Monday, March 30, 2015

GSE Updates and "Go for it, Judge Sweeney"


Reid Wants Schumer to Succeed Him


In announcing his plans to retire when his current term ends in 2016, Sen. Minority Leader Harry Reid (D-Nev.) would like Chuck Schumer (D-NY), currently a member of the Senate Banking Committee to replace him as Senate Democrat party leader. 

Newspaper reports are that the job is Schumer’s unless he suddenly decides he doesn’t want it, but his recent actions since the Reid announcement—suggest New York’s senior Senator will have a clear field, when the time comes.

Good choice for Harry and the D’s, but in anticipation of Schumer either being Majority or Minority Leader, US and international networks/media likely will have to start now ordering new cameras to insure they have enough prisms to cover Schumer in full bloom.

Safety Warning, "Look Out!” 

It’s an old comment, but still accurate line, "The surest way to injure yourself on Capitol Hill is to get between Schumer and a media camera."

That won’t change!

(Also, Shhh, keep it to yourself, Senator Schumer--who supports the FHFA-blessed 3% down mortgages and reviving the rental fund--believes that F&F already have repaid the federal government what they owe the taxpayers.)

NYT Article on Wallison Draws Response 

Several people told me they sent letters to the New York Times editor, commenting or criticizing the feature story the paper did on the AEI’s Peter Wallison. 

Here is one which got printed last week by the newspaper.

FCIC Chair on Cause of 2008 Financial Crisis

MARCH 27, 2015

To the Editor:

There is a reason that Peter Wallison’s “passion” to rewrite the history of the 2008 financial crisis is a “lonely quest” (“A Crusader Against the Common View of the Financial Crisis,” by William D. Cohan, Street Scene column,, March 12). The evidence presented by the Financial Crisis Inquiry Commission contradicts his revisionist view of the crisis. All nine of his fellow commissioners — five Democrats, three Republicans and one independent — rejected his theory that government housing policies were the primary cause of the crisis.

The data shows that Fannie Mae and Freddie Mac followed, rather than led, Wall Street in expanding subprime lending. Delinquency rates for loans purchased or securitized by Fannie and Freddie were dramatically lower than for mortgages securitized by Wall Street. And Fannie and Freddie mortgage securities, with their implicit government backing, undisputedly did not cause the losses that cascaded through the big Wall Street financial firms.



Financial Crisis Inquiry Commission


There have been a lengthy list of rebuttals to the Peter Wallison research (most of that data provided by Wallison’s AEI colleague Ed Pinto, who once worked at Fannie but was dismissed), in which the pair claim, in the 1990’s, Fannie Mae bought largely subprime mortgages and that led to the 2008 financial meltdown.

Their suggestion has been dismantled by exemplary loan performance of those 1990’s books of business (loan purchases/securitizations), not only through the 1990’s but into the next century, too.

However, no matter who (David Fiderer, David Min, Paul Krugman, Joe Nocera, Alan Binder, the Fed, the FCIC staff report) the conservative Right—especially in the Congress and at the WSJ—perpetuates the Wallison myth.

Why would PW’s opinion prevail over that of the head of the Financial Inquiry Commission President Obama created to examine that major financial and economic malaise and report to the American people its cause and elements???

Beating up F&F is standard GOP fare but, at some point, these would be policy makers have to acknowledge how much damage—without employing any aspect of F or F—the major banks and investments banks produced with their poorly underwritten, falsely rated, and quick to fail $2.7 Trillion in private label securities, issued between 2005 and 2007 and sold throughout the world.

Policy Forum

Tuesday, April 7, 2015 12:00PM

*“Featuring Peter J. Wallison, Arthur F. Burns Fellow in Financial Policy Studies, American Enterprise Institute; and John C. Weicher, Director, Center for Housing and Financial Markets, Hudson Institute. Moderated by Mark A. Calabria, Director, And Financial Regulation Studies, Cato Institute."

