Saturday, December 28, 2013
Saturday, December 21, 2013
Kudos Mel Watt
(See segment's final paragraph)
In the middle of last week a number of reports suggested that Fannie and Freddie took actions to drive up the cost of mortgage finance with a loan level pricing (LLP) fee increase which most expect lenders will pass on to borrowers.
Accurate as far as it goes, but it wasn’t Fannie and Freddie doing this. Once again it was actions driven by their regulator who mandated the boost.
This was another dictate from on high from the outgoing DeMarco regime and his posse, still holding senior Federal Housing Finance Agency (FHFA) jobs.
It’s been written about--and all but verified--that Ed DeMarco was conflicted by his role as “conservator,” under the 2008 HERA legislation, and as F&F’s regulatory overseer.
His HERA assignment was to “conserve” and to resuscitate F&F and preserve/foster their assets; but his second job—the one apparently closer to his heart where he could exercise discretion—was working with his team, divining ways he could wind down Fannie and Freddie and limit their capacity to gain strength and generate revenue, all in the guise of “bringing more private capital into the mortgage market.” (Hey, nobody can be against that, right?)
But, he failed there, as succeeded wonderfully, supported the nation’s mortgage finance system and became burgeoning cash cows, to the point—as most everyone knows---that in a few short weeks, when 4Q 2013 earnings are announced, Fannie and Freddie will have more than paid back the money the taxpayers invested in them.
Anyone who talks to officials at Fannie and Freddie know the two are being told what to do; F&F senior execs are not managing their companies and making any significant decisions.
They are automatons, taking and implementing orders from FHFA and, occasionally, from Treasury.
There is hope among some that Mel Watt, once he is sworn in, will breathe life into the two’s historic mortgage finance role and have them initiate—Shh, can I say compete?—and pass on those benefits to US home buyers and the mortgage finance system broadly.
But, to be effective, Watt should root out FHFA reactionaries, who support the DeMarco approach.
He should bring in a strong “Watt team,” who truly understand the mortgage and securities markets and how the principals interact. They have to total allegiance to Watt and no fidelity—until it’s earned under fire--to the carryover FHFA staff, who likely will have little love for a new Director more inclined to help mortgagors.
I’ll repeat what I’ve written before, after being sworn in new Director Watt might find them comfortable, but I doubt Watt can find anyone working on Capitol Hill who has the requisite skills he’ll need at his right hand.
In the meantime, industry groups are pushing the Hill to push FHFA (Watt) to roll back the loan level pricing adjustments and I hope he does.
(The preceding segment was written on Friday afternoon, Dec. 20. On Friday night, Mr. Watt announced that he would delay the fee increases until he could review their impact. Congrats industry groups and others who pushed for that decision.)
AEI Looks Overseas and Sees???
Last week, I noted that Ed Pinto will head a new American Enterprise Institute (AEI) international housing finance operation.
Here is there press announcement and a brief AEI produced description of Ed’s new shop.
“Today, the American Enterprise Institute (AEI) launches a new initiative to help temper the destructive boom/bust cycles in housing markets: the AEI International Center on Housing Risk (ICHR). The ICHR will equip borrowers, investors, analysts, regulators, politicians, and lenders with new indices designed to provide transparent measures of housing market risks and the means to mitigate these risks and instill market discipline. It will be staffed by nearly two dozen experts, many of whom warned of the crisis from which we are still recovering.”
But, what can the nation—and the world—look for in this new project? I hope the work is a lot better than the last time that Ed and Peter Wallison, his AEI colleague, got on their “research” tear.
That was when they produced and huckstered Ed’s distorted funky finding that Fannie Mae bought mostly subprime loans in the 1990's, which provided the Rightwing movement plenty of grist for their mantra that "Fannie and Freddie caused the 2008 financial meltdown.”
But it was a hollow theory which serious researchers panned and one which got rejected across the board by many government and private reviewers.
Most egregious was Peter Wallison attempt to flog Pinto’s work—when Peter Wallison served as a member of President Obama’s Financial Inquiry Commission, most egregious was PW’s effort to flog Pinto’s work to the Commission staff and mislead some in Congress about how Pinto’s product was received. (Hint; the FCIC staff dumped all over it, as did the Federal Reserve staff in a special report to the FCIC. In short order, so did a Nobel prize economist, several national financial writers, and our friend and colleague, David Fiderer.)
