Saturday, December 28, 2013
Saturday, December 21, 2013
Pre-Christmas
Observations
Kudos
Mel Watt
(See segment's final paragraph)
In the middle of last week a number of reports suggested
that Fannie and Freddie took actions to drive up the cost of mortgage finance
with a loan level pricing (LLP) fee increase which most expect lenders will pass on to borrowers.
Accurate as far as it goes, but it wasn’t Fannie and Freddie doing this. Once again it was actions
driven by their regulator who mandated the boost.
This was another dictate from on high from the outgoing
DeMarco regime and his posse, still holding senior Federal Housing Finance Agency
(FHFA) jobs.
It’s been written about--and all but verified--that Ed DeMarco
was conflicted by his role as “conservator,” under the 2008 HERA legislation,
and as F&F’s regulatory overseer.
His HERA assignment was to “conserve” and to resuscitate
F&F and preserve/foster their assets; but his second job—the one apparently
closer to his heart where he could exercise discretion—was working with his
team, divining ways he could wind down Fannie and Freddie and limit their
capacity to gain strength and generate revenue, all in the guise of “bringing
more private capital into the mortgage market.” (Hey, nobody can be against that, right?)
But, he failed
there, as succeeded wonderfully, supported the nation’s mortgage finance system
and became burgeoning cash cows, to the
point—as most everyone knows---that in a few short weeks, when 4Q 2013 earnings
are announced, Fannie and Freddie will have more than paid back the money the
taxpayers invested in them.
Anyone who talks to officials at Fannie and Freddie know
the two are being told what to do; F&F senior execs are not managing their
companies and making any significant decisions.
They are automatons, taking and implementing orders from
FHFA and, occasionally, from Treasury.
There is hope among some that Mel Watt, once he is sworn
in, will breathe life into the two’s historic mortgage finance role and have
them initiate—Shh, can I say compete?—and
pass on those benefits to US home buyers and the mortgage finance system
broadly.
But, to be effective, Watt should root out FHFA
reactionaries, who support the DeMarco approach.
He should bring in a strong “Watt team,” who truly understand
the mortgage and securities markets and how the principals interact. They have
to total allegiance to Watt and no fidelity—until it’s earned under fire--to
the carryover FHFA staff, who likely will have little love for a new Director
more inclined to help mortgagors.
I’ll repeat what I’ve written before, after being sworn
in new Director Watt might find them comfortable, but I doubt Watt can find
anyone working on Capitol Hill who has the requisite skills he’ll need at his
right hand.
In the meantime, industry groups are pushing the Hill to
push FHFA (Watt) to roll back the loan level pricing adjustments and I hope he
does.
(The
preceding segment was written on Friday afternoon, Dec. 20. On Friday night, Mr. Watt announced that he
would delay the fee increases until he could review their impact. Congrats
industry groups and others who pushed for that decision.)
AEI Looks Overseas and Sees???
Last week, I noted that Ed Pinto
will head a new American Enterprise Institute (AEI) international housing
finance operation.
Here is there press announcement and
a brief AEI produced description of Ed’s new shop.
“Today, the American Enterprise Institute (AEI) launches a
new initiative to help temper the destructive boom/bust cycles in housing
markets: the AEI International Center on Housing Risk (ICHR). The ICHR will
equip borrowers, investors, analysts, regulators, politicians, and lenders with
new indices designed to provide transparent measures of housing market risks
and the means to mitigate these risks and instill market discipline. It
will be staffed by nearly two dozen experts, many of whom warned of the crisis
from which we are still recovering.”
But, what can the nation—and the world—look for in this new
project? I hope the work is a lot better than the last time that Ed and Peter
Wallison, his AEI colleague, got on their “research” tear.
That was when they produced and huckstered Ed’s distorted funky finding that Fannie Mae bought mostly subprime loans in the 1990's, which provided the Rightwing movement plenty of
grist for their mantra that "Fannie and Freddie caused the 2008 financial
meltdown.”
But it was a hollow theory which serious researchers panned
and one which got rejected across the board by many government and private reviewers.
