White House Swings and Misses, Again

A Week for Dudes and Boobs!

 

Dude… 

Do we have another F&F congressional hero emerging?

Thanks to frequent “PBJ” F&F poster Chris Herecza, who made available his response Senator Pat Toomey (R-Pa.) to Chris’ F&F communication? 

Thank you for contacting me about Fannie Mae and Freddie Mac. I appreciate hearing from you.

As you may know, Fannie Mae and Freddie Mac are government-sponsored enterprises (GSEs) that purchase mortgages, pool those mortgages into mortgage-backed securities (MBSs), and then sell them to investors with a guarantee that the investor will be paid on time. With over $5 trillion on their balance sheets, the GSEs play an enormous role in today's housing market.

In 2008 as the financial crisis erupted, the GSEs' ability to meet their obligations came into doubt. On September 7, 2008, the federal government took control of them and extended a direct line of credit from the Department of the Treasury (Treasury). In return for supporting the GSEs, Treasury received senior preferred stock that carried a 10 percent dividend and warrants to purchase 79.9 percent of the common stock of each entity for a nominal price. The remaining 20 percent of the companies remained in the hands of private investors. From 2008 to 2011, Treasury supported the GSEs through the purchase of over $189 billion in senior preferred stock. Since 2012, the GSEs have not required further Treasury support.

On August 17, 2012, Treasury and the Federal Housing Finance Agency (FHFA) dramatically changed the terms of the original GSE support agreement in what has become known as the "Third Amendment." Rather than receiving a 10 percent dividend on its preferred stock, Treasury would receive all GSE profits going forward. By claiming all future profits, Treasury effectively eliminated all remaining shareholder value.

While I believe that taxpayers must be fully repaid and receive a fair return on their investment, the Third Amendment unfortunately may have a chilling effect on future private investment in the housing market. If the government is willing and able to unilaterally change the rules of the game at any time, investors in Pennsylvania and across the country cannot be confident that they will not again find themselves in a situation in which the government wipes out the value of their investment. Lack of private investment could prevent us from successfully reforming the GSEs, protecting taxpayers, and encouraging affordable housing finance for all Americans. I therefore look forward to working with my Senate colleagues on both sides of the aisle on this issue.

Thank you again for your correspondence. Please do not hesitate to contact me in the future if I can be of assistance.

Sincerely,

Pat Toomey
U.S. Senator, Pennsylvania 

 

Toomey addressed the “takings” issue and took a position, which should appeal to other GOP officials. Even here Toomey stands out from others who don’t/didn’t engage on this subject.

I urge all to thank Sen. Toomey—a member of the Senate Banking Committee-- for his position and treat him as an ally.

My congressional “ally” standard isn’t very rigorous. All a Senator or MoC has to do is to say or write something which suggests he/she sees a mortgage market operational future for F&F or introduce legislation, like Rep. Mike Capuano (D-Mass.), which supports that step.

The more Keystone State residents who agree with the desirability of F&F working into the future, the more attentive Se. Toomey should be, especially when GSE issues arise in the Senate Banking Committee.

As many of us did with Rep. Capuano (D-Mass.), let Senator Toomey know of your appreciation and support. If you live in Pennsylvania, he’s your Senator and you’re his constituent.

(Speaking of Rep. Capuano, I asked for a meeting with him and received a positive reply, with just the date and time being decided.)

For those readers who haven’t yet done so, please convey your support to Congressman Capuano for his introduction of HR 1036. It means something and let’s keep trying to get him co-sponsors.

Ask your Member of Congress and Senators to support the Capuano bill. 

…..And Boobs!

 

I don’t know Mike Stegman, Counsellor to Treasury Secretary Jack Lew and apparently one of President Obama’s senior GSE spokesmen.

If I knew Mike, I’d probably think he was an OK guy and enjoy talking issues with him. I am sure he would find me fascinating, probably asking for my autograph possibly on an old high school graduation picture, the extras your mother ordered when you finally got through twelfth grade and with which you inevitably got struck. The kind you would address, “To Mike, you are a real cutup; as you walk the stairway of life, stay as cool as you were in Algebra 1. UR 2 good 2 B forgotten, Bill.” 

Last week, Mike addressed the Third Annual Goldman Sachs Housing Finance Conference and, disappointingly, trotted out the same old F&F memes (read for yourselves).

http://www.treasury.gov/press-center/press-releases/Pages/jl9987.aspx

 

Let me focus on the Stegman points that annoyed me, saving the most significant for last. 

