Sunday, January 13, 2013
David Fiderer Unchained
In This Corner, Wearing………
I first read David Fiderer’s work a few years ago when I was looking for anyone challenging the conservative bombast and rhetoric hurled at Fannie Mae and Freddie Mac, as well as the core federal government’s role in mortgage finance, by their GOP opponents and allies.
David has a strong progressive viewpoint and backs those views with facts. He’s a 30 year battle scarred financial services veteran, who worked for several major global companies in New York on energy matters, doing tax law, international originations, and mulling credit oversight issues.
Fiderer writes with an edge and he has a delightful way of dismissing opponents’ allegations with indisputable savvy, based on his long years working and watching the elements in the financial services industry.
I am going to post a link Fiderer tome which I just saw just this weekend in the “Daily Kos” because it dovetails with something I wrote last week about new Conservative efforts to challenge and undermine any federal role in the mortgage finance system.
As I’ve written, I think there is a necessity for that government role although not as large as there once was. I continue to believe that consumers in the upper end of the market can be supported by a Fannie/Freddie model which does not have the federal government behind the two explicitly or implicitly.
I guess that means House Financial Services Committee Jeb Hensarling (R-Tex) and I agree on his goal for Fannie and Freddie, just recreate them as privately and turn them loose.
Before I turn David Fiderer loose on you, I need to offer one small addendum to something I wrote last week, when I went off on Ed Pinto and the American Enterprise Institute (AEI), long time opponents of Fannie Mae and Freddie Mac, and the suggestion that Pinto’s current anti-Federal Housing Administration (FHA) rants were rank opportunism and a fresh avenue for his opinions.
In an email exchange after last week’s blog, Pinto pointed out to me that he has held this perspective for many years and had first developed his thinking almost 20 years ago, when he encountered the late Gale Cincotta, a legendary Chicago low income housing advocate, who often testified before Congress against FHA policies and once led several busloads of low income and elderly protestors into Fannie Mae’s DC headquarters in the early 1990s. (I think EP may have worked for Fannie then.)
As I told Ed, I accept the revelation of his early education but still didn’t agree with the core AEI position and his manipulation of Fannie’s 1990’s lending data for use (or misuse) in the AEI’s anti-GSE campaigns.
David Fiderer also writes about AEI and Pinto in his Daily Kos piece, but that’s unrelated to my clarification and acknowledgment of Pinto’s nearly two decade opposition to FHA policies.
Enjoy David Fiderer.
http://www.dailykos.com/story/2013/01/12/1178344/-Debunking-the-Right-Wing-Case-Against-Fixed-Rate-Mortgages#
I have a feeling that more of Fiderer’s stuff could show up in future blogs, especially if the Right chooses to cross swords with him.
Maloni, 1-14-2013
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4 comments:
I got a sense through the grapevine that some people object to the fact that I was dismissive of connection between fixed rate mortgages and the savings-and-loan crises. I'm reminded that not everyone remembers what happened 20 or 30 years ago. So let me lay it all out.
But first, let me remind everyone that this has nothing to with the actual loan performance of fixed rate mortgages, only some people’s selective memories.
In New Bubble May Be Building in 30-Year Mortgages one author says that the fixed-rate mortgage “was responsible for two taxpayer bailouts in the last 20 years.” This is nonsense.
First, the 20-year-old taxpayer bailouts of savings-and-loans, i.e. in the early 1990s, was very different from the S&L crisis of the late 1970s early 1980s. No one who follows the financial industry would ever conflate the two. (You find this type of conflation and false equivalency all the time at right wing think tanks. It serves their “the-seeds-of-destruction-were-sewn-in-the-New-Deal…” mantra.)
This early 1990s S&L crisis was triggered by rampant financial abuses and mortgage fraud, which resulted from lax regulation. Thirty-year fixed rate mortgages had nothing to do with it.
As for the more recent bailout in 2008, the author is clearly referring to the government bailouts of Fannie Mae and Freddie Mac, the two largest fixed-rate lenders, by far. Fannie and Freddie both had razor thin regulatory capital requirements, which were based on stress testing that assumed a real estate downturn that mimicked that of the oil patch in the late 1980s, not the crash of 2007-2009. If F&F's statutory capital were, say, 8% or 5%, no government bailout would have been necessary at all.
