Ed Falls Down and Goes "Boom"

 

Ed DeMarco’s Crappy Speech

And Other Noteworthy Matters 

 

GSE Earnings, a Revenue Surprise?

The Lowdown on GSE Buyback Activity for Early 2013 Fannie Mae and Freddie Mac got $16 billion back from repurchases in the first six months of 2013, lenders succeeded in getting another $7B withdrawn and still $5B in demands were outstanding as of June 30. GSE Repurchase Activity: First Half 2013, a just-released IMF data report.

Concentrate a second on that $16 Billion news item from Inside Mortgage Finance this past week. 

Freddie and Fannie will announced 3Q earnings in early November (reportedly on Nov. 6 and Nov. 7, respectively), but this past quarter’s earnings—all of which minus capital will be swept directly to the Treasury’s general fund (a process now subject to multiple shareholder lawsuits)—could get a major boost from the above mentioned buyback activity, as well additional revenue from the just reached JP and BofA settlements ($2.74B Freddie, $1.26B Fannie), depending on when it’s booked. 

Those numbers would be major gravy on top of existing grand expectations of what their normal business operations will generate.

 

And still, you have the possibility of Freddie’s earnings jacked up, super-sized, through a payment to Treasury payment based on its Deferred Tax Assets (DTA), which represent about $30 Billion.  

Fannie used their DTA earlier this year and sent $50 Billion to Uncle Sam, supplementing an additional $9 Billion in 2Q earnings. 

For me, the exact earnings are less significant than the fact that both entities will report very positive numbers and the two will move ever so much closer to “repaying the Treasury” the $186 Billion the taxpayers infused in the companies in 2008.

I know, the principal can’t be repaid, blah, blah, blah.

 

However, don’t discount the powerful political and rhetorical point that will be made when F&F give back to the Treasury more than they “borrowed.”  

That threshold will be crossed with fourth quarter’s earnings in March of 2014, or sooner if Freddie uses some/all of its DTA in 3Q. 

 

 “Why is it important that public officials understand history, Professor Maloni?” 

Because, “Grasshopper” (defined as current congressional types, the media, some regulators and those friends who accuse me of dwelling on the past), it is the path that leads us to the present and the future.

If you study a history of a topic/nation/political movement.. You can understand the present better.... and perhaps deal with any crisis that may arise in the present..

Sadly few people seem to look very far back in History in regards to current events. 

DeMarco’s Outrageous Anniversary Comments 

Laying out that fabricated exchange occurred to me after reading Ed DeMarco’s Zillow conference remarks, on the five year anniversary of Hank Paulson’s takeover of Fannie Mae and Freddie Mac. (Ed, have you noticed that because of Hank, Treasury is being sued for billions by 10 different plaintiffs with the cases being managed by some of the nation’s best and brightest lawyers?) 

Here’s are Director DeMarco's remarks. 

http://www.fhfa.gov/webfiles/25634/ZillowspeechFinal102413.pdf

Generally, I’ve been positive on DeMarco, questioning only a few of his decisions, when I believed he leaned too heavily toward ideology and not “conserving enterprise assets,” which is part of his job. 

But his comments last week exceedingly rubbed me the wrong way.

He lauded his agency’s work, naturally, but so much that it makes you wonder why he deigns allowing 8,000 or so F&F employees to come to work each day. (The answer is to responsibly manage the nation’s crucial secondary mortgage market and send billions to the US Treasury.)

His statement smelled of fear. He kept reminding his audience that the Fannie/Freddie business model failed, is dead, and can’t ever work (all the while, I assume, looking over his shoulder at the growing number of commentators disagreeing with him), as if repeating it enough times would make it true and in a wonderful “sleight of hand/speech” trick, slid over the fact that the legislation which put F&F into conservatorship and created FHFA merely “addressed some shortcomings” in F&F oversight.

 

Have You Forgotten So Soon, Ed? 

Holy Batpoop, Mr. Acting Director!

OFHEO, the agency--filled with hacks and incompetents—five years previous gave birth to the problems which they first couldn’t identify and then couldn’t solve, forcing Congress to do away with the outfit, but kept most of the personnel—including you--in place with a new name, almost like the federal witness protection program.