Apparently, in putting Obama’s thumbs down on recapitalizing F&F from earnings—revenues which are over above what they’ve paid back to the Treasury--and preferring dismantling/doing away with them, Mike dragged out this hoary old justification,“……the flawed (F&F) design of allowing shareholders and executives to profit as taxpayers take the risk should be abolished.” 

Mike, when in the past 7 post-conservatorship years have shareholders and executives profited as taxpayers lost money?   

 

Treasury HAS Been Paid 

As Mr. Stegman knows well, taxpayers have made money on F&F, some $40 Billion more than they received in 2008. 

Mike might also should check out the 2008 “TARP” bank cash expenditures, almost 2 ½ times what F&F got, which some banks still haven’t paid back. 

Mike, in trying to make your point to the Goldman group, you created a straw man to cast GSE doubt (your timing was ironically impeccable since GS’s in-house bank just barely passed its Treasury conducted stress test). But you also displayed ignorance about what the Congress did and why, when it recreated Fannie Mae in 1969 as a private company with a public mission.

Forty five years ago, the Congress already had HUD in place and was very happy with what it had wrought. That was something it decidedly didn’t want to refabricate to deliver conventional residential finance to America, ergo they intentionally made Fannie (and several years later) Freddie look and operate differently. They told it to run itself like a true corporation, paying all of its own expenses and using prevailing market standards to price its products and hire and fire employee.

But you implied that GSEs and profit are bad.

Did your host or any other bank or investment bank finance or invest in mortgages for free or at cost? (Have you lately checked bank profits since 2009?) 

In complaining that Fannie and Freddie grew their business in the 1990's, Mike, conveniently and blithely ignored that both Presidents Clinton and Bush called on Fannie and Freddie to do just that and increase the homeownership rates in the United States. 

That’s not Maloni making it up. Don’t take my word for it, read it in the WH/Treasury files.  

Which President was wrong, one or both? 

I don’t know why the White House and Treasury can’t/won’t hear the GSE song most people are humming? There is far more interest finding a way to keep F&F and building their protective capital than shutting them down. 

Mike, that could explain all of those “ZZZZZZZZZ’s” you heard after you spoke.

 

BHO’s Legacy....banks? 

And here is where I come down on Stegman, Jack Lew, Valerie Jarrett and anyone else politically advising this President on the GSE issue and/or his “legacy.”  

Really, banks are the key to Obama being remembered as a middle class hero? 

Admin folks keep endorsing some version of the Senate’s CorkerWarnerJohnsonCrapo (CWJC) mortgage reform bill, which barely got through the Senate Banking Committee in 2014 and then died. (Stegman, again, did so in the GS remarks.) 

Here is the political question for those who seem to be so out of touch with the American people. 

How can any Obama legacy benefit from the CWJC legislative basket of confusion, craziness, inefficiency, delay, and predictable consumer cost increases, when you do away with F&F (even over an indefinite time period), while you willingly/knowingly transfer the primary and secondary mortgage markets to the TBTF banks, which--first--will insist on major new on-budget federal subsidies to take that mission?  

Fess Up, Guys, It Ain’t “Private Capital” 

Oh, and how does all of that FDIC insurance fund-produced bank revenue make it "private capital?"  

($6.5 Trillion of consumer savings, bank and checking accounts, are backed by a $57 Billion FDIC fund; that Mr. Lew is a major ^&%$*#&  bank subsidy.

Messrs. Lew, Stegman, and President Obama, do you think there is no federal deposit insurance subsidy there and can that $6.5 Trillion dollars plus really be considered “private capital,” when the American public/taxpayers put their savings there only because of federal deposit insurance for which the depositories don’t really pay enough?  

I am not suggesting FDIC coverage is wrong, but when you bitch about F&F federal subsidies or Uncle Sam holding up the GSEs, tell the entire story. Uncle Sam underpins lots of financial institutions.

 

Banks are Your Industry Knight in Tarnished Armor? 

Yet, you keep touting a major bank-based mortgage reform solution (CWJC). 

How often must the big banks prove to you they can’t be trusted to run an “honest game?” How many more billions of federal financial regulatory fines must they pay to convince you that they are not the proper stewards of the nation’s $11 Trillion mortgage markets? 

What part of constant financial institutions cheating, scheming, and “bank, oops” moments finally will convince you that your mortgage reform solutions are not ideal for the American public? 

Certainly, use the banks, employ them for primary market lending, but don’t give them the keys to that kingdom and let them rule the roost.

Why Does a Well Regulated F&F Not Suffice?

 

What is beneath your confusion, hate, and F&F distrust? 

