tag:blogger.com,1999:blog-940142538364421402.post4465158688845291404..comments2024-03-02T02:30:55.592-08:00Comments on Bill Maloni's GSE Blog: Z Truth??Bill Malonihttp://www.blogger.com/profile/17459277100798719104noreply@blogger.comBlogger8125tag:blogger.com,1999:blog-940142538364421402.post-85934611512738658092008-08-08T15:32:00.000-07:002008-08-08T15:32:00.000-07:00The problem in describing it is that we have no pr...The problem in describing it is that we have no precedent or model.<BR/><BR/>Which is why, if Secretary Paulson pulls the trigger, he'll get the benefit of the doubt with whatever<BR/>scheme he proposes, since he'll argue that it is an "emergency" and he has the best perspective on what to do and as noted I am sure that the Fed and OFHEO will agree, leaving little room for alternatives, unless the GFSEs successfully get a court to intervene.<BR/><BR/>Th reason why I argue the government sponsored secondary mortgage market works is that nobody wants that job and nobody--without the GSE structure--<BR/>would stay in markets 24-7 in "good times and bad," UNLESS they had the protection (which still can go bad) of only originating and holding ARMs.<BR/><BR/><BR/>If our nation ever got weaned from preference for long term fixed rate financing, the situation which exists in most other modern countries, then some "private/private" investors might try and take on the F/F role, because the loan's structure gives them some interest rate protection, albeit no credit protection.<BR/><BR/>One other possibility--without the GSEs--is for non-GSE investors to charge a huge premium for FRMs to cover them when default threatens.<BR/><BR/>Right now, because of F/F, we have both plentiful long term fixed rate financing and costs that reasonably reflect the risks (although both investors have been increasing them to cover their burgeoning red ink).<BR/><BR/>I think the advantages of a privately owned F/F outweigh whatever disadvantages one sees, which is why I think if the GSEs ever are cashiered, the Congress eventually would recreate them, after going through some hiatus with hybrids and stop and go mortgage financing.<BR/><BR/>If you had a giant FHA, with authority to help everyone, the lenders and others would rip it off left and right, just as they did in the 60's and 70's. But, for some not me, that may be a preferable mortgage market model. not me.<BR/><BR/>The banks showed themselves wanting when "jumbo illiquidity" was rampant. They weren't challenged by any GSE competitors but refused to step up or tried to overcharge when they did so.<BR/><BR/>Making the GSEs regulated utilities implies having them perform but removing much of the market forces and incentives which drove them traditionally. But, the more the government touches something the worse it performs.<BR/><BR/>So, I'll leave it to you, what is the best option is there is no F/f??<BR/><BR/>Mine is to keep what we have.Bill Malonihttps://www.blogger.com/profile/17459277100798719104noreply@blogger.comtag:blogger.com,1999:blog-940142538364421402.post-87823267180203258372008-08-08T13:55:00.000-07:002008-08-08T13:55:00.000-07:00Thanks, Bill, for sharing more details on your nat...Thanks, Bill, for sharing more details on your nationalization thesis. I have a better understanding of your analysis.<BR/><BR/>I'd like to hear more of your thinking on the "end game." If the GSEs are nationalized, what's the likliest scenarion? Have the secondary market run like FHA/Ginnie Mae in perpetuity? If new Agencies are created, would they be GSEs or all public? Would the government keep the secondary market nationalized until Wall St has a functioning substitute and then let the goverment get out of the business? I can't see an IPO, can you? What did you make of the Housing Bill's change to the Board of Directors of each GSE (18>13 and no Presidential appointments)?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-940142538364421402.post-47002715960762715522008-08-08T13:54:00.000-07:002008-08-08T13:54:00.000-07:00The moment I sent the first response, I realized t...The moment I sent the first response, I realized that "Anonymous" is available to anyone who comments.<BR/>Sop, I apologize to the "second" commenter if I lumped you together with somebody.<BR/><BR/>John, as HD has been writing for months, this is a calamitous "crap storm" and it's failing on everyone in the industry and some big players--and possibly the biggest, although I hope not--could tumble.<BR/><BR/>The NAR had some encouraging sales signals, yesterday, and the stock market this week had two wonderful days (plus one bad one), so there is a chance that a "bottom" is near.<BR/><BR/>I think Fannie is better able to handle the bad news than Freddie, but I don't know at what point Paulson et al decide to press the red button and declare them subject to "help!"<BR/><BR/>I sincerely hope that he waits and waits and waits some more.<BR/><BR/>People, today, are PO'd at the housing situation, they are PO'd at the GSEs; some are even PO'd on the idea of homeownership, all of which are typical reactions when something goes bad and public and media get into high dudgeon.<BR/><BR/>Fannie's and Freddie's problems--in my view--were not about what they were created to do, which I think they perform well--but decisions by company officials, who likely made mistakes.<BR/><BR/>There is a remedy for that and it's not doing away with the institutions, since their roles have been affirmed time and again, even in these lousy markets (see "jumbo illiquidity" and Admin calls in the past several weeks for the GSEs to stand up and do more).Bill Malonihttps://www.blogger.com/profile/17459277100798719104noreply@blogger.comtag:blogger.com,1999:blog-940142538364421402.post-19047907335821612792008-08-08T12:42:00.000-07:002008-08-08T12:42:00.000-07:00Bill (and previous commenter) -There are "tips" e-...Bill (and previous commenter) -<BR/><BR/>There are "tips" e-mail addresses at all the Implode-O-Meter sites so don't hesitate to send along a link to them if you feel any post is appropriate. They are always looking for good content for their stories lists.