Bill Maloni's GSE Blog

Get TH While You Can!

 

To Hill People Seeking a F&F Change

Here’s My Best, “Can’t Miss” Advice

 

Do I have a deal for you!

It’s free, comes with no strings attached, and is the kind of thing at which smart people--who are “on their game”--will leap, especially if they are honest with themselves about the enormity of their task and the hurdles they’re encountering.

Everyone drafting a mortgage finance reform proposal runs into the same rat’s nest of issues.

No matter what your ideology or political leaning, it is not easy trying to design a U.S. mortgage finance system, which features efficiency, fairness, ease of access to lenders, builders, Realtors, consumers, utilizes the latest technology, makes mortgage products (loans) standard across the country, and does so in a way that minimizes the risks involved to borrowers, financial institutions, and the taxpayers. 

Back to my point.

Republicans and Democrats alike should make every effort to sit down with Tim Howard, Fannie’s former Chief Financial Officer, and take advantage of his mortgage finance career spanning 30 years and then pick his brain like hungry birds attacking popcorn. 

Having just heard him address a group of interested folks, I can assure you that the one thing he won’t say to anyone is “revive Fannie and Freddie” or “make no changes to the current system.” 

Let me repeat that for emphasis, Tim will not argue for the status quo, with few or minor changes.

He will explain the necessary component parts of any functioning national mortgage market, like ours, which has a set of primary market lenders, secondary market guarantors, and the all-important capital market investors, and likely try and guide you—no matter your ideology—through how best to string together the parts to achieve the laundry list of systemic benefits I spelled earlier, bearing in mind, the current splintered political terrain.

If you sit with this sophisticated former Fannie executive, you won’t be selling out to the enemy or risk coming down with GSE-itus. 

To the R’s, check him out with some of your Wall Street and big banks acquaintances--from the operational side of the institution—and see what they say about Howard’s financial acumen.

 

He also won't tout his book, “The Mortgage Wars,” which has been very favorably received, save one ridiculous off-the mark-review (which I will address later) in your discussion of future mortgage market models (unless you press him to discuss it). 

Anyone reading my blog knows I think that many people at work on these bills--whether it’s Hensarling (R-Tex.), Corker R-Tenn.)-Warner (D-Va.), the new effort by three House D’s, the forgotten Capuano (D-Mass.) proposal-- have very little idea of the complex history of mortgage finance, let alone Fannie and Freddie. 

I suspect also they don’t realize—in the GSE halcyon days more than a generation ago--dedicated and incented people labored judiciously trying to come up with a Fannie/Freddie substitute, which hit all the systemic value points I enumerated. 

Staff for Senators Johnson (D-SD) and Crapo (R-Idaho) reportedly are close to finishing their work and looking ahead, possibly, to a March mark up. Even with that timetable, it's not too late for them to benefit from Howard. 

People should know—in my 21 years at Fannie—Howard worked on three major variations of that same “find an alternative” challenge, under Fannie’s most successful Chairmen, David Maxwell, Jim Johnson, and Frank Raines. 

Fannie (with Tim always present) turned the GSE model upside down, inside out, shook it, stressed it and occasionally kicked it to see what could be superior approaches. 

Indeed ideas not part of today’s Fannie and Freddie emerged, but they fell victim to pragmatic political and industry compromises which produced the inevitable mush, sinking the efforts. 

The last effort was over a decade ago, but Tim was there for all of it and worked with a variety of outside consultants and insiders charged with the same undertaking. 

My point is that Howard has thrice been through all of the issues and problems, complete with systemic, industry and congressional politics, and could be a beacon for those now trying to do the same thing. As noted, he won’t call for the simple resurrection of F&F, although the Congress could do (and has proposed) a lot worse. 

Having written his book, Tim’s objective now is meeting with as many people working on this Herculean legislative task, who will meet with him, and share his experience. 

Don't forget, he is an expert and successfully ran the nation’s largest credit risk/interest rate risk and global financing mortgage corporation. (It's necessary at this point to remind readers  that Fannie Mae's entry into major private label subprime (PLS) purchases occurred in 2005, after Howard, Raines and Spencer departed the company.) 