Open your eyes to the fact that your endorsed substitute national mortgage operation, likely will cost more—certain for consumers—reap undesirable systemic chaos--as you uproot the financial known for the unknown--and place on top the very institutions which have defied you politically, tried to gut your minor Dodd-Frank and CFPB successes, endorsed your GOP opponents with their words and money, and have roared through your federal regulators like a famished diner through a chicken pot pie.

 

Has this or the Bush Administration--as both have with Fannie and Freddie--suggested major “wannabe” F&F financial replacements slash and  cap their salaries and reduce their officer and employee stock compensation? 

Is it the cutesy Fan and Fred names, their forgotten genesis, or are you just spreading of fog to confuse and justify? 

In killing them, where is the win-win for the American people? Where is the good mortgage finance news for any of the traditional Democrat constituencies or anyone else in the middle class, about which this White House suddenly is showing great concern? 

Do you really think that doing away with F&F gets the federal government/taxpayers off the hook when/if something bad happens with the banks in charge?  

Not only are you naively pipe dreaming but you are misleading the nation. 

Fixing F&F is far easier and will produce better homeownership results than pretending you need to blow everything up and start anew, giving away the mortgage ranch in return for continued bank thumbs in your eye. 

They don’t label those big boys “Too Big to Fail” (or jail!) for nothing!

 

“Bibi”--Another Dude! 

I watched the entire Netanyahu speech to the joint session of Congress last Tuesday, observing the expected “standing O’s,” many legitimate, some phony.

I could be wrong--since I only have been about a thousand times in my life--but what I thought I  saw in those  nodding heads and side comments to colleagues, was the wish—from both sides of the aisle—that President Obama could deliver a speech with that degree of certitude and sense. 

I also suspect that many were thinking, “Why couldn’t this tough nut be our President,” constitutional rules aside!

 

John Carney and Josh Rosner Fight on Twitter

 

I don’t use Twitter but folks always are sending me GSE related exchanges which are worth reading. Here, the WSJ’s John Carney, and Josh Rosner, author Wall Street analysis, go back and forth with each other over, what else, Fannie & Freddie. 

This originally was posted by Trey Garrison on Housing Wire. 

http://www.housingwire.com/articles/print/33177-fanniegate-goes-viral-on-twitter

(Trey if you still are interested in interviewing “the real” Tim Howard, as per my several emails to you, let me know?)

 
(My original post on this matter has been removed because of a dispute. See the next segment for the only details I have.)

 

Late Posting Monday afternoon, 3-9:  

OK—I just learned I screwed up and fell for it; the original Tim Howard 717 site, http://timhoward717.com/, still is up and working.

The site I listed above, apparently is a knockoff caused by a dispute, the details of which just are emerging. 

So, if you use the site above, know that you are not getting the TH717 who started blogging F&F stuff over a year ago.

I am taking down the ersatz site reference.

 

What Others Are Saying 

Where you sit is where you stand! 

The always interesting Gretchen Morgenson, using recently revealed Federal Reserve Board transcript discussing a special 2009 bank financial aid package (“cash for financial products trash?”), hit the mark again with her Sunday column. 

http://www.nytimes.com/2015/03/08/business/economy/at-the-fed-in-2009-rolling-dice-in-a-crisis.html?ref=business&_r=0

 

But if people were impressed with the New York Fed’s TALF (Term Asset-backed Liquidity Loan Facility)--the little known, behind- the-scenes bank balance sheet support, which produced $750 Million in revenue for the Treasury, after the New York Fed took a 10% haircut for its services--what should they think about the Fannie and Freddie exercise which earned the Treasury $40 Billion and counting? 

Are you surprised that most Treasury and Fed officials--, on a post mortem basis--thought the now ended TALF was a huge success? 

Go, Gretchen.

 

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Special Gretchen Morgenson request.

Ms. Morgenson, please ask your Ferrum College (in Ferrum, Virginia) hosts to invite a knowledgeable lawyer (Richard Epstein?) to discuss “Third Amendment and takings issue,” when you join Ed Demarco and Mike Stegman later in the month to do so, as part of a broader GSE agenda.

It should not be your responsibility lead this segment, yet the other speakers on your panel are directly/indirectly mentioned in the plaintiffs’ lawsuits, but it still is one printed conference agenda subjects. 

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Who are F&F principal investors and does it make sense to buy the stocks?

From the Motley Fool

http://www.fool.com/investing/general/2015/03/06/fannie-mae-and-freddie-mac-the-hedge-funds-weigh-i.aspx 

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Maloni, 3-9-2015