Saturday, July 6, 2013

What Others Say



 

 

Some Look at Corker-Warner, Say “No”

 

Two "thumbs down" articles--on the new Bob Corker (R-Tenn.)-Mark Warner (D-Va.) legislation, which would abolish Fannie Mae and Freddie Mac and replace them with a new Federal Mortgage Insurance Corporation (FMIC) designed to provide mortgage securities loss insurance after initial red ink gets picked up by lenders and mortgage insurance companies—are linked below.

Despite the fact the first article comes from old friend Alex Pollock at the American Enterprise Institute—which abhors Fannie and Freddie—Alex makes decent arguments about the false assumptions, likely pricing and cost involved in the multi-faceted Corker-Warner proposal, plus what it is and what is isn’t from an insurance perspective. All in contrast to what C-W’s advocates proclaim.

Pollock points out that despite the huge uprooting of core elements of today’s mortgage finance system, i.e. disassembling Fannie and Freddie, C-W doesn’t lessen federal presence in the mortgage market, just replaces two big dogs with a new one of equal or likely greater size.

Let me again add that Congress gets treacherous and goofy when it tries to write omnibus legislation. Attempts to do so often get festooned with lots of little “ornaments” that when time comes to excise them sometimes bring even wackier substitutes or additions.

It’s the legislative process that’s unpredictable more than the legislative issue.

(Pollock’s C-W article.)

http://www.aei.org/article/economics/financial-services/housing-finance/corker-warner-improves-on-gse-modelbarely/

In contrast Akhanthos Capital’s Michael Kao argues that the surest method to a smooth working national mortgage finance system is to permit some version of Fannie and Freddie to emerge from their federal penury.

The two would need to return all federal funds invested in them—which should occur in about a year--and continue to serve the conventional residential mortgage market. Compared to C-W, that approach could be the least disruptive systemically and—once much of the F&F disinformation and distortions are explained—would come closest to mortgage model I believe would work well. 

Kao does not address the issue, but I think F&F could succeed, with no ties to the federal government, because they have in place the necessary mortgage systems, lender networks, commercial identity, consumer reputations, and the ability to raise capital, if Congress would allow them to evolve as every other financial services institution assisted by the federal government has.

 (Kao’s C-W article.)


No substantive Corker-Warner legislative action will occur this year and, in fact, the far simpler and expedient Rep. Michael Capuano (D-Mass.) bill, allowing the former GSEs to repay the government and get on with their business lives is very consistent with what Kao suggests.

Maloni, 7-6-2013

(Some vacation and then accompanying grandchildren, returning to the west coast from their time with their Grandma and me, means the blog likely won’t return until late in the week of 7-15-2013.)
 
 
 
 
 
 

10 comments:

Anonymous said...

You forgot the WSJ op-ed piece from the chief proponent of The Big Lie, Mr. Ed-Pinto's-research-was-never-disseminated-to-the-FCIC, Peter Wallison of AEI.

http://online.wsj.com/article/SB10001424127887323873904578569820608849816.html

The Corker-Warner bill repackages and tweaks the ex ante GSE structure, because investors' spoke loud and clear: "Fool me once..." explains their refusal to buy newly issued private label mortgage securitizations.

Wallison slams the bill based on The Big Lie's predicate:

"The recent financial crisis was the result of government housing policies. Beginning in 1992, these policies required Fannie and Freddie to lower their underwriting standards so people who otherwise lacked the credit standing or financial resources could purchase homes."

There is zero evidence that the GSE's lowered their credit standards beginning in 1992. The only evidence that counts is loan performance, which improved after 1992, when home price appreciation was still moderate.

And any suggestion that GSE loan performance is not vastly superior to any other segment of the mortgage market is a bald faced lie.

Wallison and his cohorts deploy the same verbal pyrotechnics enumerated in Orwell's "Politics and the English Language."

Robert Mae said...

It was the housing and community act of '92 that, first, suggested, then coerced, then demanded (via HUD) FnF insure the "underserved population" at an increasing percentage of their portfolios, that Wallison is referring to. That bill, although not initially leading to poor loan performance because it was passed during the prior crash's trough, was, in fact, the precipitator of atrocious loaning standards which brought our economy to its knees.