"After more than six years and dozens of books and journal articles on the subject, the causes of the 2008 financial crisis continue to be hotly debated, perhaps none more so than the role of federal housing policy — specifically that of Fannie Mae, Freddie Mac and the Community Reinvestment Act. Most experts agree that the increase in the number of loans that required a low
down payment, little documentation, and low borrower credit fueled the subprime boom and bust. But what caused lending and underwriting standards to deteriorate so dramatically? Did Wall Street greed drive the demand for subprime lending, or did federal mandates lead the charge?”

Let’s see, what are the chances of the Angelides letter getting mentioned or reviewed on April 7, at the above Cato event?

(*Cato Institute event promotional material.)


Corker (R-Tenn.), Blackburn (R-Tenn.)
Want to Keep F&F $$$ from Treasury

But their reasons might differ?

Last week, Rep. Marsha Blackburn (R-Tenn.), a member of the HBC introduced legislation that would direct Fannie and Freddie to create reserve funds, if they get into future financial difficulties.

Here is a Politico link to her bill’s introduction.

I never am sure what motives are at work here with this and other ideas like it. Of course there is an element of ideology involved. But—giving Ms Blackburn the benefit of the doubt-- she’ll understand that what she wants is to preserve the enterprise capital and there are easier ways to do that.

Congresswoman Blackburn’s bill drew praise from Tim Pagliara, head of Investors Unite, a F&F shareholders group. Revenue kept inside Fannie and Freddie, no matter the mechanism, must be labeled “capital” and is a positive for investors.

As I wrote last week about Senate proposals to limit Treasury’s use of F&F earnings, congressional advocates just should join and support leaving all F&F money—over loses and administrative costs--with the two and they’ll have no options but to cover future losses with current/future revenue just like other financial service companies.



Phantom Sen. Corker Bill?

Last week, Senator’s Corker’s legislative and communications staff circulated a memo suggesting Corker (R-Tenn.) would seek to attach legislation to the Senate Budget Resolution—since approved in the

Senate--to create something called a “revenue neutral F&F fund,” presumably to keep the money out of Treasury’s hands (which many Conservatives argue should not be used for other federal spending or deficit reduction). 

Corker and reported co-sponsors also want to prohibit Treasury form selling the government’s F&F senior preferred stock without congressional approval.

There was the obligatory media coverage (small) and the usual chattering over what Corker’s objectives were. I’ll leave that to the junior Senator from Tennessee to explain.

As I completed the blog, it appears as if Corker had not offered his proposal. Although it later could be added to September spending bill, depending on Corker’s motives.

The early mention also generated discussion as to whether language attached to a budget proposals—since those documents are not signed by the President--would be binding or not binding on the White House, which has resorted to using its executive authority for a number of issues, not involving the GSEs. 

Final GSE Word From “the” Chairman?

However, the most definitive macro comment on GSE matters came from Dick Shelby (R-Ala.), the Senate Banking Committee Chairman, who declared no GSE reform legislation would go through Congress this session, which has been the conventional wisdom for weeks.

March 25, 2015 10:26AM ET | Bloomberg Government

(Bloomberg) -- The leader of the Senate Banking Committee said he’d rather leave Fannie Mae and Freddie Mac in U.S. conservatorship than pass a bill that includes explicit government support for the housing market.

The comments Wednesday from Richard Shelby, an Alabama Republican, were the clearest indication yet that Congress probably will leave the mortgage-finance companies under federal control for at least the next two years as lawmakers struggle to agree on the structure of a new housing-finance system.

Shelby, speaking at a U.S. Chamber of Commerce conference in Washington, said he opposes replacing Fannie Mae and Freddie Mac with a system that includes a government guarantee for mortgages.
Ditto NY Fed 

A new report from the New York Federal Reserve Bank said the same about.


Rosner and Stevens

I have no idea what is the latest between MBA senior exec David Stevens and Josh Rosner; but someone refuses to debate someone, in person or on Twitter, and the second party has banished (or whatever is the term of art) the other dude form reading his tweets. 

joshua rosner (@JoshRosner)
#CorkerWarner & #CrapoJohnson were crap. Now liars who said #GSE reform req Cong slipped #Amendment805 into #Budget to give market to banks

FHFA: Enterprises Run Business (Not!)

