Sunday, November 24, 2013

Corker, Watt, Telephones, and a Tiny Iran Shot


Mel Watt to Get FHFA Job?


Sen. Harry Reid’s successful application of the “nuclear option” to permit Presidential Obama’s judicial and other appointees to be approved with a simple majority vote--rather than a 60 vote beat the filibuster number--could make Mel Watt the new head of the Federal Housing Finance Agency (FHFA), F&F safety and soundness regulator. (I am hedging slightly because who knows what tricks the GOP may pull for retaliatory purposes, although they never will admit that motivation.)


BTW, I strongly disagree with the Washington Post, which editorialized that Reid should have worked out a deal with the minority Republicans rather than dumping the 60 vote accord. 

Screw that, the Republicans stiffed Obama and Reid for months on the appointments and weren’t going to budge, so Reid went over them.

If the Senate GOP feels so strongly about Senate minority rights, as the wimpy Post claims, then—if the R’s win back the Senate majority 2014—they can put Humpty Dumpty back together and vote to reinstate the 60 vote test for lesser appointees.  

But, if they win next year, they won’t do that.

What Reid’s Step Means for Mortgages?

Ironically, it could hasten the pace of F&F “takings” lawsuits pending in the US Court of Appeals for the Circuit District of Columbia Circuit to which three Obama judicial nominees are headed. 

More certain, it could mean that Rep. Mel Watt may get Senate approval to take over the FHFA from Ed DeMarco, with the longtime Republican bureaucrat moving on (to a right leaning think tank or some other appropriate position outside of government).  

If approved, Watt might slow down some of the DeMarco agenda to diminish F&F operations through regs, not waiting for Congress to act with legislation.


Watt could go back, overrule what DeMarco decreed, and help mortgagors without underwater loans or stuck in loans with high interest rates and an inability to refinance into more affordable mortgages. Although that seems less crucial than it was last year.

The new Director also might move slower on the DeMarco plan to bring in an gaggle of outsiders to develop an “independent underwriting platform”--separate from the F/F platforms--which presumably would have used to channel business away from F&F and toward other lenders, primarily the large commercial banks or their subsidiaries.


And then there is the question of adjusting downward Fannie and Freddie maximum mortgage ceiling, which DeMarco was hot for but which Watt might not see as that significant a priority.

Nobody truly knows what Watt will do with any of these and related issues, if and when he succeeds DeMarco. We’re all speculating.

Advice for Mr. Watt 

Let me repeat some “advice” I offered Mr. Watt a few months ago, when his nomination first circulated. 

Mel, bring with you a dynamite financial services/securities staffer, ideally one who has worked on Wall Street and who complements and expands your mortgage market understanding. 

Don’t take anyone from your Hill staff or the House Banking Committee, likely they won’t have the skills you need. (I’m not describing me and I am not seeking a job.) 

Your “man or woman” needs both to advise you and protect you from the remaining DeMarco acolytes—invariably populating FHFA-- whose agendas may be closer to the outgoing Director’s than they are to yours.

These individuals will test you and see if they can undermine your agency objectives. 

FHFA still has many employees who maintain an anti-Fannie and anti-Freddie profile and who buried themselves into the protective Civil Service woodwork. 

If you get the job, Rep. Watt, watch your back. Your in-house “baddies” need dislodged or canceled out.

Corker Hypocrisy On Display 

This past week, before the Senate Banking Committee, I watched a brief exchange between Jim Millstein, former Obama Treasury official and now principal in the Millstein Company, and Sen. Bob Corker (R-Tenn.). 

After playing Alphonse and Gaston with witness Mark Zandi--in a bizarre segue--Corker announces that people familiar with Capitol Hill and the legislative process see the flaws in certain congressional or government actions (Okay….Senator, we know that), but to panel witness Millstein he suggests that Millstein’s antagonism to parts of the Corker-Warner bill, in part, were influenced by Millstein’s ownership of some GSE preferred stock. 

Millstein rightly interrupted Corker, letting the Senator down slowly and gently, corrected the Record and noted that he currently owns no such stock and had sold what he once owned. 