C’mon Ed, you’ve nailed other things, how could you miss this one? You were there, at a high OFHEO level for a few years before the 2008 conservatorship legislation? 

Working through DeMarco’s speech was like reading the three novels of Berlin Noire and encountering  innumerable World War II German citizens who claimed they never knew a Nazi. 

Let me draw a straight line from F&F post-1992 regulator, The Office of Financial Housing Enterprise Oversight (OFHEO), to the Federal Housing Finance Agency (FHFA), the current one begat in 2008 with many of the same OFHEO folks in senior posts (including Mr. DeMarco). 

(It bears noting, too, that DeMarco only is “acting” director of FHFA, while President Obama tries mightily to replace him.) 

OFHEO’s Fingerprints On the Murder Weapon! 

Ed’s paean to FHFA on its fifth anniversary belies the principal role his predecessor agency, through malfeasance and misfeasance, played in setting the table for Fannie’s financial demise (and Freddie’s too, because it always mirrored Fannie) when both chose to swim in Alt A (no doc mortgages) and Private Label Subprime (PLS) purgatory. 

It started in 2004 (DeMarco was not on staff then) when OFHEO in a flight of incompetence and political paroxysm issued a report suggesting that Fannie’s top officials, Chairman Frank Raines, CFO Tim Howard, and Comptroller Leanne Spence, committed “securities fraud” in willfully failing to implement a new accounting rule created by the Financial Accounting Standards Board (FASB) requiring financial institutions to mark to market mortgage backed securities eligible for sale. 

When a principle-challenged, politically supine SEC, headed by another George W. Bush toadie, weighed in and agreed with OFHEO, the die was cast and all three were forced from Fannie.

This allegation, which was a frustrated civil servants “so’s your Momma” whack at a corporation which OFHEO officials felt failed to kowtow.

Federal Judge Richard Leon, in 2012, finally quashed all three charges, which subsequently had manifested themselves in a shareholders lawsuit against the officials, but the lasting institutional and personal damage was done. 

Successor officials—significantly deviating from Fannie’s traditional approach to mortgage financing--chose to respond to 2005 market share and revenue losses, like a gambler putting everything on red, and plunged into the subprime securities pool (pun intended), acquiring everything they could, with the inevitable losses taking down the company. 

The world needs reminded while people inside Fannie advised the new Chairman not to buy the useless bonds, OFHEO missed identifying the evils of subprime and stayed silent until the horrible investment was widely recognized.

Very few people who knew the business and the individuals believe that Frank Raines and Tim Howard would have led the company down that same primrose path, made those Alt A and PLS mistakes, and bet the ranch on poorly underwritten, rating inflated, worthless mortgage bonds. But, they never had the chance to exercise their judgment and reject that path, since they were hounded from their jobs in a GOP witch hunt. 

If some people have trouble reading between my lines….. 

…Let me make be more clear. 

I believe had OFHEO and the Bush team not forced out Raines, Howard, and Spencer with a politically malicious set of allegations—later to be shown false—the company and the nation’s financial history would have been dramatically altered. 

Fannie Mae with Raines and Howard at the top never would have bought the Alt A and PLS their successors did; shareholders would have quieted down, there would have gotten happy with reasonable not huge earnings, and there would have been no need for any Fannie Mae taxpayer financial relief. (I am not including Freddie in that because I wasn’t there and don’t know what those officials would have done, but I believe they would have followed Fannie’s lead.) 

Thank you Mr. DeMarco’s predecessors--who created a position for Mr. DeMarco and his colleagues, via their bureaucratic incompetence, screw ups, and ego—for giving him  unsurpassed regulatory power over the two largest and perhaps the nation’s greatest generators of  affordable mortgage credit.

The only things which have grown faster than F&F’s earnings in the last two year earnings is the FHFA IG’s staff demands—which oversees the agency, not the two companies—and the core agency workforce. 

Ed, you could have done a better job than the “look at what good boys/girls we are at FHFA” speech on the fifth anniversary of the Fannie/Freddie bushwhacking.