Most egregious was Peter Wallison attempt to flog Pinto’s
work—when Peter Wallison served as a member of
President Obama’s Financial
Inquiry Commission, most egregious was PW’s effort to flog Pinto’s work to the
Commission staff and mislead some in Congress about how Pinto’s product was
received. (Hint; the FCIC staff dumped all over it, as did the Federal Reserve
staff in a special report to the FCIC. In short order, so did a Nobel prize
economist, several national financial writers, and our friend and colleague,
David Fiderer.)
So, as kind of a “welcome back to the research world Ed
Pinto,” let’s revisit what some people said the last time Ed and Peter wrapped
their names around some of Ed’s personal research.
Here is a 2011 story from the Daily Kos.
http://m.dailykos.com/story/2011/04/15/967275/-Why-Isn-t-FCIC-Commissioner-Peter-Wallison-Facing-Criminal-Prosecution-After-He-Lied-To-Congress
Here is David Min’s superb and substantive rejection of the AEI line.
http://www.ritholtz.com/blog/2011/07/why-wallison-is-wrong-about-the-genesis-of-the-u-s-housing-crisis/
Bob Kuttner in the American Prospect.
http://prospect.org/cs/articles?article=fanniebackwards
Here is Paul Krugman’s work in the NYT.
http://krugman.blogs.nytimes.com/2011/07/14/fannie-freddie-phooey/?partner=bloomberg
Here is a New York Times blog book review of the Gretchen Morgenson and Josh Rosner’s book, which relied heavily on Pinto’s research.
http://www.nybooks.com/blogs/nyrblog/2011/jul/13/why-fannie-and-freddie-are-not-blame-crisis/
This Huffington Post link contains the most detailed description of what reportedly was in the Fed memo sent to the FCIC, as well as Wallison’s admission of leaking it to Pinto.
More:
--Columbia
Journalism Review website. http://www.cjr.org/the_audit/rubio_and_the_big_lie_of_the_c.php
“Read this
piece by David Fiderer, who calls out the
American Enterprise Institute’s Edward Pinto, who along with Peter Wallison,
has been the primary force behind the Big
Lie, noting how he has recently taken in The New York Times, the Los
Angeles Times, and others with misleading claims about the Federal Housing
Administration.”
--Mike Konczal, a fellow with the Roosevelt
Institute
Wonkblog: No,
Marco Rubio, government did not cause the housing crisis
(Maloni note: Konczal's piece also references previous
rejections of the AEI/Pinto/Wallison charges.)
--Jesse Eisinger
--Barry
Ritholz
--Paul Krugman
--Ken
Harney
Nick
Timiraos, WSJ
Mortgages, Ed
Pinto, and a vast conspiracy of silence http://www.opednews.com/articles/Mortgages-Ed-Pinto-And-A-by-David-Fiderer-130213-6.html
…“Check out that first chart. Hilarious stuff.”
The world needs to remember Ed Pinto’s and AEI’s first major foray into
housing research and keep it in mind, if similar fetid analysis—with an
international flavor--pours from the AEI well.
“Fool me once, shame
on you; fool me twice, shame on me!”
2013 and 2014
I wish you and yours, all, a healthy, happy
holiday season and an equally healthy, happy and productive New Year.
May the saner minds in Congress and in the financial
services world emerge and shine in 2014
Maloni, 12-21-2013
Sunday, December 15, 2013
Cats
and Dogs
Much happening. I’ll try to hit as many as possible and
keep the commentary short.
Conservatives
Fear FHFA’s Watt
The Right seems very upset about Mel Watt’s appointment as
the new Director at the Federal Housing Finance Agency (FHFA) succeeding their
hero, Ed DeMarco. (Although who knows if,
when and where Ed will go, since he does have some Civil Service protection.)
If you can believe all of the Starboard side worries, the
world has come to an end and Watt is going to revive Fannie and Freddie, with
doom and pestilence sure to follow.
Teahadists and friends, it was just coincidence that Watt--in his
first day on the job--sought meetings with David Maxwell, Jim Johnson, Frank
Raines, Jamie Gorelick and Tom Donilon…..Ah, just teasing!
But, we know they are partly Right (pun!).
Taxpayers
Lost Money on GM
The US lost money on its investment in GM, which
doesn’t mean it wasn’t the right thing to do, but the taxpayers will not lose money on their investment in Fannie
and Freddie.
