Sunday, March 25, 2018

The more things change, the more they stay the same

Same-o, Same-o

The bad guys keep whacking and hacking at the GSEs, but they are using some strange tools and tactics.

In a recent American Banker article, Ed Pinto, AEI’s resident myth builder, and John Ligon, a Heritage Foundation wonk, argued that American mortgagors should ignore their better consumer instincts--opting for long term fixed rate financing, like 15 and 30 year mortgages--and instead do what the nation’s largest banks would prefer, that is choose only adjustable rate mortgages (ARMs).

Now who do you think that selection would benefit the most, borrowers or the banks? I wonder who/what goosed that fun pair to write the article. No fair guessing the “financial establishment,” i.e. nation’s largest and most vocal financial institutions.

The duo’s piece went on to indict the nation’s secondary mortgage market (guess who those folks are?), for what the authors say is a hefty business reliance on Uncle Sam, except a close observation will show Sam’s ties to banks is far, far deeper for banks than it is for the GSEs. (Please, someone other the usual suspects explore and discuss this reality of major bank subsidies and exclusive Red, White, and Blue depository benefits.)

Here’s some Pinto’s and Ligon’s verbal anxiety, angry rhetoric,  complete with their disdain for the public’s long standing support and preference for fixed rate financing.

“Like clockwork, a recently released discussion draft of a Senate housing finance reform bill says the ongoing “guarantee backed by the full faith and credit of the Federal Government” will lead to the “continued availability of an affordable, fixed rate, pre-payable, long-term mortgage loan, such as the 30-year, fixed-rate mortgage loan. Unfortunately, the scare tactics that federal policymakers and affordable housing advocates repeatedly use to try to preserve the 30-year fixed mortgage and federal guarantees of the mortgage market rely on misleading narratives and not the experience of history.”

Whatchu talkin’ bout Eddie?

Ed and John proceed to try and correct what they claim is “misleading” about the buying public’s preference, but what they call misleading is a wise public’s overwhelming desire to opt for FRMs over ARMs—because fixed rate loans aren’t subject to periodic change or possible bank tampering (remember the big bank LIBOR manipulation!), which makes pretty hollow the Pinto-Ligon contention the public’s preferred FRM choice is based on consumer misunderstanding.

What is even more undercutting in the Pinto-Ligon meme is their sideline cheerleaders--the Mortgage Bankers Association, the American Banker Association, and the Financial Services Roundtable—which hope the public will buy (pun intended!) the AEI and Heritage mortgage preference (which isn’t going to happen unless Congress outlaws FRMs)—also demand any GSE-killing legislation emerging from Congress give the big financial institutions the same federal guarantees for which Pinto and Ligon mock Fannie and Freddie.

So that securities linkage is “wicked bad” for the GSEs, but  the banks want the same? (Doesn’t that make it wicked bad for the banks, as well?)

Despite what GSE foes claim, Fannie and Freddie outstanding debt and MBS don’t show up as federal liabilities on any US Budget document, even with the imposition of “conservatorship.”

That phony excuse/justification for Fannie/Freddie opposition exists only in the minds of the Conservative polemicists, making this article more GSE balderdash in the long line of same from the Pintos, Pollocks, Ligons, and Wallisons of the world.

Sigh, sigh!

Ironically, Ed Pinto joined a recent Urban Institute panel discussion (Tim Howard and notable others also participated) in which a majority of the nine principals agreed that a federal role was needed in the nation’s mortgage finance system to make sure that lower income families and minorities would get served by lenders. Ed’s opinion wasn’t recorded but not sure where to put him, given this article and what his big bank allies are demanding legislatively??

GSE Lawsuits

In the meantime, more GSE lawsuits over various Treasury/FHFA misdeeds continue to show up in federal courts, in hopes one of these federal judges will closely review previous opinions, i.e. Lamberth, and reach a different conclusion, i.e. the federal government cannot do whatever evil it wants to the GSEs and their non-government owners.

As the spring blossoms bloom, hope springs eternal, so more power to those plaintiffs.

