Column A and Column B

 

 

Can’t We “Housers” Just Get Along?

I Have a Plan for It, But “Shots” First

 

Lot of news about the Corker-Warner “do away with Fannie and Freddie” legislation, which will not move in the Congress this year. It will garner attention, lots of speculation, and media exposure because it represents a bipartisan effort to think “strategically” about how the nation finances home mortgage loans.

The scheme may look “strategic,” but it also may be a little vacuous, if not disingenuous (don’t forget they’re Senators and that goes with their turf!).

In introducing his legislation to kill Fannie and Freddie—as well as all of the systemic good they provide--and  create a new Federal Mortgage Insurance Corporation (FMIC) to provide back up mbs loss protection, after other investors, including the originating lenders and mortgage insurers pony up, Senator Bob Corker (R-Tenn.) claimed,

"It brings discipline back into the housing finance sector where you don't have private gains and public losses," Corker said on CNBC.

On that, I call “Bull Shit!”

Corker’s loses my goodwill when he hurls this faded distorting Right Wing  buzz bomb at Fannie and Freddie to further con a public that already little understands the two and how they operate now or before.

Corker obfuscates and tries to twist the reality that for almost 40 years Congress mandated that Fannie—and later Freddie—earn their own way, borrow their working capital in national and international debt markets, cover any business losses—and as a public company have shareholders and have their stocks traded on the New York Stock Exchange-- which they did until the Bush Admin put them into conservatorship in 2008. 

There never was one federal penny put into either until the 2008 wipeout. 

My memories of 2008 include Fannie Mae shareholders seeing their once $62 per share stock drop to less than a dollar and then see their company taken over by the Bush Administration under dubious circumstances, actions now the subject of a major lawsuit.

Where was Fannie Mae’s private gain in those moves?

Let me challenge Senator Corker and/or his top Financial Services staffer to explain and justify his “private gains and public losses” statement with facts, not political hyperbole?

Any time guys are ready, since I know there are a legion of very smart folks waiting to hear your answers and then obliterate them faster than you would put down F&F.

And, since the cerebral Senator is putting almost everything in his bill “on budget,” with the federal government, i.e. the taxpayer, as the ultimate guarantor, is there any chance that the “private firms” Corker claims will invest in the nation’s mortgage finance system will enjoy any “private gains” because of Uncle Sugar’s presence?

As I hope Johnny Depp says, “You betchum Kemo Sabe!”

I won’t say anything about the inherent hypocrisy in the Corker rhetoric but I prefer to think that Senator’s comments betray that he and many of his allies just don’t understand the mortgage finance system, its players, and how profits are made?

 

Two Big Winners

The proposed Corker-Warner mortgage structure is a big bank boon (new federal bond loss insurance) and heavenly manna for the mortgage insurance industry (MI’s). The latter group has seldom graced anyone’s “good guy” list and, historically, has been barely trusted by lower income borrowers or mortgage investors which often have to fight the MI's to repay legitimate losses on which MI products provided “loss protection.”

I wonder how quickly the inevitable MI industry and large bank political financial support will show up in the Senator’s campaign finance reports?

I am a bit dubious about Corker key stoning his plan with the MI industry. 

If this is such a solid industry, why—except for AIG through its United Guaranty sub and GE which no longer owns  GEMICO, an MI company now devolved  into Genworth --has it been “peopled” (the current SCOTUS believes corporations are people) by a handful of thinly capitalized companies? 

AIG’s woes still are front page news and the best that can be said for GE is that the Hudson River barely has survived their affiliate’s 20 year poisoning of that waterway, but millions and millions of fish haven’t.

Didn’t the Consumer Finance Protection Board (CFPB) just charge four of the largest MI companies--and is seeking $15 million in fines from them--for giving kickbacks to lenders who steered business to them? Of course four companies is about half the current industry.

Somehow, I am sure the clueless mortgagors, paying MI policy premiums on those kick backed loans, didn’t get the best insurance deal available. The industry perps have to generate that payoff cash somehow.

Oh and wasn’t it the same MI industry that slow walked or even ignored the anniversaries when mortgagor home equity surpassed the 20’s threshold, requiring the cancellation of those monthly MI payments for borrowers? Sure was!

The nation might prepare for a lot more of that kind of action—and likely worse--if Corker-Warner ever sees the light of day unchanged.

Nobody tell Senator Corker he just opened a huge can of federal subsidy for the unworthy MI’s, it could ruin his reservoir of  one liners, essential to misleading people about legislative intent.

And, if any Senator pontificates, “Well, we want/expect new companies to enter the business!”

First, sell that Senator any underwater land in Florida you still own. Then tell him/her history suggests any new MI’s will be driven by the old MI ethics, which don’t run very deep in the industry which went bankrupt during the Great Depression and then was revived at the state level in the mid 1950’s.

Once Congress—as it affirms, again, in Corker-Warner--decided that borrowers didn’t have to put down a 20% cash to qualify for a mortgage but could substitute a mortgage insurance policy for the part of the down payment they didn’t have or couldn’t afford to borrow, the MI industry was super-sized from its former minor complementary insurance role.

Senator Bob, I can’t believe that a good old Tennessee country boy like you can fail to understand that whenever Uncle Sam is involved someone will try—and likely succeed—to pick his pocket.

 

Here’s A Maybe “Get Out of Jail Free” Card For Corker

 

For all of Corker-Warner’s marketing faults—the most significant of which is their need to abuse and then  destroy Fannie and Freddie before you can do anything positive--let me offer a thoughtful and constructive classic “Washington solution” or at least something that might make your deal more palatable. 

Senator Bob, it means looking across the aisle and the Hill to admire a cogent and concise idea being pushed by House Financial Services Committee Rep. Mike Capuano (D-Mass), which could be a perfect addition to your approach. 

Your legislation contemplates a 5 year transition for your FMIC to take over from Fannie and Freddie. Capuano suggests that F&F be allowed to “repay” the principal invested in them by the Treasury (which likely could occur by next year, if everyone agreed to the logic) and then be considered for future roles.

In the interest of “Houser comity,” let me take a little from Corker (his five year transition) and a little from Capuano (principal repayment) and suggest that with Capuano’s proposed return of Treasury’s investment,  Congress  could let F&F hold onto future earnings—net of Treasury repayment, capital, taxes and overhead--so that in  “five years” Fannie and Freddie can be free to participate in the FMIC mortgage market just like any other company once helped by the federal government. 

What’s the urge/need to destroy them first, along with all of that experience, mortgage securitization network, executive expertise, positive history (save the subprime debacle which struck every mortgage investor), and the F&F goodwill and desire to make the mortgage market work better?

In the 60 month Corker-Warner legislative time frame, Fannie and Freddie will have done “federal time,” paid back the government with a financial sweetener to extinguish all of their Treasury debts (plus extra cash which Treasury now would just sweep after $186 billion was returned), done yeoman work holding up the nation’s residential mortgage market for five solid years while in encased in figurative regulatory handcuffs, and have earned the right to the same treatment as GM, AIG and every other financial services company helped—but not destroyed--by the government!

Makes great policy and political sense to me—if you are going to try and rally folks to C-W. Just make it Corker-Warner-Capuano!

You might even get a Jim Millstein buy in.

 

Maloni, 6-27-2013