Corker mumbled some non-apology, saying he was “happy to hear that,” gathered his papers and left the hearing room, with what looked like his tail between his legs (figuratively speaking). 

Just what point was Corker trying to make? Had he never encountered anyone with a vested interest who testify before Congress or sought the Senator’s support after revealing such? 

People who do that, Senator, generally are called open and honest. 

This was a tawdry Corker effort to demean Millstein’s mortgage reform position, which includes a thoughtful proposal to maintain parts of F&F serving the national mortgage finance market, but not as they currently are structured. 

Corker’s mini-assault and bad manners likely masks what most of us know already, the Corker-Warner bill contains major gaps in it, which raise significant policy questions and leaves unanswered a lot of workaday mortgage market operational questions.

(C-W, What’s your solution to the TBA market? What happens if all of that private capital needed for your MI experiment doesn’t materialize? Should F&F be junk piled before you have those answers?)

Paranoia or Just Bad Phone Manners?

Last Wednesday, I needed to speak with a Fannie Mae employee, but didn’t have his office number or cell. 

So, I called the company main number and after the recorded message asked if I was calling about a variety of Fannie-offered programs, an operator answered and asked if she could help me? 

Maloni: “Yes, I am trying to reach, ____ ____ and his last name is spelled _ _ _ _ _ _ _ _!” 

Silence, while she found the right name.

Operator: “And to what is the call to Mr. ______ in reference?” 

Maloni: “I’m sorry, it’s personal business between Mr. _______ and me.”

Operator: “We are not allowed to put through personal business calls.”

Maloni: “No, I meant it’s about mortgage issues, I have a question to ask him.” 

Operator: “I am sorry, we are not permitted to connect calls for that purpose.”

Maloni: Now frustrated, I figured I could weaken her by mentioning the names of important Fannie people, I asked, “Can I speak to Mr. Tim Mayopolis?” 

Operator: “No, goodbye.”

Now, I was pissed (an easy circumstance for old guys). 

I dialed my old Fannie extension, hoping someone would answer who might remember me or just put me through to my friend.

Fannie Assistant: “Hello, Ms.______’s office.”

Maloni: “Oh, I am sorry, I was trying to reach Mr. __________ and I must have dialed incorrectly, can you please transfer my call or just give me his direct number.”

Fannie Assistant: In a cold, very cold voice, “No, we are not permitted to give out internal numbers. Goodbye.” 

Collective bad manners or mandated behavior?

I am going with "A." Someone must have told staff who handle incoming calls not to be phone forthcoming.

But why?

These agencies are federal captives which do mortgage things. They are not sensitive/clandestine national security agencies.  

I would argue, since  they are owned by the taxpayers, their owners deserve to have their phone calls connected to those being called, without a caller having to submit to a contemporary “Spanish Inquisition.” 

How could connecting me to Mr._______, or giving me his phone number, expose sensitive information to Al Queda, the RNC, Sarah Palin, or other US unfriendlies?

I am blame the all controlling FHFA, which keeps F&F and their officials on very short leashes. Get a grip FHFA, suggest the “mortgage gestapo”--in charge of switchboards and telephone policy--lighten up. 

For what it is worth, three Fannies whom I regaled with this story were equally shocked but didn’t try to rationalize the operator’s lack of cooperation. One former colleague said, “Maybe you misdialed and got FHFA! They don’t like you.” 

(Post-publication explanation. Look in the comments section for a GSE employee who wrote to explain the preceding.)

Deal With Iran? 

Sorry, I don’t trust the Iranians and believe whatever US deal they agree on only benefits the Iranian desire to construct a nuclear weapon.

What Others Are Saying


Let the record show that I penned my blog on Saturday, before seeing Mr. Timiraos’ article.

Maloni, 11-24-2013

Wednesday, November 20, 2013

Questions, We Have Questions...

No, I Will Not Join the “Committee of 100”



Alfred Pollard, who has been General Counsel—for more than a decade--at OFHEO and now its successor the FHFA, will testify before the Senate on Thursday discussing “Powers and Structure of a Strong Regulator.”