For instance, over the past four years, Fannie Mae's annual losses on a $2.7 trillion mortgage book have averaged about 0.50%. Over the prior 36 years, the average was about 4 basis points. No mortgage lender, other than Freddie, has a similarly stellar record of loan performance. (Check out pages 82, 99 http://www.fhfa.gov/webfiles/24009/FHFA_RepToCongr11_6_13_FINAL.pdf)
F&F lost more money on interest-only mortgages and investments on Aaa-rated private label mortgage securities than they did on fixed-rate loans, which consitituted the lion’s share of their mortgage books.
Finally, there’s that old saw that fixed-rate mortgages caused the S&L collapse of the early 1980s. The problem is that nothing exists in a vacuum. People forget that when S&L’s financed fixed rate loans in the post war years, it seemed reasonable because everything else in the financial system was fixed as well. Foreign exchange rates were fixed by the Bretton Woods regime, interest rates paid on S&L consumer deposits were fixed at 50 bps higher than savings accounts at banks which were also fixed, (checking accounts could not pay interest), interstate banking was disallowed. When all that became deregulated and interest rates spiked, many S&Ls, facing a funding mismatch, became insolvent. But they would have been insolvent if the mortatges were fixed for 15 years or 10 years.
Today, mortgage securitizations, and interest rate derivatives, are used to address the issue of that type of funding mismatch. Which is why invoking the first S&L crisis, out of context, can be misleading.
I got a sense through the grapevine that some people object to the fact that I was dismissive of connection between fixed rate mortgages and the savings-and-loan crises. I'm reminded that not everyone remembers what happened 20 or 30 years ago. So let me lay it all out.
But first, let me remind everyone that this has nothing to with the actual loan performance of fixed rate mortgages, only some people’s selective memories.
In New Bubble May Be Building in 30-Year Mortgages one author says that the fixed-rate mortgage “was responsible for two taxpayer bailouts in the last 20 years.” This is nonsense.
First, the 20-year-old taxpayer bailouts of savings-and-loans, i.e. in the early 1990s, was very different from the S&L crisis of the late 1970s early 1980s. No one who follows the financial industry would ever conflate the two. (You find this type of conflation and false equivalency all the time at right wing think tanks. It serves their “the-seeds-of-destruction-were-sewn-in-the-New-Deal…” mantra.)
This early 1990s S&L crisis was triggered by rampant financial abuses and mortgage fraud, which resulted from lax regulation. Thirty-year fixed rate mortgages had nothing to do with it.
As for the more recent bailout in 2008, the author is clearly referring to the government bailouts of Fannie Mae and Freddie Mac, the two largest fixed-rate lenders, by far. Fannie and Freddie both had razor thin regulatory capital requirements, which were based on stress testing that assumed a real estate downturn that mimicked that of the oil patch in the late 1980s, not the crash of 2007-2009. If F&F's statutory capital were, say, 8% or 5%, no government bailout would have been necessary at all.
For instance, over the past four years, Fannie Mae's annual losses on a $2.7 trillion mortgage book have averaged about 0.50%. Over the prior 36 years, the average was about 4 basis points. No mortgage lender, other than Freddie, has a similarly stellar record of loan performance. (Check out pages 82, 99 http://www.fhfa.gov/webfiles/24009/FHFA_RepToCongr11_6_13_FINAL.pdf)
F&F lost more money on interest-only mortgages and investments on Aaa-rated private label mortgage securities than they did on fixed-rate loans, which consitituted the lion’s share of their mortgage books.
Finally, there’s that old saw that fixed-rate mortgages caused the S&L collapse of the early 1980s. The problem is that nothing exists in a vacuum. People forget that when S&L’s financed fixed rate loans in the post war years, it seemed reasonable because everything else in the financial system was fixed as well. Foreign exchange rates were fixed by the Bretton Woods regime, interest rates paid on S&L consumer deposits were fixed at 50 bps higher than savings accounts at banks which were also fixed, (checking accounts could not pay interest), interstate banking was disallowed. When all that became deregulated and interest rates spiked, many S&Ls, facing a funding mismatch, became insolvent. But they would have been insolvent if the mortatges were fixed for 15 years or 10 years.
Today, mortgage securitizations, and interest rate derivatives, are used to address the issue of that type of funding mismatch. Which is why invoking the first S&L crisis, out of context, can be misleading.
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