Howard, Rightfully, PO’d; Exposes Phony FHFA Tests

Fannie and Freddie Pass their Stress Test, FHFA Fails

Many domestic and a few overseas publications recently carried a story about the Fannie Mae/Freddie Mac (Government Sponsored Enterprises or GSEs) stress test conducted by their regulator, the Federal Housing Finance Agency (FHFA), an examination called for the GSEs and all major banks in the Dodd-Frank statute.

The Federal Reserve Board carried out those test for the banks, while the GSE regulator produced Fannie’s and Freddie’s.

Most publications carried the main theme of the FHFA studies, i.e. in an extreme financial debacle, the GSEs could need over $120 Billion cash infusion from the US Treasury.

But, I wonder if besides peddling the FHFA oppress theme any of the writers or the venues looked deeply at the tests and understood their components?

But, that finding is bogus, as is the structure of the FHFA study, an agency which—historically—has a somewhat antagonistic relationship with the GSEs and, institutionally, has little reason to show the two are strong and may not ever require help from the US Treasury or the FHFA.

(Note: Currently, there are some 30 law suits pending against the Treasury and the FHFA for various actions applied to the GSEs, since Fannie and Freddie were place into “conservatorship” in 2008 under then GOP Treasury Secretary Hank Paulson.)

Here is a counter to the FHFA work. Some enterprising journalist(s) should ask FHFA specific questions and push them if the agency suggests its actions were legitimate and accurate.

Tim Howard* knows stress test structures/operations and, importantly, shows where and how this latest FHFA examination was “gamed”—with more than $100 Billion in very questionable assumptions-- producing its distorted loss finding.

If you haven’t already, enjoy reading his August 19, 2016 blog.

https://howardonmortgagefinance.com/

In a few exchanges with me since Tim posted the blog above, he’s mentioned he thinks FHFA took every subjective number offered by the ST exercise and inflated and distorted it to produce a horrible outcome. Again, a determined questioner should ask FHFA why that was so.

I expect Howard will write more about FHFA’s misleading actions.

Publications and writers covering the original FHFA stress test story.

In addition to Bloomberg’s Joe Light and the Wall Street Journal’s John Carney, here are the names of individual writers or the publications which covered this story. (Some just had Twitter addresses. If you know any of them or can reach them, do so. They might want to read Tim’s views and engage FHFA or in a discussion.)

Name                              Publication            Title                                                         Contact

Andrea Riquier             MarketWatch        housing reporter                                         @ARiquier

Erika Morphy                Freelance             Journalist                                                    @EMorphy

Ben Lane                      Housing Wire       Senior Financial Reporter                     @BenLaneHW

Thornton McEnery        Dealbreaker         Editor                                             @ThorntonMcEnery

Wesley Coopersmith    Heritage Action    Grassroots Educational Coordinator     @WesleyCoop 

Ryan Rainey                 Morning Consult   Reporter                                                   @ryan_rainey 

Kendall Baer                 DS News              online editor                                   editor@dsnews.com

Phil Hall                         nmpmediacorp     Editor                                     philh@nmpmediacorp.com

Others, identified by Google, who/which covered the story.

Scott Morgan DSNews

FinReg Alert

Tennessee Real Estate Rama

Cornerstone Credit Union League

Historical note: *Tim Howard was Fannie Mae’s former CFO and--along with its Chairman Frank Raines and Treasurer LeAnne Spencer Garmon—was forced out of Fannie in 2004, by a specious regulatory charge of “securities fraud,” which later was thrown out court by a federal judge.

While at Fannie for more than 20 years, Howard initially designed Fannie Mae’s original stress test and risk-based capital system. Later, working with Paul Volcker--after the latter left the Federal Reserve Board in 1991—they refined that model and Congress adopted Howard’s plan in the 1992 statute which gave Fannie Mae and Freddie Mac those capital paradigms, a new regulator, and national housing goals.

Maloni, 8-22-2016

Cats and Dogs

(Summer is s-l-o-w, but I still have GSE opinions)

August barely has two weeks left and I guess there is time for court decisions from Judge Sweeney, the Lamberth appeal, or the Delaware case, but summer blahs seem to deaden all developments. And yes, it’s because most of the working world is on vacation, as well as the attendant people the principals need to issue their findings.

For you pessimists, I’ll remind that in August 2012, federal Judge Richard Leon did issue his opinion—after eight years of legal slogging--that there was nothing to the “securities fraud” allegations brought by investors against Fannie CEO Frank Raines, CFO, Tim Howard, and Treasurer, LeAnne Garmon Spencer.