There are a few questions I hope Mr. Pollard gets asked regarding this issue and OFHEO/FHFA’s past. His answers could help the Committee better define what they are seeking in any regulatory agency’s top law shop and GC

I am certain Mr. Pollard will mention his department’s successes, but maybe he—or the Committee—might want to highlight some possible shortcomings to strengthen the review and improvement effort. 

I won’t beat a dead horse (much) but many of these questions related to incidents chronicled in Tim Howard’s book, “The Mortgage Wars.”
HUD IG Report 

Specifically how did Mr. Pollard—as OFHEO’s chief legal officer---respond to a damning 2004 HUD Inspector general’s report which suggested, strongly, that OFHEO officials engaged in active efforts to drive down the price of Fannie (and Freddie) stock, out of pique over their inability to get senior GSE officials to heel?
Did he take any independent action to verify HUD’s discoveries? 
Securities Fraud Claims

Did Mr. Pollard concur with the 2004 OFHEO staff finding that Fannie officials engaged in securities fraud when implementing—for the first time--the infamous Financial Accounting Standard (FAS) 133 derivative regulation, the source of the phony fraud allegations? 

Was the staff report in any way a form of retaliation against Fannie Mae based on mutual hostile feelings?  

(After the SEC Chief Accountant agreed with OFHEO that Fannie Mae had misapplied FAS 133, without providing any detail, nearly 300 financial services companies, including Citicorp, Bank of America and GE restated their financials because they had applied the FAS reg. much the same way Fannie Mae had.)

Auditors Announce Fannie Correct on FAS 133  

Did Mr. Pollard initiate ameliorative action in 2007-- despite the initial and inaccurate OFHEO fraud claims of 2004, which hounded innocent people from responsible corporate positions--the auditing profession ruled that the FASB 133 implementation which Tim Howard had approved for Fannie in fact complied with generally accepted accounting principles (GAAP)? (This was the work OFHEO and the SEC claimed was inept and law/rule breaking.)
When Do You Stop? 

Why did Mr. Pollard/OFHEO continue to pursue actions against Fannie execs Franklin Raines, Timothy Howard and Leanne Spencer into 2008, well after March 15, 2007, when OFHEO's interpretation of FAS 133 had specifically been repudiated by the Chief Accountant of the SEC, who sits on the FASB's Emerging Issues Task Force. On that date, the EITF specifically validated Fannie's original interpretation of FAS 133?
Judge Said You Wasted Taxpayers Money

Why did Mr. Pollard allow OFHEO and FHFA to waste millions in dollars in legal fees in frivolous motions to avoid disclosing documents? As noted by Judge Richard Leon, whose three opinions in 2012 quashed shareholder lawsuits based on the OFHEO report, "The discovery process was unnecessarily prolonged by OFHEO's repeated and stubborn assertion of privileges that had to be litigated up to the Court of Appeals."
About the RBC Oversight 

On a less hot button note, maybe Mr. Pollard has some insight he could share about agency bureaucratic delay, expense, and—in hindsight--imprudence, when Congress gave OFHEO two years to implement a risk based capital oversight model and it  takes that agency almost 10 years to comply littering the regulatory landscape with failed flotsam and jetsam. In retrospect, is that the sign of a solid agency or a woebegone one?

Sorry Senator, At This Time, I Can’t Help


Lately, I’ve been feeling pretty good at my blog’s reach, impact, and influence. 

I’ve been getting 400-500 hits per blog, people have contacted me about the issues I’ve discussed, and solicited me for one type of help or another. 

All in all, I figured that I’m reaching the audiences I want to reach and educate and people know where I stand. 

And, then yesterday's mail came. Crash!
My confident thoughts of impact and good fortune came tumbling down, when I received a “Dear William” fundraising letter from Senator Mark Warner (D-Va.), whose hubris and arrogance I’ve pummeled for about three blogs now, starting with his famous dismissal of Fannie Mae and Freddie Mac, when he vowed he could have generated a 30-1 return on money the federal government invested in the two.

