Monday, April 13, 2015

New Player, New Games?


Re-Engage and Watch the Pot Stirring


I loved my week plus in San Diego with six grandkids, nine years and younger—four under six, including a pair of two year olds—two daughters in law, three sons, and my wife. We all thrived, when we didn’t get in each other’s way. As someone noted, with kids, it’s not a vacation but a trip!

But, for now, no more strawberry picking; throwing and catching lacrosse balls; six kids leaping on and off the in-ground trampoline; listening at night for coyote howls, eating fabulous fish tacos; visits to Lego Land and local lagoons with rent-a-kayaks and paddle boards; watching the sea lions in La Jolla; backyard tenting and Grammy telling ghost stories; driving on some of the world’s busiest highways, afternoons at Moonlight Beach; and daytime swimming and chilly nights.  

All good things come to an end, back to the inside-the Beltway grind and a few recent GSE developments, mostly good. 

Sen. Grassley

The most positive and surprising event while I was away were two letters sent by Republican heavyweight Sen. Chuck Grassley (R-Iowa), Chairman of the Senate Judiciary Committee challenging the White House (meaning Justice and the Treasury) over its secrecy and otherwise hamhanded treatment of internal documents requested as part of the Third Amendment “discovery” process, blessed by Judge Margaret Sweeney months ago. 

To me the communications were hopeful for nontraditional reasons. 

I’ve included two links which discuss the letters, so I don’t need to describe them. The first  a solid scrutiny (and copies) of the Grassley letters by CRT Capital’s senior analyst, Kevin Starke.


Nobody should believe that Grassley is a closet GSE fan and secretly wants to help Fannie and Freddie survive this Administration and prosper in some reinvigorated format. 

The WSJ’s John Carney likely was closer to the truth when he suggested that Grassley was helping his constituent, Continental Western Insurance, an Iowa company frustrated by a judge’s ruling in its case related to F&F conservatorship and the Third Amendment. 

As I suggested to Carney in a  email, I think there is more friction going on between the Obama folks and Senator Grassley than some F&F constituent dispute, a fact which a later Washington Post news story appeared to cover. 

More weighty is the fact that others can/will notice Chairman Grassley's involvement—an action which likely peeves the Obama officials—and give Grassley and his staff more reason to turn the screws and continue to prick/irritate a spot where the Admin is vulnerable. 

I am sure media will follow up Grassley’s communications and regularly ask the White House, “What’s up?” 

That helps stir the GSE pot, which needs lots and lots of manipulations; pointed media questions help. 

But, when was the last time you could say that four congressional offices--Representatives Capuano (D-Mass.) and Blackburn (R-Tenn.), Senators Toomey (R-Pa.) and Grassley—took positions, at the same time, broadly or specifically supporting F&F supporters/issues??
That's progress. 

Near term, as most observers agree, the GSE action is with the courts, not that Grassley’s congressional chores will drive that. But it’s also foolish to think his own and his Committee’s interests don’t carry more clout in this domain than the musings of the congressional Interior or Agriculture Committee leaderships (to pick on two). 

Just as Gretchen Morgenson—who ironically/coincidentally broke the Grassley story--did in her original NYT column, Sen. Grassley asks the right questions and, soon, other prominent GOP congressional officials—and possibly would-be presidential candidates*--might understand that the Admin’s F&F treatment could be meted out to any company with which this Administration gets crosswise. 

Institutional hostility is hostility and takings are takings. 

(*Yes, that’s  Chuck Cooper, representing Fairholme in its F&F lawsuits, who is hosting a major DC fundraiser, at the end  of April, for a former legal colleague Texas Republican Sen. Ted Cruz, an announced presidential candidate.) 

Simply, the more and greater attention the GSEs get, the better for the “cause.” 

Get Thee to a Bomb Shelter, Hank 

Speaking of attention, I can't wait for this work to appear!