In a few weeks, when the fourth quarter 2013 earnings
are reported, the Treasury will realize billions more than it invested in the
two mortgage giants and that number only will grow rapidly as 2014 unfolds.
Senators Corker and Warner, along with Ed DeMarco can
deride and putdown the financial productivity all they want, but the facts
speak for themselves as does Treasury’s coffers.
How much will the taxpayers get over and above the $187 Billion infused in F&F, depends on how long
Treasury Secretary Jack Lew insists on collecting 100% of Fannie/Freddie
earnings, in addition to their minimum capital requirements. Lew can change
that arrangement via regulation and not even bother the Hill.
(Maybe all of those Rightwing concerns are fearful of
Treasury cutting a deal with the F&F preferred investors--who are staring
down Treasury’s throat via their 17 “takings” lawsuits--to creatively apply the
preferred investments to revive and capitalize the two, with the “new owners” agreeing
to provide additional capital?)
If revitalized and allowed to flourish, Treasury’s
80% senior preferred stockownership—treated as their GM investment (sold off
over time)—could produce hundreds of billions for the General Fund.
That makes a lot more sense than tearing up the mortgage
market’s fabric with a new federal agency, forcing new business relationships
on all of the current participants, raising doubts about future market
effectiveness, and guaranteeing that Congress—which never does anything simply
or correctly—can succeed in a cobbling a new national primary and secondary
mortgage market seamlessly.
New Job for AEI’s Ed
Pinto
Huzzah, Ed Pinto has been given a new portfolio by
the American Enterprise Institute (AEI). He is heading the AEI’s International
Center on Housing Risk.
Although Ed and his posse have chosen to debut their new show
Germany, I would hope his new international perspective allows him discover something
he and his AEI colleague, Peter Wallison, have apparently overlooked or more
than likely ignored because it is so inconvenient.
That’s the more than $2 Trillion in subprime private
label securities (PLS) issued by Wall Street and the big banks during 2005-2007,
which they vigorously marketed overseas, making the US real estate setback an
international debacle, when between 40%
and 50% of those bonds failed!
Ed and Peter (the latter as recently as about a month ago
in an NAR sponsored conference in San Francisco) pretend that PLS garbage
wasn’t created and sold because it ruins their “The federal government and Fannie
and Freddie were responsible for the 2008 meltdown” story.
Just check out the numbers guys!
The “incidence and severity” of PLS defaults and failures
were gargantuan compared to F&F MBS losses.
Look for the right time to admit it, fess up, and then
get on with your new international sandbox; hopefully you’ll be more honest
with those folks than you have with your fellow US citizens, with your gross distortions
of Fannie Mae’s purchase in the 1990’s, which the Federal Reserve staff and the
President’s Financial Inquiry Commission—naming you—a conclusion reached by
about a dozen other very credible observers.
Gretchen Morgenson,
NYT Columnist
Gretchen Morgenson, an AEI Pinto-Wallison acolyte, wrote a deeply flawed book about Fannie Mae lending in the 1990's when Jim Johnson was Fannie's Chairman.
Thanks to the well-placed mortgage for reminding me what Gretchen wrote in March of 2013, suggesting just how GSE
perceptive she is (not!).
Gretchen wrote:
“Let’s begin with the status quo. The taxpayer rescue of
Fannie and Freddie in September 2008 has cost $137 billion so far. While this
has been paid down from an initial $187.5 billion, taxpayers aren’t likely to
get their money back anytime soon. Last fall, the regulator charged with
overseeing Fannie and Freddie estimated that the taxpayer bill for the
companies could be $200 billion by the end of 2015.”
Wrong Ms. M,
the taxpayers are getting paid back, probably in a few short weeks, and the
surplus to the Treasury will grow geometrically at that point, barring some
change in the “dividend” arrangements (as I noted in the above segment).
Quick Notes
Volcker Rule/Seer?
Before its
final regulatory approval last week, almost four years ago in my Feb. 8, 2010
blog, I called for okaying the “Volcker amendment” and identified many of the things
the big banks and their allies would do and argue to forestall this logical
reaction to their rapacious behavior.
Small Lenders F Fees
How many times
do F&F officials have to hear that they are screwing small lenders,
when they charge the little guys higher guaranty fees?