Warner is the Democrat half of the bipartisan Corker (R-Tenn.)-Warner mortgage reform bill sponsorship. Their bill would abolish Fannie Mae and Freddie Mac as a predicate to building their brave new mortgage finance world.  

I’ve been on the sponsor’s case for weeks, mainly about their legislative proposal’s lack of details and their unyielding disdain for F&F. 

I guess Warner, his personal and campaign staff, and friends don’t read my blog, or I am incapable of embarrassing this United States Senator. 

Warner must have a water buffalo’s hide and is impervious to chagrin or I am lame at broadside. 

I tried to hoist Warner on his own petard but only succeeded in having him ask me to be part of his “Committee of 1000” and pony up a $100 and start off his re-election campaign. 

If Senator Warner shows a little humility, sensitivity, and Fannie understanding, it might cause my chilly Warner-opinions to heat up, possibly a $100 worth. 

But, until I see or hear some serious Warner recanting, my “C-note” is traveling with me to the Charles Town casino.


Maloni, 11-20-2013








Sunday, November 17, 2013

Somebody's Investing in the GSEs


“Fish Gotta Swim, Birds Gotta Fly,"
Hedgies Seeing What They Can Buy



Official Washington has been buzzing the past few weeks with optimism over the Fannie/Freddie earnings, which shortly will return more to the Treasury that the government gave F&F and talk of the political treachery carried out against Fannie Mae by some of the W. Bush Administration’s least competent and more venal financial regulators  (an assault I believe created core elements of the nation’s 2008 financial meltdown), a tale spelled out in former Fannie CFO’s Tim Howard’s new book.


Sell Me Some GSE


The other day, there was the announcement of a bouncing baby buyout in a letter from hedge fund CEO Bruce Berkowitz of Fairholme Capital to Fannie and Freddie’s regulator, Ed DeMarco, proposing to acquire F&F’s mortgage guaranty business from the federal government, an action which generated headlines. rankled Congress, and drove up the value of both F&F preferred and common stock (that Bruce!).

(Please see my post-publication correction in the "comments section.") 

And finally, another hedge fund, Bill Ackman's Pershing Capital, told the SEC that it has slowly has been increasing its investment in F&F common stock, for the past month, and now has acquired about 10% of the amount outstanding in both.

The obvious takeaway is there has been a lot of political and business interest in F&F, while Congress dithers over what to do with them.

People on and off the Hill are writing and talking about the virtues and shortcomings of these newer developments.


Articles claiming the Berkowitz/Fairholme scheme was good were offset by others saying it was a government and the taxpayer ripoff.

(Link to a Fairholme story in Bloomberg.)


30-1 or No Deal


Of course, Senator Mark Warner, the former venture capitalist was quoted by Nick Timiraos in the WSJ as saying, “Taxpayers can do a lot better than this deal (the Fairholme idea).” 

Some remember that Sen. Warner was on record, recently, saying he could get a 30-1 return on any money put into Fannie/Freddie; maybe that should be the congressional solution. But then, Warner would have to put up or shut up and politicians don’t often play by those rules.

(Incredibly, I sensed a note of disdain in Warner’s comment as if his pre-Senate “venture capital” career elevated him above “hedge fund” principals and into the “my waste products don’t stink” category.) 

I have no rooting interest here, beyond the fact that I think Congress will waste a lot of time uselessly debating the Corker (R-Tenn.)-Warner (R-Va.) proposal—on which the Center for Responsible Lending, continuing the previous metaphor, recently pooped (see link)--and will spin its wheels on the soon to exist Johnson (D-SD)-Crapo (R-Idaho) bill, which will look much like the C-W.  

The Berkowitz plan--forgetting whose DNA is on it--is just as rational a legislative vehicle as the C-W “recreate a monster of a different sort."   

It may be more attractive than the Jeb Hensarling (R-Tex.) House mortgage reform  bill--"go with nothing but the big banks"--which won’t ever happen, unless there is a GOP White House and Senate, after the  2016 elections and maybe not even then.


Sell Them, Let Treasury Make More Money


Berkowitz’s “sell us the company guarantee businesses” has parts (private capital, end to F&F) which D’s and R’s in both chambers claim they want, so why wouldn’t it be viable…and at least discussion worthy? 

