Sunday, September 23, 2007

'The GSE Shuffle"

Lockie Antoinette: “No bread? Let them eat… mbs”

Dr. Lockhart Kildare: “Here, take two of these ‘percent thingies’ and call me in February.”

Professor Paulson: “Yes they can help, but first they must bend over and..…!”

Field Marshall Bernanke: “Whatever you do, just make it short and quick. Don’t hurt me.”

“Dodge, feint, and back around. Parry, thrust, and don’t make a sound. Kneel, bend, and stalk real slow. Bob, weave, and pretend you don’t know. Rise up, give in, and show no hate. Spin, talk, prevaricate….now you're doing the GSE shuffle.”

The GSE Shuffle,” lyrics by B. Maloni, music by you.


If you were a bit confused reading or hearing the Bush Administration’s frantic GSE policy maneuvering last week, shortly after HUD announced both companies had met their most recent affordable housing goals, you are not alone.

Nonetheless, just call the results a win for the GSE good guys.

After fending off so many congressional demands to “unleash Fannie and Freddie,” bringing additional liquidity to today’s mortgage market problems-- and before he gave in a scosh--OFHEO’s Jim Lockhart just ran out of excuses for not doing what Senators and Congressmen were demanding.

The pressure on his was so great that Lockie, reportedly, was answering every phone call, saying, “I am sorry Mr. Chairman, but we can’t……,” even, the day the call wasn't from Capitol Hill.

“I am sorry, Mr. Chairman...oh, hello dear. Of course I am not caving. I’m am just using reverse psychology. Yes dear, I won’t dear. Yes dear, me too, dear. I promise. Um, goodbye Mr. President! Hey, hey, don’t forget that good WalMart job for me. KnowwhatImean?”

OK. It's just a joke!

That particular conversation never happened and my cynical treatment is designed just to exploit humor. Of course. Lockie doesn’t call the President “Dear” (at least not that I know of) and I have no personal idea about “Two Gun’s” vocational aspirations with WalMart.

But it was heartwarming watching Lockhart, Paulson, and, yes, Bernanke dance as they realized that neither the market nor political momentum supported their hardline, “We will not employ the GSEs, ever” campaign.

It also is hard not to be derisive and snicker at their new positioning, especially when you consider the long record of Admin and Fed misstatements, tall tales, and abuse aimed at Fannie and Freddie.

Thumbs Up, Chris, Chuck and Barney

Senators Chris Dodd (D-Ct.) , Senator Chuck Schumer (D-NY) and Rep. Barney Frank (D-Mass.) deserve the greatest credit for causing the WH turnabout. Kudos also go to the companies, their industry supporters and others both, in and out of Congress. Nobody backed off their legitimate conviction that Fannie and Freddie can be part of a market solution to today's subprime and jumbo problems.

That spirited advocacy forced the Bush White House to realize that Fannie Mae and Freddie Mac were created to provide mortgage market and borrower relief in just these types of unsettled markets.

It’s too early to light any victory cigars, since this debate isn't over, but the anti-GSE elements have made enough concessions and retreated enough, so that a possible resolution appears doable.

Fannie and Freddie only can help “in February,” Lockie claims, when each will be SEC current. Secretary Paulson says they can be very helpful breaking up jumbo mortgage market illiquidity logjam, but only after Congress passes new GSE regulatory legislation.

Given those flimsy caveats, its occurred to many people that Fannie and Freddie can likely help now, when there is a significant and pressing mortgage market problem.

After all, the companies both are capital sufficient, according to OFHEO. They have met their latest affordable housing goals, according to HUD, and they are doing business everyday, albeit handcuffed by OFHEO’s vague and totally discretionary operational limitations.

Shouldn’t someone employ the GSEs sooner than February, meaning today, when the big bad wolf is banging on the mortgage market’s door?

Paulson and Bernanke (the latter employing fedspeak) both endorsed the GSEs—on a short term basis (what a great idea, where did I hear it before?)—funding higher balance jumbo loans, those currently larger than the GSE limits, so the two companies can clean up the illiquidity mess created by the traditional, but now MIA non-conforming investors.

