Thanksgiving
Leftovers and Treats
Note to self: Few people read blogs during Thanksgiving
week, remember next year—if you still are writing one.
Here are some F&F items which broke early last week or
just as most people deserted DC for the long Thanksgiving weekend.
Graham
for (McCain’s) President
Yes, Senator John McCain (R-Ariz.), I think Sen, Lindsey
Graham (R-SC) would make a fabulous GOP presidential candidate in 2016 and I
hope he runs.
He’s brighter and more personable than Cruz and Rubio, more
mature than Rand Paul. Maybe President Obama should cross party lines, gain,
and name Senator Graham Secretary of Defense to burnish his credentials? Then,
in 2016, Graham can yell “Benghazi” all he wants although few may listen.
Refinancing
Underwater F&F Loans
FHFA Director Mel Watt changed the current F&F policy
regarding REO (that covers 120,000 houses which the two own because mortgagors
defaulted on their home loans).
While the homes always could be repurchased by the original
borrowers, some of them now will be able to buy them not for the outstanding
balance on the mortgage but for the house’s “market value,” which generally
would be somewhat to much lower in price.
Good for Watt, although the Devil always is in the details.
This was something the Obama Admin wanted to do when Ed DeMarco was FHFA’s
Director, but the latter balked, citing the fact that he just didn’t agree with what the President/White House
wanted.
Professor
Richard Epstein
Richard Epstein, who works for plaintiffs suing the government
over the “takings” issues, updates his opinions of the cases and legal
developments to dater in this Forbes article.
Nice to see what he has to say—hope he’s right-- but part of
me thinks the courts are not going to be logical or consistent when the issue
is F&F.
Fiderer
on Private Label Securities (PLS)
I suspect that most people don't understand when opponents talk
about doing away with Fannie and Freddie, the alternative is bank originated,
securitized, and guaranteed mortgage backed
securities, known as “Private Label Securities" (PLS).
An article by Tom
Ressler, from Inside Mortgage Finance, said a recent symposium of PLS interests
were all over the landscape on the future and viability of the PLS market.
Much has been written about the abject failure of that
non-F&F market segment and the resulting huge dollar losses when the banks
last heavily engaged issuing $2.5 Trillion of PLS, in the pre-2008 financial
debacle era. Much of which failed quickly because of poor underwriting.
Our good friend David
Fiderer has offered his view as to why the concept of PLS is flawed and not
a reliable alternative to Fannie and Freddie securitization or other bonds which
have some government relationship.
Read it carefully and take away from it DF's perspective of this complex market component.
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Larry Summers
Former Obama Treasury official never has been a big fan of
Fannie and Freddie but he did add value—and ultimately some cynical observations,
once removed—when during a presentation (about 55 minutes into the You Tube
video below), Summers noted how much revenue Fannie and Freddie produced for
the federal government, how they have helped Obama Administration balance its
needs, and how—since 2008—the mortgage giants have helped stabilize the
broader US economy.
This caused one of my favorite and quite Washington-snarly
mortgage buddies to observe in an email to a few of us.
So as you all
have noted:
1 F/F have paid back taxpayers with largest net of any
2008 financial intervention.
2. They have been instrumental in bailing out larger
economy, even according to F/F opponent Summers.
Thus, no question, we must take the Mortgage Bankers
Association's advice and kill them.
NYC Distressed Assets Conference
Unfortunately, owing to a fast developing
and for me—violent—chest cold/flu (shared with me by grandkids on
Thanksgiving), I had to cancel a Monday (today) conference appearance in NYC
on a panel about F&F future.
Jim Millstein, who was also on the
panel, is to get an award from the “Faculty,” which sponsored the one day conference.
Again, my apologies to Peter Chapman (I am coughing, in your honor, as I
write this).
I never speak from a script—just
notes--but for my blog venue, I have fleshed out what I was going to say to
the group and offer it now (about the time the panel concludes its session)
for your consideration. Please note my observations about mystery blogger “TimHoward717.”
Maloni prepared but undelivered remarks to “The Faculty’s” NYC Conference,
12-1-14
(I held up publishing this blog
until the middle of the afternoon today and the anticipated conclusion of the
NYC F&F conference session at which I had planned to deliver, generally,
the remarks below. My comments were based on an outline the sponsors
provided.)
--Most of what I’ll say has been in the blog I’ve been
writing for four years.
--In a nutshell, when I worked at
Fannie, it was very good at its statutory home ownership tasks and achieved
many mission-positives and certainly revenue for its shareholders.
--I left at the end of 2004, when I hit
the corporate early retirement age. Coincidentally, but not related, that was
when the political long knives forced out CEO Frank Raines and CFO Tim
Howard, along with our Treasurer Leanne Spencer Garmon.