GSE La-La Land

During a HUD hearing with witness Secretary Ben Carson, Senate Banking Committee Chairman Mike Crapo (R-Idaho) whistled past the Capital Hill graveyard insisting GSE reform still was a high Committee priority. The Chairman would have been better served hammering the Secretary’s (wife's)  furniture requests.

While that discussion could have proved embarrassing to Dr. Carson, it would have been worse if Crapo or any other Senator grilled Dr. Carson on Fannie’s and Freddie’s roles, what the GSEs do and did for the United States, and how the nation’s senior federal housing executive sees the secondary mortgage market operation in the context of his job and HUD’s responsibilities??

Not as sexy as high priced dinette sets but possibly more revealing?

And in related legal news…..

Worth noting that Ted Olsen, former US Solicitor General for President George W. Bush and prominent GSE plaintiffs’ lawyer, week turned down President Trump's request to join this President's ever changing legal team to fight against whatever Special Counsel Robert Mueller produces with his investigation of Russian election interference. Yay, Ted.

Michael Avenatti

I have been very impressed with Stormy Daniels new lawyer, Michael Avenatti, suing President Trump and his attorney Michael Cohen on her behalf, trying to undo a non-disclosure agreement his client initially signed in 2016 (and for which she was paid $130,000) shortly before that year’s presidential election, seemingly employing Trump tactics. The agreement in question seems to contain pseudonyms for all parties involved, as well as an LLC created to facilitate the payment to Ms. Daniels (real name Stephanie Clifford).

Avenatti, a 47 year old California lawyer, is a Penn undergraduate with a law degree from George Washington University. He’s also an amateur race car driver and has worked on several high profile cases. Avenatti has been very aggressive—showing up on TV networks regularly--boldly proclaiming his client’s case against the President and Trump’s attorney.

His “in your face” tactics are as brutish as our President talks. Avenatti more or less is goading the White House, “If you are going to fight us, bring your lunch, because you are going to be here a long time!”

From Wikipedia.

“After law school, Avenatti worked at O’Melveny & Myers in Los Angeles, California, alongside Daniel M. Petrocelli, who previously represented the Ron Goldman family in its case against O.J. Simpson.[18] He assisted Petrocelli on multiple legal matters, including the representation of singer Christina Aguilera[19]and litigation surrounding the movie K-19: The Widowmaker,[20] and worked extensively for Don Henley and Glenn Frey of the musical group The Eagles, including in a suit brought by former bandmate Don Felder against the group and Irving Azoff.[21][7]

Avenatti later joined Greene Broillet & Wheeler, a Los Angeles boutique litigation firm. While there, he handled a number of high-profile cases, including a $10 million defamation case against Paris Hilton,[22] a successful idea-theft lawsuit relating to the show The Apprentice and against producers Mark Burnett and Donald Trump,[23] and a $40 million embezzlement lawsuit involving KPMG.[7][24]

In 2007, Avenatti formed the law firm Eagan Avenatti, LLP (formerly known as Eagan O’Malley & Avenatti, LLP) with offices in Newport Beach, California, Los Angeles and San Francisco, California. He has since appeared on 60 Minutes twice in connection with cases he has handled.[1][25] Avenatti has also served as lead counsel on a number of historically-large cases, including an April 2017 $454 million verdict after a jury trial in Federal Court in Los Angeles in a fraud case against Kimberly-Clark and Halyard Health,[26] a $80.5 Million class-action settlement against Service Corporation International,[27] a $41 million jury verdict against KPMG, [28] and a $39 Million malicious prosecution settlement. [29] In 2015, Avenatti prevailed against the National Football League following a two-week jury trial in Federal District Court in Dallas, Texas after cross-examining Jerry Jones at trial.[30][31]

In March 2018 Avenatti filed a lawsuit on behalf of adult film actress Stormy Daniels seeking to invalidate a 2016 "hush" agreement regarding a 2008 affair with Donald Trump. The nondisclosure agreement had been negotiated in the final days of the 2016 U.S. Presidential campaign.[32][33]”

Speaking of the POTUS…America, please stay mindful of these musings

(CNN)A high-ranking official from former President George W. Bush's State Department shared a dire assessment of the current geopolitical state of affairs, calling it "the most perilous moment in modern American history."
President Donald Trump "is now set for war on 3 fronts: political vs Bob Mueller, economic vs China/others on trade, and actual vs. Iran and/or North Korea," Richard Haass tweeted Friday. "This is the most perilous moment in modern American history -- and it has been largely brought about by ourselves, not by events." 