So, as kind of a “welcome back to the research world Ed Pinto,” let’s revisit what some people said the last time Ed and Peter wrapped their names around some of Ed’s personal research.
Here is a 2011 story from the Daily Kos.
Here is David Min’s superb and substantive rejection of the AEI line.
Bob Kuttner in the American Prospect.
Here is Paul Krugman’s work in the NYT.
Here is a New York Times blog book review of the Gretchen Morgenson and Josh Rosner’s book, which relied heavily on Pinto’s research.
This Huffington Post link contains the most detailed description of what reportedly was in the Fed memo sent to the FCIC, as well as Wallison’s admission of leaking it to Pinto.
--Columbia Journalism Review website. http://www.cjr.org/the_audit/rubio_and_the_big_lie_of_the_c.php
“Read this piece by David Fiderer, who calls out the American Enterprise Institute’s Edward Pinto, who along with Peter Wallison, has been the primary force behind the Big Lie, noting how he has recently taken in The New York Times, the Los Angeles Times, and others with misleading claims about the Federal Housing Administration.”
--Mike Konczal, a fellow with the Roosevelt Institute
Wonkblog: No, Marco Rubio, government did not cause the housing crisis
(Maloni note: Konczal's piece also references previous rejections of the AEI/Pinto/Wallison charges.)
Nick Timiraos, WSJ
Mortgages, Ed Pinto, and a vast conspiracy of silence http://www.opednews.com/articles/Mortgages-Ed-Pinto-And-A-by-David-Fiderer-130213-6.html …“Check out that first chart. Hilarious stuff.”
The world needs to remember Ed Pinto’s and AEI’s first major foray into housing research and keep it in mind, if similar fetid analysis—with an international flavor--pours from the AEI well.
“Fool me once, shame on you; fool me twice, shame on me!”
2013 and 2014
I wish you and yours, all, a healthy, happy holiday season and an equally healthy, happy and productive New Year.
May the saner minds in Congress and in the financial services world emerge and shine in 2014
Sunday, December 15, 2013
Cats and Dogs
Much happening. I’ll try to hit as many as possible and keep the commentary short.
Conservatives Fear FHFA’s Watt
The Right seems very upset about Mel Watt’s appointment as the new Director at the Federal Housing Finance Agency (FHFA) succeeding their hero, Ed DeMarco. (Although who knows if, when and where Ed will go, since he does have some Civil Service protection.)
If you can believe all of the Starboard side worries, the world has come to an end and Watt is going to revive Fannie and Freddie, with doom and pestilence sure to follow.
Teahadists and friends, it was just coincidence that Watt--in his first day on the job--sought meetings with David Maxwell, Jim Johnson, Frank Raines, Jamie Gorelick and Tom Donilon…..Ah, just teasing!
But, we know they are partly Right (pun!).
Taxpayers Lost Money on GM
International Center on Housing Risk.
Although Ed and his posse have chosen to debut their new show Germany, I would hope his new international perspective allows him discover something he and his AEI colleague, Peter Wallison, have apparently overlooked or more than likely ignored because it is so inconvenient.
That’s the more than $2 Trillion in subprime private label securities (PLS) issued by Wall Street and the big banks during 2005-2007, which they vigorously marketed overseas, making the US real estate setback an international debacle, when between 40% and 50% of those bonds failed!
Ed and Peter (the latter as recently as about a month ago in an NAR sponsored conference in San Francisco) pretend that PLS garbage wasn’t created and sold because it ruins their “The federal government and Fannie and Freddie were responsible for the 2008 meltdown” story.
Just check out the numbers guys!
The “incidence and severity” of PLS defaults and failures were gargantuan compared to F&F MBS losses.
Look for the right time to admit it, fess up, and then get on with your new international sandbox; hopefully you’ll be more honest with those folks than you have with your fellow US citizens, with your gross distortions of Fannie Mae’s purchase in the 1990’s, which the Federal Reserve staff and the President’s Financial Inquiry Commission—naming you—a conclusion reached by about a dozen other very credible observers.
“Let’s begin with the status quo. The taxpayer rescue of Fannie and Freddie in September 2008 has cost $137 billion so far. While this has been paid down from an initial $187.5 billion, taxpayers aren’t likely to get their money back anytime soon. Last fall, the regulator charged with overseeing Fannie and Freddie estimated that the taxpayer bill for the companies could be $200 billion by the end of 2015.”