Word is that David Fiderer, whom I nicknamed the “Hebrew Hammer" for his tough and hard hitting GSE prose, is shopping a devastating tome showing the premeditated perfidy of former Treasury Secretary Hank Paulson, wrongly putting Fannie and Freddie into "conservatorship," as a way to cripple or destroy them. Fiderer always uses a ton of publicly available information and data when establishing his various cases, i.e. he connects the myriad dots “better than the average bear!” 

I don’t know what all Fiderer has but he seldom fails to deliver the goods, when he says he has them. 

Anyone--who would benefit from seeing Paulson’s F&F motives/actions exposed--should curry Fiderer’s favor as he now looks to position his literary 10,000 word heat seeking missile.


Lesser Matters 

Those worrying that F&F soon will ask the Treasury for more money need only check their first quarter business volumes and see that’s unlikely to happen soon. (See John Bancroft’s Inside Mortgage Finance story.)

By John Bancroft
Fannie Mae and Freddie Mac issued $189.92 billion of single-family MBS during the first quarter, a 5.9 percent sequential gain and the pairs biggest output since the third quarter of 2013, according to loan-level figures compiled by Inside Mortgage Finance.
Moreover, early 2015 was leaps and bounds ahead of the pace set during the same period last year, which marked a 14-year low in mortgage production.
All of the oomph came from soaring refinance volume. The two GSEs securitized $118.17 billion of refi loans during the first quarter, up 32.9 percent from the end of last year. Refinance loans accounted for over half (62.2 percent) of total GSE business during the first quarter, the first time that’s happened since the third quarter of 2013.
Purchase-mortgage activity fell 22.0 percent from the fourth quarter. For more details and an exclusive ranking of the top 1Q15 sellers to Fannie and Freddie, see Inside Mortgage Finance.

Fannie/Freddie Foreign Policy Fantasy

Now if the GOP congressional majority can be convinced that Iran and North Korean rulers hate Fannie and Freddie, we might be able to get some active GSE revitalization action from this Congress. 

All These Presidential Candidates…

Announced or announcing, Senators Ted Cruz, Marco Rubio (R-Fla.), Rand Paul (R-Ky.), former First Lady and Secretary of State Hillary Clinton, maybe Jeb Bush, Gov. Rick Perry (R-Tex.) or Gov. Chris Christie (R-NJ) and Sen. Lindsey Graham (R-SC); we are going to be starved for political oxygen over the next 18 months. And there must be a few more R’s out there itching to seek the nod. 

I just hope all of those GOP voters—when they make their choice--remember how they excoriated Barack Obama for being a one term Senator with no prior executive experience, a description which applies to possibly four of their favorites.

What Others Are Saying 

I came home to find poor MBA President David Stevens seeking to correct what he calls a misinterpretation by some.

Does any prominent financial services trade association official restate and clarify his previous statements or get into more oratorical disputes, i.e. see Josh Rosner, than this dude?

The problem may be, not that people misunderstand him, but in trying to be all things to all people--including his disparate small and large members, other industry groups and the Congress--Stevens looks like he speaks from both sides of his mouth, looks deceptive/disingenuous and then blames it on "some" he claims have misunderstood him!

Stevens doesn’t have an easy job, half the time opposing F&F and the other half praising what they do, given the need for mortgage bankers to offload all of their product to some investing institution, but more consistency might improve his lot rather than pointing fingers at how others occasionally point out the mortgage association king ain’t wearing any clothes. 

Here’s my comment on this bit of what Stevens said in the story linked above. 

Stevens: “We cannot return to the old system of relying on implicit guarantees, and one that created a misalignment of incentives between shareholders and taxpayers. We need an outcome that protects the critical role these two firms play, and one that maintains the federal support behind their mortgage backed securities, but a system that also protects the taxpayer and eliminates some of the too big to fail concerns as well.”

Notice he doesn’t support F&F, but their role, and then offers some vague opposition to misalignment “between shareholders and taxpayers.”  That same principle easily could apply to some of Steven’s largest bank-owned members, which enjoy bountiful Uncle Sam subsidies and benefits. 