One last note on the courts cases.

As my mind roams around all the GSE pieces, still believing the courts offer the best short term relief for GSE supporters, I wonder if President Obama’s parting gift to the nation, the middle income and minority voters who twice elected him, and to his own legacy—if the courts return a pro-plaintiffs decision—to instruct his Justice Department not to appeal the decision???

One can dream and hope.

Tim Howard

I hope everyone closely is reading Tim Howard’s blog and his extremely informative answers to readers’ questions.

Tim doesn’t just rant (like some bloggers we know, harrumph, cough, cough), but provides “proofs” to support his statements.

In his recent work, he is crushing advocates (think Treasury and FHFA), who contend that the forced GSE sales of underwater loans is a smart business move. Ironically, Howard argues it is causing the Treasury/taxpayers likely future income, but when has Treasury ever worried about that?

Howard writes the “risk sharing” deals are badly designed, poorly priced, and that’s before you look at the justifying Treasury policy logic.

As I’ve written, given the same circumstance, I doubt any private financial services company would be selling those loans at those giveaway prices, unless their regulator was forcing them to reduce their portfolio for political PR and not business reasons.

If you haven’t become a Tim regular, read his recent articles and decide for yourself.

https://howardonmortgagefinance.com/

Howard has his own priorities, but I suggested he turn his attention to the phony  FHFA “stress test,” which produced some BS headlines recently that Fannie and Freddie could need huge taxpayers’ dollars in a prolonged economic downturn. 

Predictably, in designing its stressors, FHFA freelanced some poisonous elements in their exercise. (I am sure FHFA official thought, “How can we can make this really look bad, which will get our guesses a GSE-ugly headline, especially from Bloomberg!!)

To a certain Bloomberg reporter, FHFA played you like a violin.

Gene Sperling

I am supporting Hillary for President, but I long have viewed Gene Sperling, her primary GSE advisor, as biased and not a critical thinker.

That feeling grew geometrically with news that Sperling—while in the Obama White house--borrowed several hundred thousand dollars (no exact figure because various federal reports don’t require them), at below market rates, from a prominent Washington lawyer who Sperling described as an “old friend.”

It was just bad judgment, Gene, as you probably know by now from the blowback.

But, before Sperling’s credit difficulties hit the news, there were rumors the Bernie Sanders insiders—at that time, still bidding with Hillary for the nomination—had Sperling on a short list of “bad guys.”

I don’t know what their issues were/are, but maybe his inside the campaign judgment was questioned? His current appearance in the headlines can’t help.

David Stevens is a “Hillblazer”

Media reports last week identified the Mortgage Banker Association chief David Stevens as one of several hundred people who have raised, i.e.” bundled,” since it wasn’t his personal contributions, over $100,000 or more for Hillary Clinton’s primary and general; election races. Good for him, since we support the same candidate.

But DS has—or seeks--a pretty high profile in the in ongoing GSE discussions and has steered his trade group to joining with the big banks and Republicans trying to stop this White House from the GSE recapitalization and  Conservatorship release that many small lenders, the civil rights and social action groups are pushing.

How wise is it for a trade association heavy who needs bipartisan goodwill to get so  profiled? Just sayin’.

One Man’s Opinion: Tim Mayopoulos and Heather Russell

I don’t know either of these individuals personally, but my initial instinct was “bank foul,” after reading that Heather Russell last month was fired as General Counsel at the Fifth Third bank HQ’d in Cincinnati, Ohio, because she was dating the Fannie CEO Tim Mayopoulus.

The pair are consenting adults, separated from their spouses, and once worked together at the same firm in the past. Fifth Third uses rival Freddie Mac for most of its securitization of conforming loans.

Both employers were informed by the principals of the dating arrangement, but only the bank felt it was a “legal matter” requiring sacking Russell despite the fact that Ms. Russell conducted no Fifth Third business with Fannie or its CEO.

Not my personal concern, I hope she sues the bank’s ass off and collects millions for wrongful dismissal.

Donald Trump and his presidential campaign 

Surprise, I am not a Trump fan.

There is nothing I can add to all of the critical media commentary that describes his immature, thoughtless, selfish, and frontal lobe behavior as he seeks the highest job in the land, to be the leader of the free world, and to control the “nuclear football.”