You more or less crapped on the “enterprises” (as you so politely announced you call them) and attributed their recent earnings success to tax tricks.

But buddy, you wouldn’t be shaking in your boots if you weren’t a wee bit frightened about their positive financial future, which no matter what you do, will be dictated by a Congress, which might not carry your bias.

Speaking of which…… 

The Howard Book 

I was told Tim Howard’s soon to be released “The Mortgage Wars” was discussed in the coffee and break times at the two major housing reform conferences held in DC this past week and picked up by others. 

The tome will discuss a lot of the “who struck John” in the “OFHEO-Fannie Mae disputes,” much of the latter owing from an amazing degree of agency insecurity (which I think flowed directly from their leaders, who most people acknowledged were in over their heads).

It will not only open eyes but open minds and immeasurably add to the GSE debate Congress is having and which will grow in coming months. 

For years, the flacks and log rollers at OFHEO still were pronouncing the “t” in “mortgage.” 

They had trouble regulating and required the goodwill, physical and intellectual support of the two companies they were supposed to oversee, but as befuddled as OFHEO was, it sure could and did cause trouble. 

Maybe DeMarco, before he reaches his dotage, will realize that. Or now, he could opt to read Judge Leon’s voluminous hearing records and minutely examine Leon’s court decisions, when his Honor threw out of his court the laughable but destructive “securities fraud” charges—which started as an “OFHEO report.” 

Or, Mr. D could take an easy way out and just consume the following excellent short hand reviews of the OFHEO follies, written months ago by old friend David Fiderer. They appear here, again, for those who initially may have missed his dazzling work. 

http://www.opednews.com/articles/Fannie-Mae-Accounting-Sca-by-David-Fiderer-130122-361.html

http://www.opednews.com/articles/Fannie-s-Settlement-Agreem-by-David-Fiderer-130514-253.html 

As I noted in last week’s blog comments section to a questioner, Howard says he has a Jan. 6 (?), 2014, event at DC’s Politics and Prose book store, on upper Connecticut Avenue, NW; pre-orders (at a nice discount) are available on Amazon, for those like me who value saving a buck.

 

AEI Apostasy?

From Issac Boltansky’s Compass Point.

Opinion Piece Calls For Lawmakers to Let GSEs Live. In an opinion piece being sent around D.C. this morning, former undersecretary of state James Glassman is arguing against the liquidation of the GSEs. As we have stated previously, our sense is that the conversation in D.C. appears to be shifting slightly toward support of simply re-branding the GSEs as we know them. There is a meaningful concern among some policymakers that liquidating the GSEs may create an unsustainable vacuum without a clear and capable replacement in place (i.e. PMI, banks, PLS investors). (Isaac Boltansky |202-534-1396| iboltansky@compasspointllc.com) 

 

Jim Glassman, one time publisher of Roll Call the Capitol Hill newspaper, and now a fellow at the American Enterprise Institute (AEI) could lose his starboard side communications rights with his blasphemous Bloomberg article last week, calling for reviving Fannie Mae and Freddie Mac to serve the nation. (Linked at the end of this segment.)

 

Glassman never was a Fannie-fan at Roll Call and while I welcome his comments, I was most worried that Glassman’s heresy—especially if it caught fire and attracted GOP acolytes-- might make things uncomfortable for Peter Wallison and Ed Pinto, AEI’s resident Fannie/Freddie belligerents, to whom I immediately took my concerns. 

PW did assure me in an email that the AEI welcomes all kinds of wayward thinkers (my word, not his) and it has room in its big tent for Brother Glassman. 

http://www.bloomberg.com/news/2013-10-22/don-t-kill-fannie-and-freddie.html

 

Maloni, 10-27-2013

 

 

 

 

 

 

 

 

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Mortgage Wars

Former Fannie CFO Tim Howard’s Book

 

Many months ago, I was fortunate to review early drafts of “Mortgage Wars,” a book by my friend and former Fannie Mae colleague Tim Howard, coming out later next month. 

Publisher McGraw-Hill has been touting it on Amazon and the book is accelerating up the presale list of books in that genre. 