Capitol Hill D’s and R’s won’t encounter too many sources more intelligent, more capable, and more indulgent in responding to any idea raised by any audience.

Oh, and if you do invite him in, don’t sit too close to him, he is a major “hand waver,” swirling both paws in ways that many of us first thought were anatomically impossible until we viewed him do it more than once!

 

There Once Was a Reporter

Named Kathleen Day,

Who Would Sit and….

 

Former Washington Post journalist, Kathleen Day—who now toils for Johns Hopkins University business school—recently bragged to a bunch of DC private school kids about what a superlative reporter she had been, breaking big financial stories left and right. 

According to my source, a parent to one of the students, the kids were taken back and turned off by the braggadocio. 

When I heard that story, I thought, “Yep, a legend in your own mind,” because of the strong suggestion that Ms. Day may have been manipulated by former OFHEO officials, who hoped that she and colleagues would write inaccurate and anti-Fannie stories based on the pap the regulator supplied – with a goal to belittle and embarrass Fannie executives (Frank Raines, Tim Howard, and Leanne Garmon Spencer), making them more pliable. 

Ms. Day surfaced again this week, in USA Today, writing a snarky and dismissive review of Tim Howard’s book, with Ms. Day seemingly focusing on everything but what he had written.

Below is a letter I sent to the publication, after reading her review. 

Kathleen Day should have recused herself from writing about Tim Howard's book. 

It strongly has been suggested that she was one of the favored reporters receiving and using Office of Financial Enterprise Oversight (OFHEO) spoon-fed anti-Fannie and Freddie propaganda. The providing OFHEO officials hoped their guerilla tactics would drive down the F&F stock price and cower their officials into accepting the oversight agency's less than thoughtful rulings. (See 2004 report of HUD Inspector General into OFHEO practices, which should have produced a recommendation to the Department of Justice for violations of law.)

Indeed it was OFHEO which started the totally fallacious rumor that Howard, Fannie CEO Frank Raines and Comptroller Leanne Spencer, committed securities fraud, a charge which forced the three from their jobs. (I wouldn’t be shocked if the record showed that Ms. Day authored some of those articles which abetted a politically vicious attack and a partisan drive-by shooting.)

That “securities fraud” allegation was the basis of the 2004 lawsuit, which 8 years later Judge Richard Leon dismissed saying that he could find nothing in the  "65 million pages" of hearing records which would allow any jury, anywhere to convict the defendants of the charges made against them.

What did Ms. Day think about that Bush Administration’s scurrilous behavior? What did Ms. Day think about the many, many reports which declared that Fannie and Freddie were not the cause of the 2008 financial debacle?

What did Ms. Day think of the fact that major New York banks and investment banks went around the Fannie and Freddie systems, because the latter couldn’t be manipulated, and produced and sold worldwide more than $2 Trillion in poorly underwritten and falsely rated, private label mortgage backed securities (PLS) which promptly failed making the US real estate softening an international financial Armageddon?

Everything I’ve pointed to was in the Howard book, but Ms. Day--still hung up on her anti-Fannie attitudes--must have missed it all, since she reports there was “nothing new” in Howard’s account.

Of all people, why did Ms. Day seek quotes from the AEI's Peter Wallison, an avowed F&F critic, whose own work has been intellectually shredded by the Fed's staff, the President's Financial Inquiry Commission report, and dozens of financial reporters of all political stripes?

I've joked that Wallison and his AEI colleague Ed Pinto have been rolled over by so many sources, their suits have permanent tire marks on them.

What did she expect Wallison to say about Howard's book? 

Bad review and bad choice of reviewer. 

Fannie and Freddie in the SOTU

 

Ho hum, not to be dismissive of our President (again!), but anybody reading any “get tough on F&F” intent in his Tuesday remarks is over reading it. 

His delivered remarks were benign, while a prepared statement, more elaborate on many items, contained (paraphrasing) “change Fannie and Freddie, as we know them.” 

It’s the wrong year for that, there is a lack of objective consensus, as well as serious doubt about procedure, especially with F&F earning the Feds so much money and successfully undergirding the nation’s mortgage market.

 

Maloni, 1-31-2014