Pay the Piper

But Paulson has a price. Before the GSEs can provide the relief that the Admin obviously believes they can, the Treasury Secretary would have Congress first pass a new regulatory restructuring bill, probably with some Administration language returned—which was overwhelmingly knocked out by a bipartisan vote, when the House passed its bill--that would give a new GSE regulator unchallenged authority to intervene in Fannie/Freddie businesses operations, based on any event in the economy.

So, Treasury is saying that we have a “right now” problem in the jumbo mortgage market segment, to which Paulson would apply a “sometime next year” GSE solution?

(A recent report suggested that the traditional 25 basis point spread between conforming and non-conforming product grew to 92 basis points last week. That’s a pretty expensive fear premium that some investors are charging to buy jumbos. Needless to say, Fannie’s and Freddie’s entry into jumbo financing--even briefly--would all but erase that dissimilarity, bringing greater liquidity and efficiency to the, now, “non-conforming” market.)

It wouldn’t matter, in this Admin/Paulson/Lockie model, whether the issues justifying intervention were related to GSE business actions or not. Lockie’s successor could use financial or economic irrelevancies—if he/she wanted—to impose sanctions on Fannie and Freddie.

“Hello? Yes, Lockie’s successor here. Nah, Lockie ain’t here, no more. He's greetin' at WalMart. You say Angelo’s going to do what, when, in how many branches? Plus, you claim his handicap is down a stroke and his tan is fading? Boy, that doesn’t sound good for Fannie and Freddie; I better increase their capital requirements. KnowwhatImean?”

The Fed's terms are far less onerous. Mr. Bernanke just wants whatever GSE supplied mortgage market relief that Congress chooses to be short term

For now, GSE supporters can enjoy the Administration’s continued conflicting and self-defeating shuffling. Congress, based on statements of Messrs. Dodd, Schumer, and Frank, wisely seems determined to get rid of the GSE investment caps, come up with some realistic new mortgage limits, as well as possibly letting the GSEs work—for a brief period—in the “jumbo market.” Congress also seems to support some Administration-backed subprime policy changes for FHA.

An Understanding and a Reminder

I don’t know if it will take one bill or two to accomplish all that each side wants, especially if the Senate Banking Committee and the House Financial Services Committee lack time to consider two separate pieces of legislation. But, the situation screams for compromise and a “quid pro quo.” I think Congress can get most of the GSE policy changes it wants, plus it should insist on some version of the bipartisan Bean (D)-Negeubauer (R) House language, since this Administration has given obvious and ample proof why some restraints on a wayward regulator are desirable.

When a positive GSE proposal is pending, but someone in this Administration conditions it on the companies being “totally SEC compliant,” I am reminded that there still are many in this town, including a group on the Hill, who believe that the GSEs never were horribly non-compliant with FAS 133, the incident this Administration used to label them outside the rules. The “justifiable doubters,” believe that Fannie politically got into the face of senior Bush Administration officials--one too many times--and the faux SEC case was used to whack the GSEs with a major mallet.

It would be easier to ignore that possibility, if the Bush White House hadn't shown itself too willing and very able to place itself above the law and employ their Cabinet and regulatory agency political appointees to penalize presumed enemies.


(Recommended reading: “The Great Inflation Mystery, Still Unsolved,” in Sunday’s New York Times business section, penned by Ben Stein, who played the great droll voiced roll-taking high school teacher in “Ferris Buhler’s Day Off.” Stein has a wonderful economic perspective. He writes about the subject plainly and masterfully.)

Maloni 9-24-2007

Monday, September 17, 2007

Greenspan’s Book

“The enemy of my enemy is my….. er, enemy?”

I was surprised to read about former Fed Chairman Alan Greenspan’s heavy criticism of President Bush’s fiscal policies or lack thereof in AG’s new book, “The Age of Turbulence. (No, I haven’t bought/read the book, yet.)

Maybe there is hope for the Maestro, yet.

I expect that congressional Democrats will jump all over the tome and force the GOP to defend “W” or attack Greenspan. I wonder how GOP presidential candidates will handle it, probably dodge, noting that Greenspan wasn’t strong enough on abortion.

How will those people, who oppose President Bush’s policies and also think Alan Greenspan did not walk on water, react to the central banker’s criticism?