--A federal judge, 8 years after the
fact, found the three were not guilty of securities fraud, the primary cudgel
our then regulator OFHEO used against them. But it cost the three their jobs,
careers, and reputations, as well as several years under a legal cloud as
they faced shareholder a law suit built on the OFHEO allegation. (Read the
“real” Tim Howard’s excellent book on the subject.)
--As a professional, I can acknowledge
the success of our political and business opponents, who did such an
effective job.
--They splashed so much crap on F&F
that the two still are digging themselves out from under it and may never be
totally free of suspicions and doubt.
--Of course, the management which
followed Raines and Howard shot themselves in the foot buying so much private
label subprime, which quickly defaulted and added billions to Fannie’s and
Freddie’s existing red ink, adding to the negative reviews.
--But it was the securities fraud allegation
which hurt the most, when our enemies converted it into a phrase which
repelled even the staunchest Fannie supporter, “Fannie cooked their books and
then gave themselves huge bonuses.”
--That erroneous but effective charge
still resonates with some in DC today. It plays to DC jealousy about
corporate salaries and benefits and commercial black boxes.
(None of that is a negative in New York
but it was/is a big time “bad” Inside the Beltway.)
--As most know, since 2008 and
conservatorship, the reality is that the two entities have done fabulously,
have benefitted from 6 years of solid if overbearing regulation and have paid
back every dollar Treasury infused in them, plus @$20 Billion or $65 Billion,
depending on how you view the money F&F had to borrow to pay the interest
on the money they had to borrow!!!
--Let me quickly touch on Peter Chapman’s
other questions by bringing in a perspective on the man called “Tim Howard
717,” who is not—as I hope most of you realize, by now—my former Fannie colleague
and ex-CFO Tim Howard.
--About 6 months ago, when I first saw
this blogger’s work in IHUB, I tried telling posters , “This Tim ain’t that
Tim” and all but got shouted down because readers were liking what they were
reading and didn’t care who he was…but back then many thought 717 was the
Fannie official.
--TH717 is an active political
broadsider and recently has been blog teasing with a story I hope is true,
but I find very hard to believe.
--Imbedded in his tantalizing hints and
references is the suggestion that the Obama Administration has a stealth
agenda to embellish this president’s legacy; keep F&F alive and functioning for the
long term; help middle income families
secure the type of consistent, fairly priced, efficiently delivered, long
term fixed rated financing—and to achieve all of that through executive
action.
--Now,
before anyone runs out and doubles their common or preferred position, this
is a theory of mine about what “717” is doing but—as noted, I hope it’s true—but
that strikes this old dog as too cute by half for this Administration and
suggests a drollness and guile that I’ve not seen before in any Obama
operations.
(Howard
may be in this room and if he is, “Hi, good to be in your aura.”)
--I
do believe and have written that the new GOP heavy Congress—at least before
the immigration executive order—would allow the President’s minions to work
at the fringes of conservatorship and broaden the Fannie and Freddie credit
box, making it harder to dump them legislatively.
--I
think there will be a Fannie and Freddie or at least one of them with us for
the foreseeable future and that the type of chaotic and far-reaching changes
contemplated either by a CWJC bill or even last session’s Hensarling
bill—which dumped the federal government from the business and let only banks
make conventional mortgage loans--won’t become law.
Could
a Jim Millstein “in between” proposal get congressional approval or the
utility model?? Certainly. But it would take a major legislative coming
together, spanning a huge partisan gap for either to happen.
It’s
most likely to happen if/when the WH, Senate and House is controlled by one
political party—and the soonest that could happen is 20017—although the House
would be tough for the D’s to take. I also am sure that such a homogenized DC
wouldn’t have a raft of other things to do first before taking on a
Fannie/Freddie restructuring, when operationally that wasn’t an
emergency—because the public wasn’t demanding it.
Until
that time, it is “status quo,” with the court cases being the wild cards.
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What
Others are Saying
NYT,
12-29-14 lead editorial on homeownership and wealth generation. (No mention
of F&F, but still worth reading.)
___________________________________________________
Israeli ambassador to the UN Ron Prosor addressed
the membership last week and unleashed a ton of historic truth on that less
than august body, which I expect went in one ear and out the other of those assembled
there. It was a response and harsh reminder of events since the 1848 founding
of the State of Israel and the general fickleness/cowardice displayed by most
world nations toward Israel, save the United States.
To those of us in the US used to listening to political
code talkers, Prosor’s cold hard truth is a welcome noise.
__________________________________________________
Maloni,
12-1-2014
(Happy birthday, today, to our oldest
son, Jason Wynn Maloni, who—along with wife Andi—are the parents of three of
our six grandkids? Love you, J! Before I knew how bad Thanksgiving traffic
was, coming back from Pittsburgh to Maryland, we almost had to name our first
child “Breezewood,” when wife my quietly went into labor and didn’t tell me.
As it was, three hours after entering our New Hampshire Avenue, DC, apartment,
Jason was born at George Washington Hospital. True!)
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