Bill Maloni's GSE Blog

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