Shhh, I know the answer. “Psst. He’s a Hedgie and you know what those guys are and do?” (I wonder if those Senators say that when BB hands them his campaign contribution checks, see Inside Mortgage Finance, 11-15-2013.) 

I want a brave Subcommittee Chair to achieve a couple of things before Congress folds its tent in a month or so. These actions would add immensely to the public’s and the Congress’s F&F understanding. 

The first is schedule a hearing on these hedge fund proposals and vet them vigorously so people really know what they contain, since detail is scant. But then, detail is equally scant on the forever evolving C-W legislation, too.

In any such hearing, the Hedgies also should discuss before Congress the elements of their lawsuit against the US Treasury over its shift from having pay a 10% dividend on amounts owed the Treasury (commercial banks were required to pay just 5%) to--save a minimum capital amount-- having all of their earnings swept to repay Treasury.


Litigation in Mix and What’s That Mean? 

An activist court—looking at some of the 17 plaintiffs lawsuits filed against the federal government by various F&F shareholders--just might marry these two issues in a way that preempts heavy congressional action, if the Treasury is found to have violated the “takings” laws and ends up owing the F&F shareholders so much money. 

It might be cheaper for the Court to give the plaintiffs the two companies, under some legal arrangement 

In addition to the hedge fund issue hearings, I hope the House or Senate would invite Tim Howard—and others (Frank Raines, OFHEO’s Armando Falcon, Steve Blumenthal, and Jim Lockhart, former SEC officials Chris Cox and Don Nicoliasen)--to testify on the issues Howard raised in his book, so that the Congress might  comprehend how vengeful and incompetent financial regulators sabotaged individual lives, careers, and mindlessly sowed the seeds of a massive mortgage system disaster and astronomical dollar losses. 

Read and React


While we are talking about wishes and hopes, my current political fantasy is that somebody–say among Senators Chuck Schumer, Jack Reed  Sherrod Brown or Elizabeth Warren--reads Howard’s book, grasps how the Bushies and the big banks perpetrated their ideological villainy and speculates that this “abolish F&F” talk might be the last refuge of know-nothings. And, further, that a staggeringly expensive lawsuit facing Treasury combined with offers to buy Fannie and Freddie, might lead some creative and thoughtful legislators to produce something other a multi-year plan to turn the current mortgage finance system upside down, give it to the big banks, and replace it with one equally dependent on Uncle Sam—if not more so—than the current one they all claim they abhor.

It doesn’t have to be that way, but dream on, Macduff!

I know that’s a lot of rational behavior and creativity to seek but maybe a coterie in Congress feels like doing the right thing once in a while, rather than mixing with the thrashing bulls in the F&F mortgage china shop. 

Get Jealous Non-CRTL Clients!! 

Michael Kim, managing director and partner at CRT Capital, just sent me a fabulous, fact rich, non-hyperbolic document which he and CRT produced, called, “GSEs: Evaluating Legal and Legislative Pathways.” 

It’s a valuable report filled with relevant GSE legislative info and data on the many pending lawsuits and proposed mortgage reform bills. Its comprehensive and current though the beginning of November. 

Here’s Michael’s email,
Contact him and see what you can negotiate. It will be worth your while.

Maloni, 11-17-2013

Wednesday, November 13, 2013

Let's Monetize F&F

Let’s Start the F&F Bidding at $25 Billion,
Can I get $35B, OK now $45B, OK $60B….



In a conference call I did this week for a fledgling DC  company, Capitol Forum, I explained to listeners why I was “more optimistic than I’ve been in months” about the possibilities that the future would include some form of Fannie and Freddie, working within the nation’s mortgage finance system as privately owned companies.

I cited Fannie and Freddie’s earnings and the fact that both soon (Freddie already has) will cross the point where they would have paid back more to the Treasury than they received; the occasional positive comments being made about the two systemically; Tim Howard’s forthcoming book (available now to those who ordered it on Amazon), and the book’s likely impact on policy makers, opinion leaders, and the media. (Link to the call is below.) 