Wrong Ms. M, the taxpayers are getting paid back, probably in a few short weeks, and the surplus to the Treasury will grow geometrically at that point, barring some change in the “dividend” arrangements (as I noted in the above segment).
Before its final regulatory approval last week, almost four years ago in my Feb. 8, 2010 blog, I called for okaying the “Volcker amendment” and identified many of the things the big banks and their allies would do and argue to forestall this logical reaction to their rapacious behavior.
Small Lenders F Fees
How many times do F&F officials have to hear that they are screwing small lenders, when they charge the little guys higher guaranty fees?
I know current management can’t act in their own self-interest politically, but the community bankers have been among the most stalwart F&F allies over time inside the Beltway.
F&F are making money now and they should give some back to the little guys, using whatever rationale needed.
The small guys require all of the help they can get to withstand being swallowed by their larger competitors (no matter what the ABA’s Wayne Abernathy claims), which also is good for consumers.
I am sure Director Watt can/will more easily understand that posture.
What Others Are Saying
David Fiderer returns, bigger and bolder than ever. See his latest, including the first link which will appear this week in National Mortgage News and his second, a commentary on PLS bank lawsuits.
NPR transcript on FHFA, F&F
New housing finance regulatory terrain gets discussed on NPR.
Go for it, Tom!
For the erudite and thoughtful. FDIC Director Thomas Hoenig in Dublin last week, discussing the goal of disassembling behemoth financial conglomerations.
His conclusion: “In the quest to improve financial industry stability, behavior and performance, it is unfortunate that we choose complicated administration over structural change.
Let us kiss you, Mel
The Mortgage Bankers Association seems to be “romancing” Mel Watt with its self-serving welcoming, indicating the association’s agenda and for its members and the big banks which own them.
To be read as: “Congratulations Mr. Watt and by the way, now we want and expect…..”
Maloni Kudos to Pope Francis for standing up to your Church’s Neanderthal elitists/reactionaries and displaying your piety for all to see and Speaker John Boehner for calling out the crazies in your party.
Sunday, December 8, 2013
Lots of FHFA Action This Week
Some charged developments likely coming this week, including possible Senate approval of Mel Watt to be the new Director of the federal Housing Finance Agency (FHFA), F&F’s regulator.
Most people believe this now is a baked in concrete deal, but there was an interesting wrinkle which came up at the end of the week.
Reportedly, Mr. (Congressman) Watt, who loses the title officially if he takes over the agency but in fact never gives up the honorific, asked Ed DeMarco, the current acting Director, to stay on board awhile in a transition.
I hope that’s not true.
Mel Watt might want the helping hand that a departing DeMarco could offer, but Ed reportedly has “civil service status,” which means he can’t be forced out of the agency and the last thing Watt needs is his predecessor still around with the guy’s former staff paying obeisance to him.
Congressman: Even if it leaves you feeling a little exposed, remove your predecessor ASAP; make the FHA staff understand that there is a new sheriff in town, and just learn on the job, as many of us have in the past when given grander responsibilities.
Better to arm yourself with a solid assistant or two—brought in from the outside (not the Hill), with heavy mortgage finance and securities experience—and look to them, first, before relying on what FHFA officials tell you, until you know enough to trust those you find there.
You don’t have to show off for anyone. You are the boss, you make the rules, and you ramp up at the speed you need, and don’t let anyone — especially inside— measure that pace for you.
Look querulously at any FHFA staffer who starts their sentences with, “What you have to do Mr. Director is…….!”
You are smart enough to know that you have a lot on your plate and while a dose of DeMarco might seem soothing, it’s wiser to lose him as soon as is seemly and get on with your education and administration of the agency.
Frankly, what I don’t know is how much you are going to be your own man, making your own calls on issues that—while you may not understand down to the last comma--you instinctively know are right or wrong.
That’s why you have one or two strong deputies to work over those matters, whose loyalties are to Mel Watt and who won’t spill your business in the FHFA hallways and cafeteria.
It’s going to be difficult for you, but that same logic applies to your keeping at arm’s length your White House sponsors. They chose you. They made the decision, the Senate will have approved it, and now use your brains, skill, and experience you brign through the door.