No need for me to add anything to all of the news about our struggling President, with Mueller, ex-girlfriends on national TV telling all, forced departures from his Cabinet, appointments of extremist replacements and other department heads nailed for wastes of taxpayers’ dollars.
For the Trump loyalists and apologists out there, sorry, what we and the world are seeing is neither normal nor desirable presidential behavior.


Two CNN same story headlines from the day after the protest marches.

“A day after March for Our Lives, Pope urges youth to speak out”


“Santorum: Instead of calling for gun laws, kids should take CPR classes”

Maloni, 3-25-2018

Tuesday, March 13, 2018

GSEs and that damn hotel in California

Welcome to the Hotel California……..

Stacked in my car CD player, right now (even after—parked in my driveway--the vehicle was rifled by a thief who got my roll of quarters because I don’t know how to use my cell phone for parking meters) is “The Eagle Greatest Hits,” along with my CDs featuring the most famous R&B groups of the 60’s and 70’s, Drifters, Temptations, Four Tops, etc.

The Eagles monumental hit “Hotel California” is the GH’s album’s first cut.

It’s a song that has as many “I swear to God” interpretative connotations as there are suggesters, all musing about the meanings in this anthem to the Left Coast, drugs, Hollywood and the entertainment industry. (Editorial Confession: my youngest son is employed in LA as an animator on “Cosmos,” a network science show aimed at the entire family.)
The most accurate explanation I find comes from a long-lost interview with original Eagles founders Glenn Fry and Don Henley who said the “California” story is about the wild and hyperactive, swashbuckling and uncontrolled LA music scene/industry, which gobbled up and signed new acts right and left used/abused and then kicked them to the curb with barely a thank you or compensation for their original and occasionally successful efforts.

The most haunting line about Hotel California is, “You can enter anytime but you can never leave.”

That line was used last week, again, this time in court, by an appeals Judge hearing the Collins GSE case to analogize the federal government conservatorship requirements and Fannie’s and Freddie’s inability to escape them, no matter how good the plaintiffs’ legal arguments or how successful is the GSE operations.

The irony here—given my belief that no federal judge will rule for the GSE plaintiffs unless and until the Trump Administration (Mnuchin and the POTUS) indicates its desire that the GSEs remain functioning and in control of entrepreneurial managers as well as their private shareholders (even in “utility mode”).

The judge who made the seer like observation about the trapped mortgage providers/guarantors is one of a troika of jurists who could bust the GSEs out of that evil hotel, but I doubt ill it will occur, until something like the triggering mortgage market signal is indicated by those who control our government.
Regarding the latter possibilities, as I’ve stated so often, it falls on Mnuchin and FHFA Director Watt—more the former and less the latter—to drive an executive/regulatory action to free the GSEs and return then to real functionality, keeping their earnings and building capital.

Mnuchin’s Future? No worse than other cabinet officials, but….

But, just this week a slight shadow crept over that wished for but not quickly realized hope—as Secretary of State Rex Tillerson just found out today and Gary Cohn learned a week ago.

Cabinet status in the Trump Administration is not a long term sinecure (are you listening Betsy DeVos, Ben Carson, Steve Pruitt, Kellyanne, et al).

Mnuchin by all reports is OK with DJT, says the right things about the GSEs, but he is not a favorite on Capitol Hill (see his outrageous exchange with Rep, Maxine Waters (D-Cal.) where he clearly tried to fill his non responses with not-on-point formal oration intended to run through the allotted five minutes each Member gets to ask questions. The 300 seconds also includes a witness's answers. If you prattle, intentionally, as SM did, you choose “run the procedural clock” disrespecting your questioner.