Last year, the MBA and Stevens were hell bent on supporting a mammoth Senate legislative disruption of the mortgage finance system, substituting a behemoth legislative scheme that would do away with F&F and substitute some large bank dominated mortgage model, with the federal government providing the banks with new federal mortgage bond loss insurance—putting the entire $5 Trillion plus result on budget. 

That Stevens/MBA endorsed approach crashed, embarrassingly, because saner minds prevailed and not enough Senators supported the big bank takeover, the absence of mandatory low income lending, the ill-defined implementation timetable, the uncertainty over $500 Billion of needed “private capital” ever showing up, whether the current F&F mortgage model—which operationally a majority of his members seems to like--is beyond some less dramatic fixes that would preserve much of what Stevens alleges he wants.

Maybe, for starters in still young 2015, DS should poll his mortgage banker membership, honestly, and see if they support doing away with F&F?


Bill Issac in WSJ 

The former FDIC Chair suggests how poorly the Obama Administration is going about its Fannie and Freddie management.


AIG, Fannie and Freddie

In a compelling piece, the National Review’s Tim Cavanaugh asks the question, “Could the federal government lose the AIG case?”

While you read his article, ask yourself—as others have (thanks, David Kao)--if this case could affect how the courts rule on Fannie and Freddie lawsuits?? 



Many of us want the Administration to let Fannie and Freddie hang onto some of their earnings and build capital—which the enterprises likely want as well--now that they have repaid the taxpayers more than they were given. 

The New York Times, editorially, and more importantly Thomas Hoenig, the head of the Federal Deposit Insurance Corporation (FDIC), would like the nation’s big banks to increase their capital.



Maloni, 4-13-2015



Anonymous said...

Hi Bill, do you know what is Hillary Clinton's position regarding the GSEs?

Bill Maloni said...

I do not.

I am sure--if asked--she would eloquently discuss the importance of housing and homeownership and then avoid anything more detailed or specific.

(I suspect that somewhere in her campaign memoranda is something about the GSEs, but that usually isn't a subject that comes up in "primary season," but who knows with what the GOP will try and hang her.)

Anonymous said...

Kevin Starke's analysis raises a few common sense questions.

If true that this is becoming a complete complicated mess by the day, courts, politics and Congress are redefining the word dysfunctional.

Why would a sitting President with not much time left, or a running candidate in the middle of a furious campaign (say, Hillary) entertain the idea that a continued, entrenched fight -even after believing a win over the opposition is possible- that consumes taxpayers' resources and wastes precious time is the right path for the nation?

Even an Obama wins -whatever that is- may not be a lasting event if the Republican party takes over in 2016.

Something is not right and something doesn't make much sense as to why Obama can't use his last 18 months in office in a more productive way!!

Bill Maloni said...

Anon--You are addressing a far larger issue than the fate of Fannie and Freddie.

Somewhere on my gravestone, they'll carve "There is no logic in politics."

That is all this fight is and has been for 25 years or more (since Reagan presidency).

Who has the loudest voice, who takes advantages of their public opportunities better, etc. etc.?

But, also note that the "mortgage system is working"--even the traditional opponents are making money with F&F still undergirding the nation's primary and secondary mortgage markets (and still would with minor adjustments)--that fact should not be lost on observers, media, and policy makers.

Bill Maloni said...

Anon--After commenting on your post, I came across this headline on a Brandon Ivey story in today's Inside Mortgage Finance by Brandon Ivey.

"GSEs in Conservatorship Seen as Working ‘Pretty Well’ for Lenders"

By Brandon Ivey

Anonymous said... you view Grassley has friend or foe? I understand he rightfully wants to get to the bottom of all this, but follows it up with (my impression) reform/flush.

Bill Maloni said...

Anon-I don't think CG is a "Fannie friend," as I noted in this week's blog.

I think he is a situational foe of the Obama Admin and this is one more issue which allows him to goad them.

But, he is a powerful politician--and motives be damned--if he is going to engage, for whatever reason, on behalf of the enterprises and/or their allies, I welcome him aboard.