I know current
management can’t act in their own self-interest politically, but the community
bankers have been among the most stalwart F&F allies over time inside the
Beltway.
F&F are
making money now and they should give some back to the little guys, using
whatever rationale needed.
The small guys
require all of the help they can get to withstand being swallowed by their
larger competitors (no matter what the ABA’s Wayne Abernathy claims), which
also is good for consumers.
I am sure
Director Watt can/will more easily understand that posture.
What Others Are Saying
David Fiderer returns, bigger and bolder than ever. See his
latest, including the first link which will appear this week in National
Mortgage News and his second, a commentary on PLS bank lawsuits.
NPR
transcript on FHFA, F&F
New housing finance regulatory
terrain gets discussed on NPR.
Go
for it, Tom!
For the erudite
and thoughtful. FDIC Director Thomas Hoenig in Dublin last week, discussing the
goal of disassembling behemoth financial conglomerations.
His conclusion: “In
the quest to improve financial industry stability, behavior and performance, it
is unfortunate that we choose complicated administration over structural
change.
Let us kiss
you, Mel
The Mortgage
Bankers Association seems to be “romancing” Mel Watt with its self-serving welcoming,
indicating the association’s agenda and for its members and the big banks which
own them.
To be read as:
“Congratulations Mr. Watt and by the way, now we want and expect…..”
http://www.mbaa.org/NewsandMedia/PressCenter/86529.htm
Maloni Kudos to Pope Francis for standing up to your
Church’s Neanderthal elitists/reactionaries and displaying your piety for all to see and
Speaker
John Boehner for calling out the crazies in your party.
Sunday, December 8, 2013
Ho, Ho, Ho, the CSP Joke is on Us
Lots
of FHFA Action This Week
Some charged developments likely coming this week,
including possible Senate approval of Mel Watt to be the new Director of the
federal Housing Finance Agency (FHFA), F&F’s regulator.
Most people believe this now is a baked in concrete deal,
but there was an interesting wrinkle which came up at the end of the week.
Reportedly, Mr. (Congressman) Watt, who loses the title
officially if he takes over the agency but in fact never gives up the
honorific, asked Ed DeMarco, the current acting Director, to stay on board
awhile in a transition.
I hope that’s not true.
Mel Watt might want the helping hand that a departing
DeMarco could offer, but Ed reportedly has “civil service status,” which means
he can’t be forced out of the agency and the last thing Watt needs is his
predecessor still around with the guy’s former staff paying obeisance to him.
Congressman: Even if it leaves you feeling a little exposed, remove your predecessor ASAP; make the FHA staff understand
that there is a new sheriff in town, and just learn on the job, as many of us
have in the past when given grander responsibilities.
Better to arm yourself with a solid assistant or
two—brought in from the outside (not the Hill), with heavy mortgage finance and
securities experience—and look to them, first, before relying on what FHFA officials
tell you, until you know enough to trust those you find there.
You don’t have to show off for anyone. You are the boss,
you make the rules, and you ramp up at the speed you need, and don’t let anyone
— especially inside— measure that pace for you.
Look querulously at any FHFA staffer who starts their
sentences with, “What you have to do Mr. Director is…….!”
You are smart enough to know that you have a lot on your
plate and while a dose of DeMarco might seem soothing, it’s wiser to lose him
as soon as is seemly and get on with your education and administration of the agency.
Frankly, what I don’t know is how much you are going to
be your own man, making your own calls on issues that—while you may not
understand down to the last comma--you instinctively know are right or wrong.
That’s why you have one or two strong deputies to work
over those matters, whose loyalties are to Mel Watt and who won’t spill your
business in the FHFA hallways and cafeteria.
It’s going to be difficult for you, but that same logic
applies to your keeping at arm’s length your White House sponsors. They chose
you. They made the decision, the Senate will have approved it, and now use your
brains, skill, and experience you brign through the door.
The
Common Securitization Platform (CSP);
“White
Elephant” Requiring Major Oversight
Another event possible this week is FHFA and the
same Ed DeMarco announcing the name (s) of the individual (s)—there are
vacancies for a CEO and President--who will head the Common Securitization
Platform (CSP), which I consider an outrageous waste of taxpayers’ money and an
expropriation of Fannie and Freddie resources not quite as egregious as the
2008 “takings”--now being litigated in 17 different lawsuits--but, it’s close
enough.