Tim started writing this book long before federal judge Richard Leon, a year ago, threw out “securities fraud” charges against Fannie Mae CEO Frank Raines, Fannie Comptroller Leanne Spencer, and Howard, which were brought by some shareholders who relied on a totally bogus and politically motivated Bush Administration finding that top Fannie officials misapplied new mortgage backed securities accounting rules. Quite the opposite as history showed.

 

Judge Leon Clears the Decks and the Air

 

The Leon decisions overtook Tim’s drafting and provided him with a very satisfactory result to the material he penned and story he began to tell, long before the legal victory was certain and unsealed.

 

Of course, coming eight years after the 2004 charges and lawsuit were lodged, the three principals couldn’t avoid the career setbacks, loss of prestige, diminished respect, and dislocation in their professional and personal lives.

 

“Lies have traveled around the world while the truth wakes up and brushes its teeth in the morning.”

 

And, as I’ve written before, the Bush Administration’s ideological decision to force out this top talent allowed new, less reliable execs to take command. (Heavy specifics of that are in Tim’s book, too.)

 

From 2005 until stopped, the “newbies” deviated heavily from Fannie’s historic conservative approach to mission, gorged and acquired  billions of dollars of worthless Alt A mortgages and Wall Street private label securities (PLS)—seeking yield and market share-- which brought down Fannie (and Freddie, too, which played its own version of that strategy).

 

Serious followers of this matter will enjoy reading Tim's authentic details, which have never before appeared in public. If they play close attention, they will realize how exacting was the detailed and serious financial services work and analysis conducted at Fannie by the pre-2005 management.

 

Tim’s Turn

 

Last week, I asked Tim to describe the final draft sent to McGraw Hill.

 

One of the most bizarre aspects of the current debate on mortgage finance reform is that the consensus objective for reform-- getting rid of the GSEs and providing a greater role for the private sector-- was the goal of the anti-Fannie Mae cabal in the late 1990s and early 2000s, and pursuing it is what led to the 2008 mortgage crisis!  Why would anyone want to do the same thing again?   We shouldn't, but the major proponents of today’s ideas for mortgage reform are the large banks and their supporters, and they're the ones who control the narrative about what happened during the crisis.  The story they tell about the crisis is completely wrong, but before my book there has been no fact-based alternative view for anyone to consider instead.  That's what "The Mortgage Wars" will offer. It makes clear how and why the crisis evolved-- using actual events and developments in the correct sequence in which they occurred-- and it's told from the perspective of an insider who lived through the events he's relating.

 

As I've noted before, the mortgage crisis was the result of a fight between the supporters and the opponents of the GSEs over who would control the largest credit market in the world.  Fannie and Freddie always had been controversial, but the controversy got serious in the late 1990s, when two decades of banking deregulation produced giant financial services companies (mostly banks) with national ambitions who viewed Fannie and Freddie's dominant position in the mortgage market as a threat to those ambitions.  They came to Washington to try to convince policymakers and regulators to replace a mortgage finance system based on the GSE with one based on private-market mechanisms and incentives, with very little government involvement or regulation.  Fannie Mae fought back, and what I call "the mortgage wars" began.  The banks and their supporters succeeded in getting control of the mortgage standard-setting process in 2004-- when private label mortgage-backed securities accounted for over half of all new MBS issues for the first time ever-- and that got the bubble going.  Fannie Mae was pulled into it after OFHEO used allegations of accounting fraud-- subsequently shown by Federal District court judge Leon to have been completely invented-- to oust Fannie Mae's top leadership and force the company to change its risk management organization and practices.  But even with that, five years after crisis ended it is clear that Fannie Mae's mortgages performed twice as well as the banks' and four times better than those put into private-label securities.

 

The GSE-based system was the best and safest in the country's history.  The bank-based private-market system that replaced it in the mid-2000s-- with the support and assistance of the Treasury, the Fed and the Bush administration-- led to a catastrophic failure that ended up killing everybody, including the GSEs.  Anyone with an accurate understanding of what happened during the mortgage crisis, and why it happened, would be highly unlikely to ever again fall for the siren song of basing an $11 trillion market essential to the country's economic health on free-market principles with no government oversight or regulation.

