Your Money's Worth and Foes and Foes

It seems like the anti-GSE crowd is getting worried that its five year campaign to hobble Freddie Mac and Fannie Mac is not going exactly where they wanted it to go.

Not only has Congress not promptly punished the two companies for sins, real and opponent-manufactured, the GSEs were generating some praise on Capitol Hill and elsewhere for their prompt market response to a national subprime problem (for which they bore no major responsibility, but are in a position to ameliorate).

The old FM Watch crowd--under a variety of names--still wants a bill that would let the MI’s, large commercial banks, and various and sundry others, dominate the secondary mortgage market, the way they now control the primary market. It could happen, but I wouldn’t bet my wife's butter and egg money on it.

Investors in the anti-GSE campaign, basically, have gotten psychic and feel good returns for their money, but little else. The millions they threw in, so far, have not delivered crippling legislation. (Did these guys really pay one perennial “GSEphobe” $2 million in 2006, as the press reported, just to throw some mud on Fannie and Freddie?)

When you consider all of that anti-F/F big business lobbying cash, which produced years of GSE vitriol and distortion hurled at the two companies, the GSEs seem to be doing just fine. Their doors are open, their operational systems are being upgraded, their cultures are changing, their personnel are new (which is not necessarily better, just different), and their futures seem brighter, not to mention some decent improvements in their stock prices.

People like to mock the GSEs over their lobbying budgets, expenses which are public, but nobody knows exactly how much has been spent by anti-F/F crowd and their trade groups allies, like the Mortgage Bankers Association, in their fights with Fannie and Freddie.

All in, it could be as much as an accumulated $20-25 million, over the past few years, and possibly higher. But, the GSEs seem to have learned a few things, from all of that grief.

Fannie Mae and Freddie Mac used to heap huge dollars to curry business and support from the MBA. But Fannie and Freddie woke up to the fact—possibly concomitant with the large bank acquisition of most of the MBA membership--that this trade association hasn’t been friendly for years.

Even though the mortgage banker/Fannie and Freddie relationship is symbiotic, the MBA created the phony “bright line” argument, which claimed that the GSEs somehow had crossed the divide, which separates the primary and secondary mortgage markets, justifying their association’s “grave concern” and animus.

Despite the fact that neither of the GSEs ever wanted to originate a mortgage or given evidence of same--and are comfortable being in the secondary market exclusively, where mortgage bankers must sell their loans--the MBA makes it a practice to draft resolution after resolution, bashing the GSE business model and creating task force after task force, to examine the same issues and reach the same hoary conclusions.

My translation of the primary MBA lament is: “Fannie and Freddie had to drag us kicking and screaming into the 21^st century—and make us employ their cost saving technology—which was great for families seeking mortgages, but it reduced our profit margins. We decided that this very pro-consumer crap crossed some bright line.”

The MBA’s members, in the near term (which could become pretty far term), still need the GSEs. Simply, because their parent banks may not want to be mortgage investors and buy their subsidiaries’ mortgage products, especially when there is more money to be made elsewhere.

Its fun watching the MBA try and dance on both sides of the “Admin’s efforts to hamstring the GSEs” saber, when of subject of portfolio limits comes up.

The MBA can’t really afford to totally support the GSEs or they lose “street cred” with the anti-Fannie/Freddie crowd, which happens to include their owners. But, portfolio or purchase limits can’t be good for lenders, which must sell everything they originate.

The last thing a mortgage lender wants is to limit the number of entities to whom it can sell loans and F/F still are the nation’s largest mortgage investors. But, if some hokey mortgage cap is legislatively set, those mortgage companies might find the GSEs always welcoming mortgage purchase activity, closed to them, just when they need it the most.

So, the MBA clunky message to Congress really becomes, “We want you to hurt them, but not too much, because we need them to have a successful business.

I love these chickens coming home to roost and hope the Fannie and Freddie managements never forget how “helpful” (NOT!), the MBA has been in the past few years.

About a “million years ago,” the thrift industry was the major GSE antagonist for other misperceptions. The, the S&Ls accused Fannie and Freddie of “competing with thrifts,” because the two companies boosted the market presence of other lenders, buying loans from, guess who—the mortgage bankers.

More than 200 small thrifts, then broke away from the parent U.S. League--the original large thrift trade association--and formed their own, more Fannie/Freddie friendly, “Secondary Mortgage Market Support Group.” These small guys clearly saw the future of mortgage lending and the vital importance of the GSEs and active use of the secondary mortgage market to transfer mortgage risk.

Some smaller mortgage banking groups--eschewing the MBA-- have formed, over the years, but the exodus from the MBA could and should get serious, if the trade association keeps speaking out of both sides of its mouth.

If that “big chicken” ever came home to roost, the MBA, then, could follow the natural order of things and, itself, become a far less costly subsidiary of the American Bankers Association or the Financial Services Roundtable, etc., saving the parent banks duplicative dues.

For some, that would be sweet justice.