Last, I discussed the possibility of a court decision favoring the plaintiffs in the major “Takings” lawsuits. 

Had we waited a day to do that call, I would have included the story which broke publicly today—but has been know privately by many of us—about a group of hedge fund investors which would like to take over F&F, recapitalize them, and run them going forward.


I wonder what old “30-1” former venture capitalist Sen. Mark Warner (D-Va.) thinks about these smart financial people seeing huge value in the business operations that he and his colleague Bob Corker (R-Tenn.) would trash and replace with a new federal agency, carrying its own financial burden and what’s left of Fannie’s and Freddie’s onto the federal budget? 

I wonder what Jeb Hensarling (R-Tex) thinks? He’s anti-federal houser who was so PO’d over F&F earnings talk that he put out a press release saying Fannie and Freddie could not repay the Treasury and other unsavory things. (Source, Inside Mortgage Finance.) This is the same Committee Chair who can’t get a majority House Republicans to endorse his do away with F&F legislation.

Hey Congress guys, fresh eyes and management hands on the business, new private capital, and a new paradigm, what’s not to like here? 

That’s’ what both sides of the aisle and Hill claim you want. 

Yes, this suggestion has been around and been pitched to many in government and media, but it seems to me that it has a far better hope for success than some of the ideas being pushed--ever so slowly indicating little real dedication and commitment--by certain Hill denizens who like the media attention but have trouble thinking outside of a matchbox. 

Congress can’t escape the logical consequences of what you are proposing to write into law.


And About Big Banks, Dudley Says…..


One thing I know is that a certain, thoughtful, handsome, blogger–who celebrates his birthday today--has been saying this very thing for years, especially lately while Congress wrestles with giving the primary and secondary mortgage markets away to the nation’s largest banks. (Do any of them read the news and financial pages?)

Suddenly a major bank regulator is saying what I (and others) have said and, possibly, the observation’s wisdom and validity will get through some hard congressional heads.

What Do These Things Have in Common?

--The Federal Housing Finance Agency (FHFA) requires Fannie Mae and Freddie Mac to boost the guarantee fees they charge lenders (who in turn pass it on to borrowers); G fees have more than doubled since 2008, from @25 basis points to slightly more than 50 basis points. (100 BP in a percentage point).


--The FHFA discussing forcing down the maximum sixe mortgage Fannie and Freddie can securitize (a move being opposed by most housing and lender groups).


--The FHFA busy spending F&F’s money (also known as taxpayers' money) on an unnecessary “common platform” exercise—which presumably will produce something different from the Fannie and Freddie underwriting platforms, both of which are regularly tuned and updated to stay ahead of the technology curve.


The answer? Buehler, Buehler…..?


The answer is that all are designed by FHFA Director Ed DeMarco to channel business away from Fannie and Freddie and into the hands of others (shhhh, read TBTF banks) which will package the loans into their own securities, throw their own guarantees on them, and then sell them.

I am sorry, but didn’t we just try this exercise about seven or eight years ago?
Let’s see, the banks still are the same, but larger and more integrated, and still far more nimble than their regulators.

The regulators still are the same, still slow to see any bank wrongdoing.
The rating agencies still are around and the “hear, see, speak no evil Congress” still does whatever it does.

Why suddenly does anyone think the banks won’t turn to form and seeks ways around whatever operating rules the regulators establish? It’s in the DNA and history.


What Are You Thinking, Ed? 

Is it then unfair for me to suggest, as I have, that Director DeMarco has something in his heart and mind—not consistent with the soul of a conservator—actively trying to get rid of Fannie and Freddie or neuter them while he has the opportunity and the regulatory authority? 

Where has he crossed the line between trying to conserve the companies for their re-entry into the nation’s mortgage market and instead become their jailer/executioner? 

I think that’s a fair question. 

(Oh, for those asking—in the wake of the Mel Watt Senate action which failed to get the needed 60 votes, only garnering 56—unless he chooses to move on, Mr. DeMarco only can be removed for misfeasance or malfeasance.)


Maloni, 11-13-2013