 

 

WH and Hill Democrats, Hold the High Fives 

If you are a Democrat, it’s tough not to chortle over the Tea Party setbacks and the GOP’s problems. 

But, someone who once counseled his direct reports to, “Throw one brick too many rather than one too few,” I hope Democrats do not follow that advice. Instead, I would hope the D’s who prevailed in the debt limit skirmish will be mellow, strategic, hold onto that extra stone and reach out to any Republican who will work with them for the remainder of the Obama term. 

Here’s what I predicted in my last blog, on 10-14, about the eruption of the debt limit fight. 

“I still am sticking to what I said will be the near term resolution. It will be some short term “debt limit” extension and a deal to work on some spending issues.” 

The mind jogger for us all—especially those now politically joyous--is last week’s problems weren’t solved, merely greased and slid forward. The same drama and bloviating will occur in February, unless a true majority in Congress, D’s and R’s, stands up for what’s right and works together on mutually satisfying solutions to spending and revenue matters, that means giving to get or compromise. 

Sorry, my D friends, it’s not just about too little federal spending and more revenue. We spend a lot and too much of it wastefully. The federal government needs to tax and spend more thoughtfully. 

Anyone living in the Washington area can cite his or her favorites wasteful federal spending story and a lot of us can descried departments and massive program waste which like Topsy just keep moving forward.

 

But Newtown didn’t force us to confront gun violence or easy gun acquisitions and the past several weeks political extremism and antics likely won't change fiscal behavior among Hill D's and R's and downtown. 

Only God knows how venal and crazed the Tehadists and their ilk plan to be. But, setback or not, zealots don’t wither on the vine. 

There still was a boat load of House R’s along with healthy handful of GOP Senators who voted against this short term relief. 

But, their chamber colleagues made that opposition meaningless because enough  stalwarts made clear they would vote for the package and not risk the nation’s credit rating any longer.  

Enough damage already was done by the lead up to the anti-climactic result. I hope Congress and the White House doesn’t just repeat it next February.

 

http://finance.yahoo.com/blogs/the-exchange/memo-tea-party-government-budget-actually-improving-191847158.html

 

 

 

Maloni, 10-21-2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stewart Warns GOP Not to Pass Gas and.......

 

 

 

“Don’t Fart and Blame it on the Dog!” 

http://www.huffingtonpost.com/2013/10/09/jon-stewart-calls-out-republicans_n_4069528.html?utm_hp_ref=mostpopular

 

In the above video, Jon Stewart—with humor and facts--says it as well as anybody commenting on all the federal shutdown BS, which now has been wrapped in a political death march to increase the government’s debt limit. 

The “Teahadists” may think they live in a protective political cocoon, because of their gerrymandered congressional districts, but the Republican Party is exposed and likely will suffer (and has if recent surveys are accurate). 

Yes, voters do forget and their memories sometimes are short when things get back to normal and improve, but some things are not easily forgotten with round the clock 24-7 news, amplified by social media.

Because of so many idiotic GOP statements and offensive allegations, anyone running as a Republican better be prepared to defend this partisan hyperbole for a long time (meaning through next year’s election cycle). 

I still am sticking to what I said will be the near term resolution. It will be some short term debt limit extension and a deal to work on some spending issues. 

But, this can will be kicked down the road again because the Tea Party won’t settle for anything but complete surrender by a bipartisan numerical majority who are not as Teahadist naïve, disbelieving, and destructive. 

Warren Buffett

“To tie [the debt ceiling] to something about whether you break the promises of the United States government to people all over the world as well as its own citizens, just makes no sense. So it ought to banned as a weapon, it should be like nuclear bombs, basically too horrible to use.”

— Warren Buffett, in an interview with FORTUNE, posted Oct. 4

 

 

U.S. Treasury

"A default would be unprecedented and has the potential to be catastrophic: Credit markets could freeze, the value of the dollar could plummet, U.S. interest rates could skyrocket, the negative spillovers could reverberate around the world, and there might be a financial crisis and recession that could echo the events of 2008 or worse.”