But, what really hit me at the end of this tumultuous week was his Pennsylvania allegation, “The only way Hillary can beat me is if she cheats.”

Donald Trump is setting up a horrible self-fulfilling prophecy backlash which could become politically and racially ugly--including with some form of armed insurrection--given the ugly arms mindset his "posse/supporters" likely possess.

The outrageous Trump assault, delegitimizing the political process which produced his very candidate status, will need a massive bipartisan scrubbing of the mess Trump has made of our election process and his vile views about its winners and loser.

Trump’s tactics insure this election will not end on Nov. 9, no matter how many electoral votes the winner secures.

Maloni, 8-15-2016

Maybe it’s my deodorant??

Last week Mike Stegman, ex-White House official, wrote a self-serving piece for the Bipartisan Policy Commission, claiming there was great support for the old Senate "GSE reform"  legislation Johnson-Crapo (which started out as Corker-Warner) and that bill should be a guide for future legislation to do away with Fannie Mae and Freddie Mac.

http://bipartisanpolicy.org/blog/johnson-crapo-housing/

When first I read it, I thought Mike must be drinking some of that Donald Trump Kool-aid, you know the kind which makes you swear you see things that nobody else sees.

In Mike’s case, it’s broad support for a bill which had no broad support. In the Donald’s case, he swears he saw New Jersey Muslims applauding the twin towers collapse and, more recently, a video of a plane flying $400 million in cash to Iran.

Mike saw some wounded duck legislation, but insists it was a soaring eagle.

I took advantage of the BPC comment section, following Mike’s tome, and sent the following:

Several things here, but I will limit my comments to Mike Stegman's massive spinning and false theme

There was no bipartisan consensus on Johnson-Crapo (or Corker-Warner, its first iteration) and proof is that it barely passed out of the Senate Banking Committee and never advanced to the floor. That was with the Senate controlled by Republicans, the House in the hands of even more anti-GSE elements, and a White House waiting to sign anything which killed the GSEs.

When you can't pass a bill with that support, something is wrong with your plan.

In this case, Stegman and his posse had no provisions in their bill for mandated low income lending (as per what F&F do), handed the primary and secondary mortgage markets to the nation's big banks (hardly worthy stewards), and had an indefinite transition period--as they scuttled the GSEs--which made nobody confident of success...and that only was the beginning.

CBO's 10 years profit/loss projections are notoriously inaccurate (since few people can deftly project economic activity 10 years into the future) and, institutionally, it has long opposed F&F, no matter who ran it.

Stick to your day job, Mike, and—as you’ve learned--bring your lunch and lots of coffee, because killing the GSEs will take a while, mainly because most of the alternatives you’re hawking are far worse.

  

Feeling smugly satisfied, I shared my work with a few colleagues, but in checking back noticed that BPC didn’t post what I wrote. I tried posting again and got nowhere. So—with difficulty--I slipped into the not seen often “nice Bill Maloni” and sent another comment, hoping someone at BPC would miss the obvious sarcasm and the author’s name.

Mike nailed it; I had forgotten how popular the Johnson-Crapo bill was with so many people, and nearly became law. If only it had some mandatory low income lending in it and didn't give so much authority to the nation's big banks.

I hope he and his allies will work to make this proposal law next year and overcome the marginal opposition from the community groups and small lenders.

Drat, I failed, they didn’t use it, either, ergo today’s blog title.

Apparently, the BPC only prints commentary that agrees with their many debate/discussion participants (Oh, the BPC’s initial Commission report gave birth to Corker-Warner cum Johnson-Crapo). 

Those two bills, virtually identical, were named for Senators Bob Corker (R-Tenn.) and Mark Warner (D-Va.) and later Tom Johnson (D-SD.) and Mike Crapo (R-Idaho).

I still think my remarks are closer to the truth than Stegman’s.

Worth noting: Before he retired, I was a big Tim Johnson fan/supporter. I believe he was a thoughtful and progressive Senator.

More than the subject proposal, which once carried his name, I hope his Senate colleagues--and whatever President and administration crew comes to town after November’s elections--and the new Senators and MoCs all remember what Tim Johnson told FHFA Director Mel Watt during a Senate hearing.

“Everyone agrees that conservatorship cannot continue forever, so I hope my colleagues will keep working towards a more certain future for the housing market, If Congress cannot agree on a smooth, more certain path forward, I urge you, Director Watt, to engage the Treasury Department in talks to end the conservatorship.”

Maloni, 8-5-2016