The CSP is a new Delaware chartered narrow casted entity,
which neither Fannie nor Freddie—who were forced by their regulator to create
it--or most lenders want.
However, acting Director DeMarco believes strongly in
this unwanted scheme to develop an independent mortgage underwriting platform, which
DeMarco gratuitously funds with Fannie and Freddie (taxpayer) revenue.
FHFA has rented Bethesda
office space for CSP, is building CSP a boardroom for its yet to be named board,
will hire a couple of bigwigs (see above) and then bring in some duplicative worker bees
(how many?).
$500
Million, Really??
The rumor is that DeMarco’s eventual cast of CSP merry
men and women will blow up to $500 Million on this puppy.
That’s right Congress, $500 Million, which could/should
be Treasury-bound and deficit reducing.
This scheme has no independent oversight or design, just
a DeMarco mandate to create something which likely already exists in one or
both of Fannie and Freddie.
Mel
Watt, are you or someone close to you reading this? Make yourself an instant
hero, ask the vainglorious (in its own mind and congressional reports) FHFA IG
office to investigate the CSP thing, “right #$@&^%*$ now!”
Congress once used the GAO to eviscerate these soft
projects, maybe some curious/outraged D or R might ask it to so with this one.
I want
it now, whine, and cry!
The common platform has had a quiet evolution and has escaped
a lot of outside attention, despite how brazen it is.
Essentially, Ed DeMarco decided that the mortgage banking
world—most of which already is attached to one or both of the Fannie Mae or
Freddie Mac underwriting platforms--requires a third.
“For whom” is a good question, especially if Congress is
going to do away with the two and keep or sell off all of their assets
(including their platforms)?
Industry’s public comments didn’t seek this because it
realizes some inherent legal risks which lenders don’t need given their other
regulatory and judicial concerns.
DeMarco’s judgment is to give this project to the world
(he didn’t bother to answer who might pay the taxpayer back for his gift?), no
matter the viability and necessity.
Think about it, who but F&F--and maybe one or two
banks--have that type of system demanded, which they keep market contemporary?
Where will the CSP, board and employee go for input?
I know, I know, in their hostage’s cupboards!
Clearly this pig, no matter how much lipstick is painted
on it, still will look like a sow. When all is said and done—if an intervention
can’t be put together—the CSP will use the standards and systems which F&F have
developed, remembering these two entities—over which FHFA has conservatorship
authority--will continue their automatic improvement.
What
is the CSP Going to Seek and Where?
Demarco does not
conserve F&F resources and assets with this exercise.
The CPC will harrumph and call for studies and reports,
go on field trips, maybe visit overseas, and then take the active information
from Fannie and Freddie, dress it up and pretend that it’s a new creation.
There is precedent for this audacious thievery. Since its
early days and I suspect still, OFHEO/FHFA would demand detail rich reports
from F&F, then some FHFA apparatchik would publish the info, suggesting the
research was done, independently by the regulator.
It’s stealing, but gobbling up F&F possessions
doesn’t seem to bother Congress.
I suspect, the CSP intellectually will cannibalize some
sensitive operational parts of F&F, so some bureaucrat can pretend he/she
found out a new way to underwrite loans.
I’ve suggested that FHFA bag the new corporate façade, the
titles and expenses, and just name 10 bright people from each entity and a half
dozen of their own staff and do the work in house.
If it takes any more than that, then, once again, FHFA is
“$%$#@* up!”
Careful
Sen. Mark Warner (D-Va.), Mr. 30-1
Weekend report that Republican lobbyist Ed Gillespie
might run against you in your next election.
With your constant dissing of them, I am sure the thousands of Freddie Mac employees living
and voting in Virginia, as well as their Fannie neighbors who reside there,
too, would be happy to put putting their voices, wallets and energies behind Eddie G.
What
Others Are Saying/Writing
The WSJ's Nick Timiraos offers his thoughts on what Mel Watt might do at FHFA.
Tim Howard does TV interviews re, “The Mortgage Wars.”
Yahoo looks at Wall
Street and ethics.
Maloni,
12-8-2013
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