I just described myself, so I guess I’ll answer and apply a little “situational ethics,” realizing that Greenspan is gone and Bush is still here, suck it up and say “Go Greenspan, get Bush!” (My endorsement doesn’t apply to AG’s Neanderthal GSEs views, however.)

But, the facts lean heavily to Greenspan.

IMO, Bush—with a huge electoral and political mandates--did nothing to restrain the Republican Congress’s violations of orthodox GOP tight fisted budget responsibility and limited deficit spending. He refused to buck the assault on fiscal discipline or any of the excessive spending the House and Senate overlords demanded. (“Hey Karl, what’s this here veto pencil thing? Why does it say, ‘Do not use unless Karl approves?’ ”)

Yes, President Bush found himself in a costly war. But it was one he created, once he chose to invade Iraq based on a false premise.

In those five years since, President Bush has yet to pay for the war with spending cuts or new taxes. Instead of shutting down Uncle Sam’s spending spigot, he actively drained it at both ends, backing more spending plus more tax breaks. No wonder Greenspan’s nailed him.

I would hope that Democrats—if they ever controlled both the Congress and the White House—would use this sorry example and do a much better job.

Speaking of which, I wonder how Greenspan’s enthusiasm with President Bill Clinton’s approach to federal spending will spill over on presidential candidate Hillary Clinton, who likely is Bill’s intellectual equal? If Bill Clinton had the resolve to achieve balanced budgets--he did it twice, with Frank Raines as his Budget Director--can a “new” President Clinton match or exceed that, even though she will start from a much deeper deficit position? I wonder what AG thinks?

GSE Week and a Message for My GSE Friends

This will be a big week for “GSE talk,” with mortgage market hearings, an FHA markup in the House, and a Fed decision on short term rates.

In the near term, both companies could benefit.

As the fall unfolds, I just hope that both Fannie Mae and Freddie Mac remember that “they do well when they do good.”

Each company needs to follow through on what I believe will be new charter support from Congress with regard to their mortgage activities and operational freedom. With this little help from their friends, the GSEs can reestablish the core value which their diehard supporters believe they represent, but which the companies still need to display for some skeptics.

I know it is difficult to manage, on a day by day basis, the conflicting charter imperatives of safety and soundness, return for shareholders, and mission, especially when your regulator isn’t making it easier and seems to be playing a major “two faced” game.

So, let me try and help my GSE friends with their tough choices.

MISSION, MISSION, MISSION. Get grungy, get sweaty and dirty, try and do the really hard to do mortgage work and then the other things, neatly, will fall into place.

(I could try larger type face, if “yelling” will help make the point easier to understand.?)

“Walk the walk” and the home buying public, your industry business partners, the GSE supporters in Congress, the investment community, and--surprise--even the media will rise to protect your back.

When given a chance to show they were up to replacing you, your foes failed miserably and in a spectacular way. The GSEs now are in a position to remind all of those who only vaguely understand your role and value to see it first hand. Without getting too poetic, the housing “good guy” mantle is there for you to retake and wear it justly and proudly.

The best result of stepping up your mission work, big time, though, will be that your success will consistently deny your enemies traction, since the bad guys and critics will be with you as long as little babies are cute.

Totally vanquishing the GSE opponents isn’t realistic, but shutting them up for a long time is a very real possibility.

“You can book that, Dan-o” (Oh and Dick, too)!”

Maloni 9-17-2007

Thursday, September 13, 2007

"You Can Call Me Al"

(This segment been planned for the blog I published earlier this week, but it grew too long and I decided to pull it and give Al Dellibovi’s letter--and my reaction to it--its own, exclusive treatment.)

I first met Al Dellibovi when he managed HUD for Secretary Jack Kemp in the early 1990’s.

As HUD Under Secretary, Al made the department’s trains run on time--to the extent that is functionally possible in an agency called “11 floors of basement,” no matter which political party controlled it--while Mr. Kemp did a lot of the “out front” work. That arrangement later helped Kemp get the number two spot on the 1996 GOP presidential ticket, behind Senator Robert Dole.

For 15 years, Al quietly has done an excellent job as President of the New York Federal Home Loan Bank. But recently he took on a slightly larger profile than seems wise for someone who cut his political teeth in tough New York state politics, was a protégé of former Senator Alphonse D’Amato, and who knows the value of “quiet is good.”