<BR/><BR/>This California law prof has (probably independently) taken up Roubini's suggestion to impose a haircut on agency debt holders. I shudder to think of the implications if this idea gains traction.<BR/><BR/><A HREF="http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/08/06/ED36126FHS.DTL" REL="nofollow">"Who pays when lenders fail? Fannie Mae and Freddie Mac investors should pony up too"</A>, by James P. Tuthill, <EM>San Francisco Chronicle</EM>, August 7, 2008.<BR/><BR/>Still, after this week it looks like the GSE world we have known is about over. Lots of problems left in the private-label world, though. What's going on with WaMu today with the stock price plunging on no news at all? FDIC will certainly be knocking on <EM>someone's</EM> door this afternoon, but surely not them!John Mhttps://www.blogger.com/profile/02337271384448275952noreply@blogger.comtag:blogger.com,1999:blog-940142538364421402.post-76738421877080510192008-08-08T10:41:00.000-07:002008-08-08T10:41:00.000-07:00Bill,I learned of your blog when your last post wa...Bill,<BR/><BR/>I learned of your blog when your last post was posted on Housing Doom.<BR/><BR/>To get more exposure, you should have your posts put on: <BR/><BR/>http://ml-implode.com/<BR/><BR/>my2centsAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-940142538364421402.post-64013402640037380062008-08-08T10:15:00.000-07:002008-08-08T10:15:00.000-07:00I not sure if the same "Anonymous" posted both com...I not sure if the same "Anonymous" posted both comments, but let me try to answer him/her on both counts.<BR/><BR/>Again, this is my opinion, but I think both companies made decisions, related more to profit and market share concerns than "mission issues," and acquired loans which historically they would not have bought, had not "private label" competition existed.<BR/><BR/>In Fannie's case, I think "Alt A" loans--which I don't think they would have purchased in the past--generated this line from their Second Quarter earnings statement.<BR/><BR/>"As of June 30, 2008, our Alt-A mortgage loans represented approximately 11 percent of our total mortgage book of business and 50 percent of our second quarter credit loss."<BR/><BR/>Now, to be totally fair to Fannie, they didn't pin their losses on housing goals mission, as my friend Dick Syron partly did when he was on CNBC, Tuesday, discussing Freddie's performance last quarter.<BR/><BR/>Second question.<BR/><BR/>The minute the government puts in one dime to either GSE, I think they are finished as privately owned and operated companies, which is why I have exhorted them to do anything possible to avoid that chance.<BR/><BR/>The mortgage market DOES need the Fannie/Freddie dedicated investor function, but it quickly could adapt--as I wrote this morning--to slightly higher prices and inefficiency if the GSEs were taken over and run by the government in some dilutive way.<BR/><BR/>In many ways, that is the ideal situation for the GSE enemies. F/F are there to take their mortgage risks but not so free to impose lower prices and standardization on their customers.<BR/><BR/>It won't be efficient if there is a takeover--which is why I hope it never happens--and the next step may be for Congress to recreate Fannie and Freddie calling them something else.<BR/><BR/>Sure it would be smarter, smoother, and better policy just to make sure the two stay alive, doing what they do now, and run as private companies, but angry or chagrined public officials and politicos often don't think that way--AND, in this view Fannie and Freddie, their employees and shareholders would get rewarded.<BR/><BR/>To repeat, that's why I want the companies--if they can--to save themselves!<BR/><BR/>Thanks for the comments/questions.Bill Malonihttps://www.blogger.com/profile/17459277100798719104noreply@blogger.comtag:blogger.com,1999:blog-940142538364421402.post-53914694740758291692008-08-08T09:40:00.000-07:002008-08-08T09:40:00.000-07:00The ideological enemies of the GSEs would find a n...The ideological enemies of the GSEs would find a nationalized secondary market even more of an anathema. So, as I see it, they'd love to kill the GSEs, not take them over. And they can't kill the GSEs until there's a functioning private-sector alternative. Hence, the Treasury's effort to kickstart covered bonds on Wall Street. But, no private mortgage market can be created quickly enough to meet their immediate desire to finish off the GSEs. This leads me to the most likely scenario: A bailout will be delayed as long as possible, such as by reiterating the goverment's now-express guaranty and by contorting or not applying accounting rules. If a bailout is needed, the government will take its pound of flesh in terms of shareholder dilution, but leave the GSE structure in place. The realization of their desire to deliver a coup-de-grace to the GSEs will have to await another Republican administration.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-940142538364421402.post-70758073000826753912008-08-08T09:22:00.000-07:002008-08-08T09:22:00.000-07:00You say "Fannie and Freddie should stop blaming th...You say "Fannie and Freddie should stop blaming the 'housing mission' for the crap loans and the “Alt A” business decisions they made. That’s dishonest."<BR/><BR/>Can you explain your thinking? I agree that FNM management increasingly became captive to Countrywide and other major lenders and lost its "credit culture" as the bubble inflated. However, in my view, the Bush administration also pressured HUD to impose more and more aggressive housing goals, beyond all rationality. Instead of making a stand, FNM (especially after its financial "scandle") necessarily kept finding more and more risky ways to comply. And this effort helped produce a riskier book of business.Anonymousnoreply@blogger.com