I've include the article from Inside Mortgage Finance’s Paul Muolo just to bury the phony FHFA line F&F managers control their day in and day out business operations. 

When you get 750 “coat pulls” from your regulator in a year, telling you that you messed up big things and small things—strongly suggesting you have marginal entrepreneurial discretion—it can’t be proclaimed, “You run your own business.” 

By Paul Muolo
The Federal Housing Finance Agency took 750 conservatorship “actions” against Fannie Mae and Freddie Mac last year, including denials of non-delegated business activities, according to a new report from the Inspector General of the agency.
The report, however, is light on specifics. The IG notes that these actions include “conservatorship directives to the enterprises to undertake actions related to strategic goals and scoreboard objectives, conservatorship approvals” and other mandates.
The IG does not detail for the public what a non-delegated activity might be, though it appears the regulator has communicated this information to the boards of the GSEs through “letters of instruction” (LOIs) not to engage in certain activities.   
One LOI requested that Fannie and Freddie first ask the agency for approval in regard to certain mortgage servicing sales. Again, no specifics are provided.
Entitled “FHFA’s Conservatorships of Fannie and Freddie Mac: A Long and Complicated Journey,” the report’s central message appears to be that the FHFA is keeping a tight regulatory grip on both mortgage giants. Fannie and Freddie were placed into conservatorship in September 2008.
What Others Are Saying
Charlie Krauthammer handicaps GOP Presidential candidates.
Judge Sweeney’s hearing room on Tuesday.
Keep an eye on Judge Sweeney’s 3-31, Tuesday, Claims Court status hearing on “Third Amendment discovery” matters.

Senator Ted Cruz (R-Tex.), with no noticeable increase in his nose size, now supports Obamacare since it covers his family.


Rep, Peter King (R-NY) doesn’t like Ted Cruz


If the Urban Institute’s resident optimist, Jim Parrott, applied his GSE analysis to other seminal matters, he might also conclude there is congressional consensus on Immigration, Tax Reform, and US military tactics in the Middle East, opposition to voter registration restraints, and gun control support.

IS THERE A GSE REFORM CONSENSUS? — Jim Parrott in an Urban Institute op-ed: “It is easy to be pessimistic about GSE reform these days. The effort to pass legislation out of the Senate last year showed the subject to be remarkably complex … And early signs are that this Congress won’t even bother to take it up in earnest, making another concerted legislative effort unlikely until after the presidential election. … There is, however, one cause for optimism: through the effort in the Senate, a relatively broad, bipartisan consensus emerged on what a future system should look like.

“The key parties agreed that the nation’s housing finance system needs to provide broad access to affordable, long-term, fixed-rate lending; that the private market should bear the lion’s share of the credit risk; and that whatever risk the taxpayer bears must be insulated behind significant private capital. While negotiations among the like-minded eventually stumbled over how best to accomplish these objectives, the broad alignment around what we were trying to solve for provides us with a compelling framework for reform.”


John Berlau, Competitive Enterprise


Happy Passover and happy Easter to all of my friends and blog readers.
Peace, good health and love to you all, especially the family of Carlos Falchi, a family friend, a sweetheart of a man, super talented, who passed away much too young last week.  

Maloni, 3-30-2015


Note: I am taking the next few weeks off and won’t publish a blog, unless something GSE stupendous occurs.


  1. Hi Bill, if the Senate creates a "revenue neutral F&F fund”, who do you think will be designated to manage the money? and who will collect the resulting interest? Could the GSEs use this fund for future operations?

  2. Bill, good stuff as usual and here's hoping for great results from tomorrow's Sweeney Status Conference.

    I also hope the break from the blog will give you a chance to spend time with kids & grandkids over spring break!

  3. Anon--Unclear, since I doubt he has plans to help F&F do anything positive. It's also a bizarre construct, so who knows its shape or function? I don't, yet.

    Also, if the money is coming from enterprise profits, why not just leave it as "capital," which seems to me the simplest way to keep it out of Treasury's hands?

    Nothing about F&F ever is "clean and easy!"


    G--We will; going to the west coast mid-week, where--eventually--all but one of the sons and all the grandkids will be.