Some weeks ago, with appropriate fanfare, Al appeared to “take one for the team” and sent a supportive letter to OFHEO noting that, contrary to about zillion anecdotal and hundreds of news reports, there were no real mortgage finance problems in his New York/New Jersey region.

The letter—providing temporary succor to OFHEO’s embattled director, Jim Lockhart--arrived near the time that several major housing trade associations, a former Treasury Secretary, and four prominent Senate and House Democrats (Dodd, Schumer, Clinton, and Frank)—including both NY senators--called on OFHEO for help, suggesting that there were major real estate worries everywhere in the nation.


Bank System is Great, Just Ask Al

Last week, Al was on one of the business network talk shows extolling the wonderful job the Federal Loan Bank System had been doing, as other lenders abandoned the subprime mortgage market. He urged families to go to System members (smaller commercial banks and thrifts) if they were stuck in a subprime mortgage nightmare and needed a new loan.

The New York Bank president discussed how well the twelve regional Home Loan Banks were responding to member institutions requests for billions of dollars in advances, presumably to handle the mortgage loan demands from people flocking to banks and thrifts responding Al’s message.

BTW, the Bank System funds its advances by borrowing money in the national/international debt markets, just like Fannie and Freddie, and then re-lending it to its bank/thrift members on a collateralized basis.

There is nothing wrong with Al or any other System official being an industry cheerleader. But the “rah, rah” factor ended last Friday, when I believe that Al crossed the factual line and—in a letter to the American Banker--tried to hang a huge “guilt by association” charge on the GSEs, fingering them as major subprime culprits.

He wrote that Fannie Mae and Freddie Mac--through years of work with mortgage bankers and the bankers’ broker networks--had enabled those players to incubate, survive, multiply—like, like mortgage brokers--and go on to produce the current subprime mortgage nightmare which is battering the nation.

Almost like a scene from “Invasion of the Body Snatchers,” Al implied that Fannie and Freddie had acted as birth pods for people who marched on zombie-like and caused the monstrous subprime problem. (The dramatic interpretation is the blogger's, not AD’s.)

I Disagree With Al…

Al's specific allegation was both dramatic and pretty inaccurate. It would be news to most knowledgeable people, who believe the answer to who/what is responsible for our current subprime woes falls much closer, literally, to the NY Home Loan Bank’s zip code, meaning Wall Street. The investment banks created the hedge funds and then marshaled broker networks to generate billions in subprime loans, which—because of the nature of the loans and the people underwritten—carried higher yields, that seemed perfect to feed hedge funds seeking above market rate returns? If Wall Street hadn’t tapped the brokers, the IB’s would have found others to deliver the necessary high yield product.

..So does history

I also think that history will note that the boom in the mortgage banking industry, the evolution of the “we serve any/all lenders” mortgage broker network—and, indeed, the rapid and sustained growth of the secondary mortgage market—which Al blames on the GSEs, ironically, was a direct result of the demise of the thrift industry, with its massive self-induced breakdown, disassembly, and failure in the 1980’s.

In the aftermath of that costly taxpayer debacle, virtually all thrifts took on the façade of commercial banks and moved out of exclusive mortgage lending, opening the way for other more efficient home lenders, mainly mortgage companies. Independent mortgage bankers (most now are owned by banks )--with no portfolios to hold loans--stepped up their origination of mortgages and sold virtually all of their product to Fannie Mae and Freddie Mac, which in turn grew furiously. Intelligent S&L managers, not wanting to get caught borrowing short and lending long, as the industry just had, started selling mortgages to the GSEs, too, rather than holding them.

Adding also to the demise of old style “It’s a Wonderful Like” mortgage lending was Wall Street’s “mortgage securitization,” packaging loans in mortgage backed bonds—with GSE guarantees--for sale to investors here and abroad.

This is the successful secondary mortgage market model—started in the early 1980’s-- which still prevails, i.e. lenders serving borrowers at the retail level and then selling their loans to Fannie, Freddie and other investors. Major foreign and domestic financial institutions, including central banks, investing in GSE and others debt—supplying a lot of the initial mortgage capital--and then purchasing GSE and “private label” mortgage backed securities, through the New York investment houses.

