Somebody's ringin' the bell; do me a favour, open the door and let 'em in, (Paul McCartney and "Wings")

The FHFA Director isn’t listening so I’ll try again

I wonder if it has occurred to Mark Calabria, the Federal Housing Finance Agency’s titular safety and soundness regulator, as well as the GSE Conservator, he’s the only one chattering, publicly, about the GSEs, Conservatorship, dates and deadlines, capital requirements, and “consent decrees,” drawing attention to matters for which he has no solid answers, just suggestions of possible relief and/or more turmoil.

Is Rome burning while Calabria fiddles or is he just channeling Dean Smith basketball (see below)????

Despite, solid earnings and tiny credit losses, common and preferred shares of both Fannie and Freddie seem to be drifting amid conjecture over what in Hades Calabria may be thinking/scheming since continuing to threaten prompt GSE relief (now saying Conservatorship for three or more years; excessive capital requirements; possible product limitations; caps on what they can pay their chosen talent).

These conflicting themes imbedded in his too frequent external remarks ain’t going to bring in a lot of new investors who--for the most part--only care about making money. They’ll just see more regulatory intrusion.

On the flip side, MC hasn’t even tried to discuss how his alterations will make our national mortgage finance system, which relies on the GSEs, fairer and more efficient and welcoming to all who qualify and can afford a mortgage.

See the House Banking Committee’s large racial minority membership and think about what are their priorities?

We now know the steps that need to be taken to get F and F out of conservatorship: (a) publish a final capital standard, (b) end the net worth sweep and eliminate Treasury's liquidation preference, and (c) negotiate a consent decree between FHFA and the companies which governs their operations between the time they are released from conservatorship and are able to fully meet their new capital standard (when they will become "free" companies, subject to FHFA regulation but not control). 

In part, all of the bureaucratic intrusions and action thresholds Calabria regularly discusses seem to be relative, leaning toward more GSE burdens not freedom, and solely in his/FHFA’s hands. 

Those include when he and his team (with or without chosen outside consultants) will produced the GSE capital standards crucial to ending Conservatorship. What the interim steps to earning that money and achieving those capital levels will entail, and who/what decides if F&F’s progress is sufficient????

Sensing the Director may find himself between a rock and a hard place, he’s now talking about “Fannie and Freddie and the FHFA establishing consent decrees,” by which FHFA/Calabria will determine what types of business the GSEs can do until they achieve capital Valhalla, a relative and judgmental phantom number solely decided by Calabria and his FHFA posse, who he clearly doesn’t consider up to the task.

"There will be a level of capital where we think it sufficient to let them out of conservatorship but are not adequately capitalized. During that, they will operate under a consent decree." 

FHFA's Mark Calabria

I wonder how much each day the HFHA Director worries about his largely inflated capital concerns (“more is always better”) balanced by how much he worries if the GSEs can attract enough new capital to have them perform their core function of providing sufficient financial support to meet the homeownership needs imbedded in the housing aspirations of those needing and wanting shelter and, importantly, are able to afford same?

I am certain the Director would say he hopes to achieve both. But, when will he wake up to the fact that in trying to shine for future employers, he simultaneously is slighting one of those propositions over the other??

If he demands too much capital and puts too many operational/regulatory hurdles on the GSEs, Calabria injures affordability and low-income housing production, plus he risks failure.

My near term advice to the Director is for him to take a long holiday away from the worries of work, maybe through New Year’s Eve, say nothing to anybody, and try and unscramble the confusion he’s created in seeking to please his several audiences.

Trying to ride too many horses will kill you professionally.

Speaking of future employers, Calabria is making the big banks happy, the more time he takes in his deliberations, the more time the GSE antagonists have for lightning and other bad things to strike Fannie Mae and Freddie Mac.

Still threatening for him—now with a request for SCOTUS consideration pending—are some tantalizing pesky GSE cases any of which supporting the plaintiffs could further upset Calabria’s “four corners”* stall/delay game. (For non-sports fans, see North Carolina’s legendary basketball coach Dean Smith, and before him West Virginia Tech’s Neal Baisi.)

Former Treasury executive, Craig Philips—before he was forced from his job (reportedly because the GOP discovered he once raised money for presidential candidate Hillary Clinton)—left Secretary Mnuchin and Calabria a GSE end-Conservatorship capital plug and play plan.

Again, I would suggest congressional Democrats seek a copy, if they don’t have one already—to see what such an “end to Conservatorship” model looks like. 

Good Government!!??

https://gselinks.com/wp-content/uploads/2019/11/13-cv-01053-112.pdf

Until now, for most in the GSE world, the name “Judge Lamberth” has meant bad news, even though a major reason he issued such a flawed initial legal decision--which suggested that Fannie and Freddie were guilty of anything the government said—was because his honor and his court--were fed a steady diet of false and incomplete records by government attorneys.

Last week, Lambert struck back and ordered the Admin/Treasury to give to plaintiffs’ counsel reams of requested but previously withheld government documents which should strengthen plaintiffs’ ongoing cases against the government.

(Opinion linked below.)

https://gselinks.com/wp-content/uploads/2019/11/13-cv-01053-112.pdf

Yay--for now—Judge Lamberth!

Maloni, 11-18-9019