Also, Wallison isn't a proponent of The Big Lie, he's a proponent of 'the govt should not use housing finance to push its social policy', which I agree with. Unfortunately, he's also of the entitled class and believes home ownership should be restricted to the very few, so his opinions are pretty mute.

Bill Maloni said...

Yes, I got the Alex Pollock piece first and went with it.

But, you nicely characterized Peter's effort. Thanks for the quality addition.

Bill Maloni said...

Let me respond to "Anon" and Robert Mae with one answer, since I just saw each of the comments.

Yes, I had the Alex Pollock piece first and went with it and didn't see Peter Wallison's effort until afterwards.

Thanks for supplying it and your commentary.

Robert, where I disagree with you, is that the "goals qua goals" started the problem.

At least at Fannie, they provided a superb engine to push the primary market to make loans to qualified borrowers who had been shut out.

It was tough when they were ratcheted up to 50% of business--and higher--but not impossible.

I believe the pre-2005 Fannie financial and business results with regard to minimal losses and very low defaults prove that.

Where you might have something is how the banks and investment banks bastardized and hijacked that--going away from F&F systems out on their own, discarding both caution and prudent underwriting--and generated all of the soon to fail private label loans and securities. Reminder, it was those bonds which failed 6 to 10 times more than anything which came out of the F&F underwriting systems.

But, as I have often noted, both F&F new management bought that garbage and assisted in the Paulson bushwhacking.

F&F failure with the Wall Street PLS purchases gets transferred incorrectly to their own corporate securitizations which aids the distortions I've railed against.

Robert Mae said...

Happy 4th, Bill, and good vacation.

In response:

The govt wanted a larger percentage of people owning homes instead of renting. Rightfully, it believed home ownership leads to greater prosperity for the people and, likewise, for itself.

To fulfill that premise the govt turned its back on regulation and enacted acts which facilitated ease of ownership.

Everyone with skin in the game saw and played it for all it was worth. I few, basking in all the cash they'd made, probably referred to patriotic duty.

Therefore, I will always respectfully disagree with you; "goals qua goals" did, in fact, start the problem.

Anonymous said...

Looks like our moment of truth is about to happen...

http://finance.yahoo.com/news/investment-group-sues-u-over-005245088.html;_ylt=AhLIP3JT71Q3u8viAaHHuO2iuYdG;_ylu=X3oDMTNyamRpMjByBG1pdANGUCBUb3AgU3RvcnkgTGVmdARwa2cDNDBiNTdmMjMtMjMyMi0zMjgyLWI3MTgtYTY4NmZhNjYxNWQwBHBvcwMyBHNlYwN0b3Bfc3RvcnkEdmVyA2YxMTYwZDAwLWU3NmEtMTFlMi05ZWRmLWY0Y2RlYjc5ZGZkMQ--;_ylg=X3oDMTFkcW51ZGliBGludGwDdXMEbGFuZwNlbi11cwRwc3RhaWQDBHBzdGNhdANob21lBHB0A3BtaA--;_ylv=3

Me like this lawsuit.

Bill Maloni said...

I think these two suits are major developents'

Bill Maloni said...

I think these two suits are major developents'

Feralcomprehension said...

"I think these two suits are major developents' [sic]"

Sheesh, ya think?! I've been coming to your site twice a day hoping for a legitimate analysis (and also for the entertainment inherent in reading the well-deserved skewering of some stupid pundit or politician) only to find you're on vacation. These are Major Developments! You need to get back to work. ;)

Bill Maloni said...

I'm back, temporarily, typos and all. (Don't use a vacation-Kindle when trying to type responses.

I'll try and cover my thoughts tomorrow, before I leave town again, this time escorting grand daughter back to California (and visiting Barona Casino, before coming home on Tuesday night).

But, I would love to hear from you lawyers out there, telling me what you think when some very big names chose to take on Uncle Sam over the F&F bushwhacking.

Gibson-Dunn even has created a website on the matter.