Contrary to Al’s suggestion mortgage bankers and brokers, lenders of all stripes, depositories as well as mortgage companies, took advantage of the changed times and lower costs offered by the “mortgage broker business model” and used contract help (brokers)—to complement or in lieu their own employees--to feed loans to their mortgage operations.

Tying Fannie Mae and Freddie Mac to the evolution of mortgage brokers is a bit of a reach. Brokers cannot sell loans to the GSEs. Fannie’s and Freddie’s customers are approved banks, thrifts, mortgage companies, credit unions, etc. Those primary market institutions originate the loans any way they choose—using in house staff or using brokers—and then sell them to Fannie and Freddie, with the lender standing behind the underwriting.

Why Now Al?

But why would Al resurrect all of this history and some say re-write it, now?
Is he’s trying to get tight with the GOP in DC, feathering his own nest, while trying to balance some of the major opposition to OFHEO? Does he want to take advantage of OFHEO’s angst to settle some old industry disputes, with a three corner bank shot? Is the wily Mr. D just is taking advantage of events and hoping to get some market share for the banks, at the expense of the mortgage companies and Fannie and Freddie? Or maybe it’s part of some move to disguise the fact that most of the Bank System officials don’t want a new regulator, because the status quo serves them nicely!

Who knows?

What I think my old colleague really accomplished—whether by design or not--is to draw undue attention to the Home Loan Bank System, which has flown under the radar as Congress spent time restructuring creating a single new regulator for Fannie, Freddie and the Home Loan Banks. Before and during the House hearings and mark ups on regulatory restructuring legislation, Fannie and Freddie had their operations sliced and diced and were given the equivalent of a media proctological exam (not comfortable for those not personally familiar with the process), while the Bank System largely was ignored, even though a few of the regional banks had their own “accounting issues.”

Stay Hidden

I wish no ill will on the Bank System or for my friends who work for it. My advice to System fans is to just “stay gray,” continue to hide—institutionally—in the bushes, where nobody knows or inquires what the System does and nobody asks embarrassing questions, for which you don’t have easy answers.

The Bank System has gotten a free ride from Congress for years and I doubt if Lockie will be around long enough to reciprocate any cosmetic kindnesses that Al or anyone else extends to him. He certainly won’t be running any new GSE regulatory agency.

Maloni 9-13-2007

Tuesday, September 11, 2007

The WSJ And Other Things

The WSJ. Was I “Murdoched” or Just Dissed?

Last Monday, I sent the following letter to the always anti-GSE Wall Street Journal, in response to one of their “What’s causing problems in the mortgage market” articles, by Holman Jenkins, a WSJ editorial board member. My letter was not printed, which I believe occurs to most letters that criticize the Journal’s icons. But, here’s my missive for your information.

Holman Jenkins continues the WSJ campaign against Fannie Mae and Freddie Mac, suggesting that the GSEs business activities involve "channeling a current $1.5 trillion in artificially cheapened capital into the housing market." One presumes that he is describing F/F's "implicit" federal relationship and the lower borrowing costs that it produces.

How does Mr. Jenkins refer to the $3.8 trillion in insured federal deposits, which is the lion's share of commercial depository’s mortgage finance working capital that produce far lower borrowing costs than F/F enjoy?

How many of our nation's banks could attract that volume of checking and savings deposits--at such ridiculously low costs--if Uncle Sam didn't insure the first $100,000 in every account? But, somehow, there is the suggestion that these institutions are part of the "private sector" and F/F are not?

Banks are just now starting, again, to pay for federal deposit insurance, but that’s after 10 years of getting the FDIC coverage for free.

That was--and continues to be--a huge explicit federal subsidy, which Alan Greenspan once testified was equal to about 13 basis points, annually.

What the banks now pay for FDIC protection is small and even that is offset by new tax benefits. Remembering these facts is important when making apples-to-apples comparisons between various mortgage investors and the effective use of their government benefits.

Fannie History

A brief version of Fannie Mae’s housing mission history would read, “David Maxwell made a weak company very strong. Jim Johnson made a good company great. And Frank Raines endeavored to surpass Johnson’s success.”

