Monday, October 15, 2018
Kinda like Banks exist but the Comptroller of the Currency and FDIC are specters
GSEs and the Law, it gets “Curiouser and Curiouser”,
Shot for being a sheep or kill them for being wolves
Previous Administrations told such stunners as “ketchup is a vegetable” and “I didn’t have sexual relations with that woman,” plus “Brownie did a great job.” Welcome to the “new” Washington DC or is it Moscow or Pyongyang, where—if this Administration says so—day is night, black is white, yes means no, and the GSE’s regulator ain’t really part of the official federal structure.
Damn!! The government has argued that Fannie, Freddie and FHFA are not the federal government.
I think everyone agrees that Fannie and Freddie are not "the government;" the issue is whether FHFA as the GSE conservator is?
The first GSE financial regulator, the Office of Housing Enterprise Oversight (OFHEO) was created by Congress in 1992. It begat the Financial Housing Financial Agency (FHFA) in 2008 as part of the Housing and Economic Recovery Act (HERA).
Records show that agency started issuing near draconian regulations in 2008.
But in 2012—as the GSEs just started financial recovering—non-existent FHFA promulgated a contrary regulation which “swept” nearly all future Fannie and Freddie earnings (and protective capital) forever, since that money went to pay for the initial government cash infusion a debt FHFA claims never can be amortized, ergo the GSEs always will be in hock to Uncle Sam.
That’s now a $270 Billion swipe for a thief the government says isn’t part of it.
No wonder the American people are befuddled by Fannie Mae and Freddie Mac? Their own elected/appointed federal officials can’t decide or refuse to admit if Fannie and Freddie, i.e. the GSEs, are federal or not, let alone if their debt and MBS is or isn't guaranteed by Uncle Sam?
The answers here seem to be some existential mix of who happens to be in charge of the government when the question is posed and which Senator, Congressman, or agency you quiz?
That ask often produces the recipient’s demand to, “Tell me/us your specific concern, which debate side you’re on, and how much political weight do you swing?”
At that point, you might get an answer?” But soon, government lawyers will fudge Fannie’s and Freddie’s roots, heritage, and ancestry WHEN THEY ARGUE THAT FHFA IS NOT PART OF THE GOVERNMENT.
Yes, you read that correctly.
As GSE Links and Attorney Peter Chapman summed up so nicely in a post last week—whoever is guiding the Department of Justice’s prosecution of the many GSE court cases it faces over Treasury action—wants federal judges and juries to believe the GSEs are not federal instrumentalities and have no congressional lineage, history, or responsibilities AND FHFA IS AN ORPHAN.
(Yay Judge McConnell's whose latest decision sparked this! You go, man!!)
From GSE Links, with some commentary from Peter Chapman. New updates in Fairholme vs. U.S. Peter Chapman writes, “At page 22 (PDF page 45) of its amended omnibus motion to dismiss (Doc. 421) filed in Fairholme v. U.S. on Oct. 1, 2018, the government provides Judge Sweeney with a long list of cases saying Fannie, Freddie and FHFA are not government actors. As you’ve likely read in the past couple of weeks, that uniform holding was disrupted by a decision in a foreclosure-related lawsuit in Rhode Island in August. FHFA wants the U.S. Court of Appeals for the First Circuit to review a recent decision by the Honorable John J. McConnell, Jr., in Sisti v. FHFA, ___ F. Supp. 3d ___, 2018 WL 3655578, slip op. https://ecf.rid.uscourts.gov/cgi-bin/show_public_doc?2017cv0005-39 (D. R.I. Aug. 2, 2018), holding that FHFA is a government actor for purposes of evaluating due process rights and claims under the Fifth Amendment of the U.S. Constitution. Judge McConnell concluded that Fannie Mae, Freddie Mac and FHFA can be found to be government actors for purposes of a due process claim. Judge McConnell’s analysis and conclusion differs from dozens of other court rulings saying the opposite. FHFA says immediate appellate review of Judge McConnell’s decision is appropriate because (i) it involves a controlling question of law, (ii) there is substantial ground for difference of opinion, and (iii) an immediate appeal from the order could materially advance the ultimate termination of the litigation. Opposing FHFA’s request for immediate review of Judge McConnell’s analysis of the law at this early juncture, Mmes. Sisti and Boss say FHFA’s appeal should occur after a trial. Mmes. Sisti and Boss argue they shouldn’t be forced to engage in burdensome piecemeal litigation. In a reply filed today, FHFA counters that the question about whether or not the housing finance trio are government actors is a purely legal question, therefore militating in favor of immediate certification to and review by the First Circuit prior to a trial in the District Court. (See GSE Links for more on Judge John McConnell’s decision and the government’s reaction.)
