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.
Maloni, 10-21-2013
13 comments:
Hi Bill, I checked some bookstores and it seems that "Mortgage Wars" will be available at the end of November, any information on Tim Howard presenting the book? It will be an honor to meet him.
Yes, he told me that he will be doing "Politics and Prose," the prominent bookstore on upper Connecticut Avenue, in NW, DC, but I don't know exactly when.
I assume there is a regular road show, McGraw Hill does with its new authors. But, Tim hasn't mentioned any other cities to me, yet.
Anon--I called Tim's attention to your question and he reports that the DC Politics and Prose visit will occur on Jan. 3, 2014, at 7 PM.
When he gets more book store and city visits, I'll let people know.
It's my birthdate. Maybe I'll spend it in DC!
No, order it on Amazon and go out
with your Significant Other--or find one--and party.
That day isn't coming back.
Bill, tell us what you hear about GSE reform provisions to be contained in Maxine Waters bill.
It is time for the Dems to wake up and fight for a reformed Freddie and Fannie.
Are the Homebuilders, Mortgage Bankers and Realtors so afraid of Henserling and the Tea Party that they would not address their self-interest in GSE reform?
Bill, tell us what you hear about GSE reform provisions to be contained in Maxine Waters bill.
It is time for the Dems to wake up and fight for a reformed Freddie and Fannie.
Are the Homebuilders, Mortgage Bankers and Realtors so afraid of Henserling and the Tea Party that they would not address their self-interest in GSE reform?
Bill, tell us what you hear about GSE reform provisions to be contained in Maxine Waters bill.
It is time for the Dems to wake up and fight for a reformed Freddie and Fannie.
Are the Homebuilders, Mortgage Bankers and Realtors so afraid of Henserling and the Tea Party that they would not address their self-interest in GSE reform?
Wow, you must be a Maxine fan, since you sent the same message three times. (Just teasing, don't worry about it.)
I haven't heard word one about Ms. Waters' plan.
Whatever she produces won't get much exposure in the House, although I am sure that Hensarling will give her a hearing date or two.
Her past comments suggest she sees a major role for the federal government in the mortgage finance system and the Hensarling bill, barely approved by the Committee, goes in the opposite direction--and even what President Obama is seeking calls for less federal and more private support.
She has the title (ranking Member) and the seniority, but she has not made herself a mortgage finance or securities heavyweight in all of her time on the committee and those facts matter, if you hope to drive major legislation.
Bill:
Please give us your views on F/F terminating their pension plans. Are former employees even more screwed than when the USG devalued the stock--yet let AIG survive?
My view is that it was inevitable, as other big companies, moved in the same direction--and its been rumored for motnhs--but it was poorly handled by all involved.
Short answer is former employees and retirees are no more screwed then they have been once FHFA took charge.
Although there was very little embellishment of the FHFA press release; supposedly detailed letters soon will go out all affected.
But, ompany officials should have sent them first before DeMarco make his "look how tough I am" announcement.
I also thought the W Post and other headlines were a bit misleading, but I suspect they picked up on the theme FHFA and its boss wanted to send. (He could just have said, "G-r-r-r--r!" and we would have gotten the message.)
The deal is done for current employees or new employees. Apparently, they all will be getting annuities--with personal and Fannie contributions--instead of a defined pension plan. Most of them knew this several months ago.
What still is unclear is what options pensioners will have, whether annuities in lieu of their pension or lump sum payments based on life expectancy. They (we) will receive something and a monthly annuity payment could just be a distinction without a difference..
These changes are supposedly going to take about two years, so we'll see.
It would not hurt for the pensioners to organize--not around me, since I don't think FHFA will do much for Maloni, especially after my coming blog--but there is no "pensioner's voice" right now and one is needed to insure the proper sharing of information and sufficient deadlines to critical financial decisions.
I trust that someone will send a copy of Howard's book to every member of the House Financial Services Committee and the Senate Banking Committee.
The reaction should be interesting, bet that Howard would be requested to testify.
At minimum, it would sell a lot of books.
Maybe one of the trade groups would--in the old days--pony up the costs for 100 books (House and Senate committees), but probably not today.
The money on this issue today is with the Hedgies owning the preferred, since a revived F&F-if that was one result--could helps their case.
I also wouldn't expect most Senators or Members to read the book, since they all receive a variety of books (or used to when I worked there) and wouldn't have the time or inclination.
Most Hill denizens get their news from articles, interviews, or TV talk shows, so if the book generates that kind of buzz the chances of its messages getting out are better.
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