Each of these former Fannie Chairman and CEOs cared deeply about the company’s affordable housing performance and each sought to improve in significant ways.

Maxwell initially directed the company toward the lower end of the market and started the corporate investment and work force diversity that became its hallmark. Johnson harnessed Fannie growing resources and insisted that the company invest billions of dollars financing low income housing, with very creative outreach and products, aimed at people and neighborhoods that historically had been tough to serve. Raines made sure that Fannie benefits were distributed broadly as reflected in the dramatic increase in homeownership rates for African American and Hispanic families when he ran the company.

All three were single focused on the absolute primacy of mission success so that the charter couldn’t be challenged.

My question is, “Are both companies doing enough housing mission work to bolster their charter rights and if they are not, who or what is stopping them?”

Are some GSE officials worried that you can’t make enough profit on “mission business”--especially with the ruins of the subprime glut facing the country--or is OFHEO blocking GSE efforts to do more “mission” business or subprime financing?

When I worked at Fannie Mae, its mission regulator HUD--and later OFHEO--never got that involved with the GSE product mix, the risk parameters, the pricing, or the credit components inherent in those product and marketing decisions.

I mention this to try and ascertain if OFHEO--which now plays a much greater role in day-to-day GSEs product, pricing, and business decisions--is in any way smothering GSE efforts to do more for people stuck in subprime loans. Is OFHEO dissuading the companies from taking on more risk, owing to the agency’s safety and soundness priorities? Certainly, the S&S regulator needs to be sensitive to those issues, but is OFHEO trumping the companies “mission” instincts with the agency’s safety and soundness priorities? If so, is OFHEO wise to stress such overly prudent lending when GSEs taking on more risk is the need of the day?

And where in all of this is HUD, the statutory GSE “housing mission” regulator?

Suffice to say, I think the GSEs can do more in the subprime world as well as aid other mortgage market segments. To not utilize them—because of ideological or political disagreements—is bad public policy.

The flip side is if the GSEs have their shackles removed--because of industry and Capitol Hill support--they need to accelerate performance and not be gun shy about taking new risks, that won’t be priced to their traditional credit paradigm.

If the companies want to increase eligibility and lower their profit return on riskier borrowers--to reduce what families have to pay for mortgage financing--would OFHEO stand in the way, citing excessive risk concerns? Has the agency done this already?

“Two Gun” should answer that and related questions, the next time he’s called to the Hill.

David Berson

Good luck and best wishes to David Berson, Fannie Mae’s longtime chief economist, a smart fellow and all around good guy, who is taking Fannie’s nice retirement package and heading for another financial services gig.

Contrary to rumors, David’s departure has nothing to do with his insane rapture over all things “University of Michigan,” his alma mater, or the fact that he confidentially convinced many fellow “Big Blue” alumni to “bet the ranch and take Michigan,” giving the points against Appalachian State, in the first game for both schools of the 2007 NCAA football season.


When “Ap State” beat the Wolverines in Ann Arbor, before 105,000 stunned Michigan fans, it probably wasn’t the biggest upset in NCAA football history, except that nobody could remember a bigger one.

One contest—which reportedly came close to equaling the shocking Michigan loss—was said to have occurred in early Rome, when one of the soon to be martyred Christians drew an almost comatose lion in a Coliseum bout. The Christian held his own. But, even that lion, though woeful and staggered, came back and succeeded in kicking a last second field goal to beat the Christian, unlike Michigan.

It’s Good to Have Him Back!

Welcome back to the legislative wars Senator Tim Johnson (D-SD), one of the quality guys in public office and one of the better “housers” in the Senate chamber. Bets wishes to Senator Johnson for continued health and success!

(Coming soon: “You can call me Al.”)

Maloni 9-11-2007

Monday, September 3, 2007

Labor Day 2007


President Bush and Fed Chairman Ben Bernanke produced a successful market 1-2 punch last Friday, with Bernanke’s statement addressing broader credit concerns and the President providing some hope on narrower mortgage market issues. The two events seemed to cheer “Mr. Market” and offer hope—in Bush’s comments—to some recent subprime borrowers. Let’s hope that good feeling can be sustained when the markets reopen after the holiday.