I KNOW IT’S A LEGAL DISTINCTION BUT THE HYPOCRISY/HILARITY—ON THE FACE OF IT—WOULD BE LAUGHABLE IF THE STAKES WERN'T SO TRAGICALLY HIGH.
We’ve seen decades of the GSEs AND THEIR ATTENUATING OVERSIGHT APPARATUS viewed as part of the government.
In my 50 years in DC, first working on Capitol Hill, then with two federal financial regulatory agencies, and finally 35 combined years lobbying for and writing about Fannie and Freddie, I figure 98% plus of GSE beefs, complaints, challenges, etc. etc. are because the two were perceived/argued to be part of the federal government and/or enjoying government subsidies/benefits that big banks didn’t have (a myth because huge federal bank subsidies exist-- and always have existed in far greater numbers than GSE benefits).
With the Bush Administration’s 2008 “GSE conservatorship,” the GSEs were deemed federal chattel; ill-treated like the proverbial red-headed (federal financial) stepchildren; cut off and demonized, disproportionately punished greater than any US financial institution; blamed for events in which they had a role but not the featured one (see commercial bank $2.7 Trillion PLS activity leading up to 2008 meltdown); and charged double by Treasury the lower interest rate banks were assessed (10% to 5%) for the own unique federal financial support received (the Troubled Asset Relief Program or TARP).
Then, in a bizarre premeditated regulatory twist—just as they were about to turn profitable (as the government knew)--Fannie and Freddie had virtually all of their prospective earnings (and capital) confiscated/expropriated to repay debt that never could be amortized, under a 2012 “sweep” arrangement (Senior Preferred Stock Purchase Agreements or SPSPA), which now could unravel since a jury—as opposed to a cabal of judges—gets to see the facts and hear the real story of conservatorship. (See recent Judge Lamberth ruling mandating a jury trial.)
Ergo the need for the government to argue FHFA is not part of it!
It has worked for them arguing against Fannie and Freddie, why should the government's attorneys stop now trying to apply the same argument to the GSE regulator?
Why the history of factual chaos and distortions??
How many Members of the House and Senate understand what statutory national role the GSEs play or that Fannie’s and Freddie’s $5 Trillion in assets and liabilities are not on the federal budget, let alone why?
The Conservative press, think tanks, business antagonists, and mostly R public officials have pummeled the GSEs for a variety of false and spurious federal ties to justify their desire to cede the nation’s secondary mortgage market to the nation’s behemoth financial institutions.
Their anti-GSE lies flow easily.
Fannie and Freddie critics display little thought for stopping their favored ersatz GSE replacements, which would repeat many of the grievous errors the same big bank/rating agency/investment bank cabal committed less than 10 years ago.
But that hasn't stopped the “bad guys:” from perpetuating any myth to bury the GSEs.
Those F&F institutional troublemakers also denigrate past GSE successes—offering some hoary self-serving explanation (ironically, often tied to the GSEs red, white, and blue history)--and ignore or distort why the home-buying public seems to like having Fannie and Freddie around, i.e. GSE efficiency, lower prices, market access, consumer fairness, reliability, and more.
I never thought I root for angry GSE bad guys who call all things GSE part of the government, but I will now if federal lawyers—to fend off GSE plaintiffs--have decided to ignore history and allege the FHFA is not part of the federal apparatus.
I guess they also want us to believe –weirdly--all the Fannie/Freddie shade thrown for decades have been misdirected, a mistake, wrong, an error of gigantic proportions—even when pitched by many officials in Treasury and DoJ.
Yes, since a law passed in the 1980’s GSE every debt instrument and mortgage-backed security (MBS) carries some version of (paraphrasing), “This security is not the full faith and credit of the federal government,” but nobody--even my most diehard allies—ever suggested the GSE regulator is a fatherless alien.
Yet, the GSEs now finance a greater part of the nation’s mortgage market than they were eight years ago.
But, we’re asked to believe their congressionally designed regulator—which is paid for by the GSEs, is under the congressional appropriations process, and told to report to Congress—has no nexus to the government or anything else. Bwah-ha-ha-ha!!
But, the government keeps telling whatever tall tales it needs to, to stay one step away from a major pro-plaintiffs decision. Will future regulatory judicial appeals have to be made to Martians? (There’s a Uranus joke here somewhere?)
There you have my latest rant--or hopefully don’t have it--because I hope some future jury (or judge) won‘t buy the government’s claim and will reach the most obvious answer, which is that the GSEs and the FHFA are soaked in red, white, and blue, and he/she/they must return Fannie and Freddie to practical mortgage operations.
The current DoJ hopes to have them disemboweled or legally neutered, after arguing disingenuously the GSEs just are shadow regulated orphans which showed up in DC one night after falling from the back of a garbage truck and their overseer is an extra-terrestrial ghostly non-entity.