— U.S. Treasury report studying impact of debt ceiling brinkmanship in 2011, published Oct. 3

 

Ted Yoho

“I think, personally, it would bring stability to the world markets.”

— Rep. Ted Yoho (R-Fla.) on what happens if the debt limit isn’t raised, The Washington Post, Oct. 7

Senator Ted Cruz (R-Tex) 

Most people think that “Teddy Bin Laden,” as one conservative columnist referred to the junior senator from Texas this weekend, is a major political winner in the current fight over first Obamacare and currently the debt ceiling. Some observers say the positive attention from his right wing supporters is fueling Cruz’s presidential aspirations. 

I think Cruz may get a presidential nod in 2016, but only from a third party which splits off from the traditional GOP and fields its own candidates across the board. 

That would be the best political development to happen in and to the United States in a long time.

The Teahadists have captured the traditional GOP—or at least rendered it operationally impotent--and the TP “fringies” feel policy constrained by the party’s shrinking, but still important, “country club” element, also known as the wiser, saner heads.

Spew that venom Ted, capture the Right, drive it from the GOP over relentless backward looking demands, and pave the way for moderate control in both houses of Congress and the White House. 

F&F Court Cases, Redux

Last week, I sent to a number of regular blog readers a separate missive discussing the latest on the 10 lawsuits brought against Treasury over its 2008 Fannie and Freddie takeover.

Those legal challenges will move at whatever pace the courts set and I don’t look for Congress, statutorily to try and pre-empt any of the plaintiffs’ challenges, because that would bring additional lawsuits on whatever bill they would employ. 

Given the dollars involved, any decision likely will be appealed, ultimately to the SCOTUS, and we’ll see what our nine solons have to say about Fannie and Freddie “takings” and related issues. 

I don’t believe David Boies and Ted Olsen, two of the most successful and well known American lawyers, normally don’t lend their prestige to cases they might lose.

I suspect  the plaintiffs’ attorneys in these cases have some reason to believe that Bush Treasury Secretary Hank Paulson screwed up around the issue of whether Fannie and Freddie were privately held companies or simple wards of the government that politicos easily could disdain and violate. 

The problem is—just as in my 21 years at Fannie--there is substance and facts for people to argue both sides of this question.

Including this lovely bon mot from a court decision last year, “Because conservatorship is by nature temporary, the government has not acceded to permanent control over the entity and Fannie Mae remains a private corporation.”

 

Corker-Warner, cum Johnson-Crapo 

There is a funny/ironic story circulating about the efforts of Senate Banking Committee chair Tim Johnson (D-SD) and his ranking Republic Mike Crapo (R-Idaho) to produce their bill.

It’s reliably reported the two senior guys are basing their draft on the C-W bill. But recent requisite staff meetings to develop the proposal have been choppy and poorly attended because Corker and Warner staffers are observing the federal shutdown and there literally is a law which prohibits them from engaging in these behind the scenes talks.

Go ahead, laugh. I did, too, when I heard it. 

Don’t You Dare 

Fifteen DC based housing and mortgage finance trade groups roused themselves to jointly send a letter to the Fannie/Freddie regulator, the Federal Housing Finance Agency (FHFA), asking it not to lower the Fannie/Freddie mortgage ceilings while the mortgage marketplace is still sensitive and adapting to regulatory changes from other statutes.

http://mail.aol.com/38099-111/aol-6/en-us/Suite.aspx 

This does not make all of these business interests F&F fans, although some are. It just shows that it is easy to sign a letter but tough to actually work the Senate and House over substantive legislation.

 

However, if a Corker-Warner or Johnson-Crapo bill comes out of the Senate and some/many trades don’t like it, they are tough groups to ignore when you are running for reelection as everyone in the House is and a gaggle of Senators are in 2014. 

In the House, you still have the Hensarling mortgage reform bill, which has no federal role in it unlike what exists on the Senate side, but still lacks support from a majority in House.

I still don’t see the Congress approving any major mortgage reform legislation until 2015 at the earliest, because next year is a congressional election year. 