The Administration’s decision to expand the FHA’s role and help families into FRMs --who find themselves facing insurmountable ARM adjustments and increased monthly mortgage payments--is a solid step, albeit a small one. It is welcome news and the Administration gets kudos for acting.

However, the Bush White House needs to do more, specifically freeing Fannie Mae and Freddie Mac to help, because the myriad and intertwined subprime problems are far larger than FHA’s capacity to help.

The mortgage market players—not the White House—could help at the margin by nominating one of their own as “subprime assistance Czar.” That person would be a one-stop shop for “How do I get help?” or “How can I provide help?” coordinating and disseminating information on all private sector efforts to support subprime borrowers.

That helpful step action might convince some policy makers that those private interests--whose behavior looks the worst in this growing debacle--haven’t forgotten about the true “victims” of subprime financing.


My only sibling was a military veteran. And, in the 10 years leading up to my brother’s death in 2004, he received some of the finest medical care possible, from the Veterans Administration health system. My wife is a PhD nurse practioner, a multiple sclerosis expert working for the VA. I had several uncles and cousins in the armed services and several family ties to the military and the VA. I support giving our nation’s vets all necessary assistance the nation can muster.

But, I must admit to some process shock when I saw that the Ginnie Mae removed its $417,000 mortgage guaranty ceiling on VA guaranteed mortgage loans. Ginnie Mae now will begin insuring larger balance loans for servicemen and women than Fannie Mae and Freddie Mac are permitted. What was that all about; why and how did it happen? What was the catalytic event?

For those too young to remember, the Government National Mortgage Association--AKA “Ginnie Mae”--was born in the same legislation, which privatized Fannie Mae in 1970. Ginnie was created to do what the old Fannie Mae had done before the 1970 legislation freed Fannie to finance conventional mortgages, i.e. buy and securitize, for its portfolio, federally guaranteed and insured VA and FHA mortgages.

Fannie’s and Freddie’s single family conventional mortgage limits currently are set at $417,000, with some variations, and there is talk that this number could drop, when OFHEO reports on its annual survey of housing sales prices, around the end of September. OFHEO’s sampling work is what determines the annual change in the GSE mortgage limit, applicable in the coming year. (No, Virginia, Fannie and Freddie do not make up those numbers on their own!)

How can Ginnie Mae, an office in HUD, start making those high balance loans when the captive “private sector GSEs” can’t?

I haven’t heard any those outrageous howls from the mortgage insurance industry and the big thrifts and other lenders, who every fall-- when the annual GSE mortgage ceiling was recalculated (almost always “up”)--complained, wrongly, that “Fannie and Freddie are eating into our market!” Over the years, the GSE to “non-conforming” market share held constantly at about 75%-25% dollar volume of mortgages.

So now you have the federal government directly guaranteeing what used to be called “jumbo loans” and the more and capable efficient housing GSEs sitting on the sidelines, playing with their… securities, waiting for this Administration to wake up and smell the coffee.

If a government guaranteed VA mortgage works for our veterans, then I am sure that
conventional mortgage loans would work better. Some prominent Senator or Congressman, whose military credentials are above repute, like Senator Jack Reed (D-RI) or even Rep. Jack Murtha (D-Pa.), should consider legislation allowing the GSEs to help the vets in the same way as the VA and Ginnie Mae are helping.

And, if the VA now has moved into the “jumbo” world, how far behind will be the demand to allow the more active FHA to do the same thing?

I’m all for it! Remove that $417,000 limit for all mortgage guarantors and investors and level that mortgage finance playing field, “right f……. now,” as Jean Guy Drouin, the “Johnstown Chiefs” hockey team goalie demanded in “Slap Shot,” one of my favorite movies.

Hang Together or Hang Separately

There was another effort begun last week to bring together all of the DC based housing interests groups (think “usual suspects,” plus a few) to noodle the quite serious issues facing the business. The Homebuilder's EVP Jerry Howard hosted and chaired and the Housing Finance Board’s Geoff Bacino, along with Jerry, were active in managing the day’s program.

No consensus developed, save that each of the many industries and institutions represented were facing major problems if some control and leadership didn’t soon manifest itself from this Administration and the Congress.

