monday in my next blog.

Not to leave too many people hanging, I think it is an anit-GSE pean and sorry they killed so many trees but hope it's printed on very soft paper for practical reasons.

Anonymous said...

You'll to add to your 800+ plus words..as the En banc has ruled...determined the net sweep ILLEGAL,
Remanded back to the lower court for relief!!!
We won Congrats!!!!!!!!!

Anonymous said...

Bloomberg Story.....Reported 9/6/19...5.55 p.m.EST

Fannie Mae and Freddie Mac investors won a big victory in their long battle to reap benefits from their stakes in the mortgage giants with a court ruling letting them pursue claims that the U.S. sweep of the companies’ earnings is illegal.

A panel of federal appeals court judges in New Orleans overturned a ruling that backed the government’s right to take all of the mortgage giants’ profits. The judges also concluded that the structure of Fannie and Freddie’s regulator, the Federal Housing Finance Agency, is unconstitutional because of job protections for the agency’s director.

“Congress created FHFA amid a dire financial calamity, but expedience does not license omnipotence,” a majority of judges on a 16-member panel said in Friday’s ruling.

The ruling came a day after the Treasury Department unveiled its long-awaited plan to end more than a decade of federal control of Fannie and Freddie. The plan disappointed investors, in part because it lacked specifics on key details that would determine how to end the government’s conservatorship of the companies. Shares of the companies fell the most since January after the report’s release.

Fannie and Freddie don’t make loans themselves. Instead, they keep the nation’s mortgage market humming by buying mortgages from lenders and packaging them into bonds that are sold to investors with guarantees of interest and principal.

The companies were put into federal conservatorship in 2008 as the housing market cratered and were sustained by taxpayer aid. They have since returned to profitability and paid in $115 billion more in dividends to the Treasury than they received in bailout funds. Since 2013, nearly all of their profits have been sent to the Treasury under a policy called the “net-worth sweep.”

The companies’ shareholders, including hedge-fund luminaries such as John Paulson and Bill Ackman, have griped for years about the terms of conservatorship. Investors have sued regulators multiple times seeking to end the sweep and gain access to the Fannie and Freddie’s profits. Those lawsuits have mostly been unsuccessful and this case, a full court review of a ruling of a three-judge panel, was seen as a last hope by many of the shareholders.

“We are delighted that the court has made clear that the net worth sweep will not be allowed to stand,” the shareholders’ lawyer, David Thompson, said of Friday’s ruling.

The U.S. Supreme Court last year declined to consider a case arising from a Washington appeals court decision that blocked another group of investors’ attempt to sue the FHFA over its authority to impose the sweep.

A U.S. Treasury Department spokesman referred a request for comment to the Justice Department, which declined to comment. An FHFA spokeswoman didn’t immediately reply to a request for comment.

The case is Collins v. Mnuchin, 17-20364, U.S. Court of Appeals for the Fifth Circuit (New Orleans).

Anonymous said...

Bill, I think next President, if DEM, will remove Calabria from FHFA. Would you agree?

He may appeal to Supreme Court. I think he will lose there too.

Bill Maloni said...

Anon--For a D to win next year, the candidate will need Sharpie and meteorological skills.

MC has earned his big bank spurs with his contribution to the Treasury report, won't have any problems finding a new job, and will resign before being replaced if there is a Dem win next year.

He'll have plenty of career opportunities.

The sun seems brighter today!