The Common Securitization Platform (CSP);
“White Elephant” Requiring Major Oversight
Another event possible this week is FHFA and the same Ed DeMarco announcing the name (s) of the individual (s)—there are vacancies for a CEO and President--who will head the Common Securitization Platform (CSP), which I consider an outrageous waste of taxpayers’ money and an expropriation of Fannie and Freddie resources not quite as egregious as the 2008 “takings”--now being litigated in 17 different lawsuits--but, it’s close enough.
The CSP is a new Delaware chartered narrow casted entity, which neither Fannie nor Freddie—who were forced by their regulator to create it--or most lenders want.
However, acting Director DeMarco believes strongly in this unwanted scheme to develop an independent mortgage underwriting platform, which DeMarco gratuitously funds with Fannie and Freddie (taxpayer) revenue.
FHFA has rented Bethesda office space for CSP, is building CSP a boardroom for its yet to be named board, will hire a couple of bigwigs (see above) and then bring in some duplicative worker bees (how many?).
$500 Million, Really??
The rumor is that DeMarco’s eventual cast of CSP merry men and women will blow up to $500 Million on this puppy.
That’s right Congress, $500 Million, which could/should be Treasury-bound and deficit reducing.
This scheme has no independent oversight or design, just a DeMarco mandate to create something which likely already exists in one or both of Fannie and Freddie.
Mel Watt, are you or someone close to you reading this? Make yourself an instant hero, ask the vainglorious (in its own mind and congressional reports) FHFA IG office to investigate the CSP thing, “right #$@&^%*$ now!”
Congress once used the GAO to eviscerate these soft projects, maybe some curious/outraged D or R might ask it to so with this one.
I want it now, whine, and cry!
The common platform has had a quiet evolution and has escaped a lot of outside attention, despite how brazen it is.
Essentially, Ed DeMarco decided that the mortgage banking world—most of which already is attached to one or both of the Fannie Mae or Freddie Mac underwriting platforms--requires a third.
“For whom” is a good question, especially if Congress is going to do away with the two and keep or sell off all of their assets (including their platforms)?
Industry’s public comments didn’t seek this because it realizes some inherent legal risks which lenders don’t need given their other regulatory and judicial concerns.
DeMarco’s judgment is to give this project to the world (he didn’t bother to answer who might pay the taxpayer back for his gift?), no matter the viability and necessity.
Think about it, who but F&F--and maybe one or two banks--have that type of system demanded, which they keep market contemporary?
Where will the CSP, board and employee go for input?
I know, I know, in their hostage’s cupboards!
Clearly this pig, no matter how much lipstick is painted on it, still will look like a sow. When all is said and done—if an intervention can’t be put together—the CSP will use the standards and systems which F&F have developed, remembering these two entities—over which FHFA has conservatorship authority--will continue their automatic improvement.
What is the CSP Going to Seek and Where?
Demarco does not conserve F&F resources and assets with this exercise.
The CPC will harrumph and call for studies and reports, go on field trips, maybe visit overseas, and then take the active information from Fannie and Freddie, dress it up and pretend that it’s a new creation.
There is precedent for this audacious thievery. Since its early days and I suspect still, OFHEO/FHFA would demand detail rich reports from F&F, then some FHFA apparatchik would publish the info, suggesting the research was done, independently by the regulator.
It’s stealing, but gobbling up F&F possessions doesn’t seem to bother Congress.
I suspect, the CSP intellectually will cannibalize some sensitive operational parts of F&F, so some bureaucrat can pretend he/she found out a new way to underwrite loans.
I’ve suggested that FHFA bag the new corporate façade, the titles and expenses, and just name 10 bright people from each entity and a half dozen of their own staff and do the work in house.
If it takes any more than that, then, once again, FHFA is “$%$#@* up!”
Careful Sen. Mark Warner (D-Va.), Mr. 30-1
Weekend report that Republican lobbyist Ed Gillespie might run against you in your next election.
With your constant dissing of them, I am sure the thousands of Freddie Mac employees living and voting in Virginia, as well as their Fannie neighbors who reside there, too, would be happy to put putting their voices, wallets and energies behind Eddie G.
What Others Are Saying/Writing
The WSJ's Nick Timiraos offers his thoughts on what Mel Watt might do at FHFA.
Tim Howard does TV interviews re, “The Mortgage Wars.”
Yahoo looks at Wall Street and ethics.