Having participated in dozens of these meetings, in far less perilous times, I know how difficult it is to get consensus of anything. The participants plan to meet again and hopefully find common ground, which they can express publicly and support actively.

But, clank! Whose bright idea was it to invite OFHEO to this “industry” meeting? That agency is part of the current problem, as letters from most of the major players present at the meeting suggest?

With their regulator hanging on every word, I am sure that the Fannie and Freddie reps were quite vocal, offering a variety of strident views and stinging possibilities! (I am being sarcastic, very sarcastic, with the last comment about what the GSE reps did!)

C’mon Ben!

After briefly making my “hero’s list,” for his deft moves supplying cash to a frightened market two weeks ago (and his calming words last week), Fed Chairman Ben Bernanke made it back to the “bad list,” with his unnecessary comments about Fannie Mae and Freddie Mac in a letter to Senator Chuck Schumer (D-NY).

BB told the Senator that Fannie and Freddie don’t need portfolio capacity to service the mortgage market, implying that they could securitize everything that came their way and sell it into the market.

Two questions. Where do Fannie and Freddie put those securities BB, if investors aren’t buying or if there isn’t enough of the product to make a securities market? And, isn’t it a fact Mr. Chairman, when Fannie and Freddie—especially in illiquid markets—establish a market bid to buy securities for their portfolios, their action brings down the price of the mortgages which will make up that mbs? (The more bidder/buyers for the security, the better the price, which then gets passed back to the mortgagor.)

What is lapse in political judgment causes these congressional liaison types to keep feeding their bosses to the “shredder called Schumer?” Personally, I am in awe of the senior Senator from New York's capacity to discombobulate, skewer, and reduce to a blubbering mass even the mightiest personage, let alone folks like “Two Gun” Lockhart.

Senator Schumer is brilliant and tenacious, especially when he knows that he is onto something.

With apologies to Jim Croce, “You don’t tug on Superman’s cape, you don’t spit in the wind, and you don’t get on Chuck Schumer bad side because he will……. (think of something medieval, from your worst nightmares)!"

BB You Don’t Need/Want This Fight!

The Bernanke swipe at the GSEs—which certainly won’t deter Senators Schumer and Dodd from pursuing GSE portfolio cap relief--is just more of the same worn out dogma, which itself is not accurate. It’s an old script from which Bernanke should run, not walk.

Chairman Bernanke must ask himself, does he really want to continue saying, and “Fannie and Freddie are risky and can pull down the entire system, blah, blah, blah.”
There are lots of entities—especially the bank holding company behemoths, created by the Fed and even larger than the GSEs--that could bring down the system, if they failed.

Please Mr. Chairman, don’t forget those other bad boys as you unnecessarily focus on the GSEs. Oh and BTW, when you were speaking in Jackson Hole, President Bush was decrying those borrowers inappropriately put into subprime ARMs. The world—and certainly the central bank--never should forget the role Alan Greenspan played in encouraging families to get out of fixed rate mortgages and into adjustable rate mortgages. A Fed mea culpa or two, on that score, might be nice to hear from someone who works at 20th and C Streets.

BB also should make sure that he reads the Fed report, referenced in the famous Steve Pearlstein Washington Post column, which identified his predecessor, “The Maestro,” as someone who spread GSE disinformation, ignoring the central bank’s own GSE risk findings.

The GSEs are not your fight Mr. B. It was Greenspan’s, based in large measure on his ego and perception about who in Washington had more power than whom?

Don’t you have enough on your plate without getting bogged down in AG’s agenda, which easily could become your tar baby, if you allow it?

I’ll go out on a limb and say that before this housing crisis mitigates, the GSEs will be employed by this Administration--after it is pushed by the Congress--to help the broader mortgage markets and the many families that FHA won’t be able to reach. The companies portfolio investment caps will be removed and possibly their mortgage ceilings will be increased, since Fannie Mae and Freddie Mac are logical and natural assets/helpers in this kind of situation, which will not be ameliorated in a few short months.

Only the ideologues now insist that Fannie Mae and Freddie Mac cannot possibly help.

To all of my hardworking friends, family, and critics, “Happy Labor Day 2007.”

Maloni 9-3-2007