Other Fannie/Freddie Stuff

 

I should have noted that the mega commercial banks trade association, laughingly—in my view—called the Consumer Mortgage Coalition, also sent a letter to FHFA opposing lowering the F&F mortgage ceilings. The bigs spend most of their time trying to throttle F&F and when a regulator seeks to shut down a small piece of the market and allow everyone but Fannie and Freddie to go after it, the banks complain because that means more competition and—more importantly—no Fannie and Freddie mortgage security guarantees on the bonds into which those loans must be turned for easy trading. Hello, again, the private label security (PLS) experience which those same banks screwed up so famously in the build up to the 2008 financial meltdown. 

The American Securitization Forum, which once numbered most of the bank and investment bank usual suspects—but recently split over association executive control and compensation issues—also sent FHFA a letter seeking a “marginal reduction” in the F&F loans limits. Not sure who belongs to the ASF but it’s depository members, if there are any, can’t be happy with that communication and position. 

Lastly, the American Bankers Association (ABA), the grandfather of the banking trades, says it’s just been slow with its letter to FHFA asking it to hold up any changes. 

Given that about 100 MoC’s also have asked FHFA not to cut the ceilings, it will be interesting to see how Acting Director DeMarco responds.

Common Platform; Déjà vu, Again!!

 

Quietly, almost stealthily, FHFA has mandated that Fannie and Freddie give way to a common securitization platform which the agency claims is necessary/desirable for the nation’s future mortgage finance system.

Huh and why? 

The dirty little secret, which is not so secret, is that for 30 or more years, Fannie has had the superior mortgage backed security which is recognized and market preferred (and one of the reasons Wells recently dumped Freddie?).

 

http://www.mortgagenewsdaily.com/channels/secondary_markets/05152012-fannie-freddie-price-dislocati.aspx

 

Fannie pays their MBS investors sooner and there are more Fannie mortgage securities outstanding which means greater liquidity and better price. 

Freddie’s security implementation is similar to Fannie’s but not identical and does not trade as well. 

However, IMO, the slight difference between the two either didn’t dictate such an elaborate and wasteful bureaucratic exercise calling for a third model. 

But, apparently, that’s not the FHFA way. It now has chartered a Delaware limited-use corporation, with its own board, its own building in suburban Maryland, and a head hunter looking for its CEO, and all of the bells and whistles that FHFA believes is necessary to put together this “common securitization platform.” 

Why can't their regulator just pick one of the two existing platforms or even figure out a way to meld them? 

Why go through all of this silliness with a new government created company, a board, senior officials, blah, blah, blah?

It is so reminiscent of when FHFA’s predecessor the Office of Financial Housing Enterprise Oversight (OFHEO) was created in 1992 and mandated to develop a risk based capital oversight model, since both F&F had invested in and were operating their own state of the art RBC systems. 

Rather than chose one or the other, an amalgam, or just employ an oversight supervisory look at what capital each was establishing, OFHEO insisted on building its own RBC system—which the statute permitted and gave the agency two years to do—but took 10 years, finally, to produce. 

Naturally, F&F paid for all of that and will pay for all of this new time waste. 

See linked below FHFA’s latest press release describing its success. (Always beware of government agency press releases which include self-laudatory adjectives.)

 

http://www.fhfa.gov/webfiles/25553/JointVentureRelease100713final.pdf

Related/Unrelated

 

I love all of the recent talk about the big financial behemoths being dismantled into some of their component parts.  Unfortunately, it’s all just talk, but that’s the single best way to end the “Too Big to Fail” distinction. And, no policy maker anywhere should fall for the bogus line, “But if you make us smaller, we won’t be about to compete with our foreign competition.” 

Watch any financial services exec who makes that statement and see his or her nose immediately get longer! 

What Others Say 

http://www.realclearpolicy.com/articles/2013/10/09/a_failed_model_for_gse_reform_681.html

http://www.nationalmortgagenews.com/features/Change-Fannie-Freddie-in-Name-Only-1039339-1.html

 

Maloni, 10-14-2013