Added to his dournessindividual lack of appeal/winning personality, the Treasury Secretary’s Scottish actress/model wife, Louise Linton--has displayed qualities which are the equivalent of “nails scratching on a DC blackboard,” with her bragging mention of the couple’s financial success, major tax requirements, her designer clothing, and  Marie Antoinette approach to DC life.

Unfortunately, those things matters for cabinet, if your goal is to keep your job and not to wind up on Trump’s bad guy list (Tillerson, Cohn, AG Sessions?).

Bottom line, will Secretary Mnuchin be around/last long enough to rescue the GSEs? Hoping so.

Speaking of Gary Cohn….

When Gary Cohn walked out of the White House’s top economic job over his dispute with the POTUS over Trump’s demand to impose steel and aluminum tariffs, and Cohn’s concerns over starting a trade war, the name of Larry Kudlow, TV talent and former Bush Treasury officials was named as a possible replacement. That noise has increased in DC.

Initially, I took to my small group of GSE friends and mentioned my opinion why I thought Kudlow would not be good for Fannie and Freddie, remembering his comments and op-eds over the years, suggesting he was not a GSE fan.

However, I was corrected by some GSE graybeards, whom I respect, pointing out Kudlow has strongly suggested that GSE shareholders have been treated unfairly/poorly, as well as Kudlow being a major fan of Josh Rosner, a pro-GSE stalwart for the past several years.

If Kudlow gets Cohn’s job, I am rooting for the graybeards!!

Pennsylvania’s 18th Congressional District

By the time most of you read this, we’ll know if Conor Lamb—33 year old ex-Marine and former assistant US Attorney, plus Democrat candidate for Congress in today’s March Special Election—has prevailed against his GOP opponent and pulled off a stunning political upset.

Republicans have thrown $10 million into this race for a House seat President Trump won by 20 points in 2016. If Lamb, whom I’ve met and support, can triumph, it will add to the recent election rejections of Trump and the Republicans, happening so far only at the state level. Now it’s a House of Representatives seat.

Conor Lamb is sharp witted, very bright, articulate and more conservative than most House D’s.

This is a white collar congressional seat, south and east of Pittsburgh, where Trump, twice, VP Pence, the notorious Kellyanne Conway, and other GOP bigwigs have crisscrossed to try and boost their lackluster candidate. The POTUS’s embarrassing 65 minute speech in suburban Pittsburgh last weekend, was filled with spurious comments, putdowns, and the usual Trump untruths about his performance as President.

As POLITICO observed, If Lamb wins, or even comes close, it will be a signal that Republicans are in danger even in districts where Trump was won handily in 2016, and raise Democratic hopes of capturing the House and Senate this fall. The race would also serve as a model for Democrats running in deep-red districts across the country.”

Maloni, 3-13-2018

Sunday, March 4, 2018

More GSE Stuff and less Trump...

GSE Things I Think……

On GSE matters, my analysis sometimes hits but, occasionally, I miss…..badly. It’s tough work being a GSE seer (no benefits, no contractual time off, or even healthcare!!).

But I tend to write and analyze instinctively, taking a fact or item from here and one from there, trying to weave a plausible explanation for blog readers based on my history.

I’ll repeat I don’t believe this Congress’s Republican majority is up to any major GSE reform legislation in 2018, given the complexity of the mortgage issues, the chaos and market upheaval embedded in what the anti-GSE interests are seeking, the fact that it’s an election year and the GOP burden of running on Trump’s record is difficult enough, added to the core reality the GSEs are working well and no major operational issues exist. Consumers can get fixed rate financing, generally, from lenders in their own communities at reasonable prices, while credit requirements seem to be slowly widening meaning greater eligibility.

Not that GSE risks have disappeared, they haven’t. Watch this week, if/when Senate Banking does a “reg reform” bill, which could draw something mischievous which seeks to pre-empt any 2018 executive/regulatory initiative.

Sen. Bob Corker (R-Tenn.) to the delight of many in the volunteer state--not the least of whom was Rep. Marcia Blackburn (R-Tenn.) who wants Corker’s job--decided to stick with his plan to retire this year, but he still could make trouble.

However, the general Fannie/Freddie terrain placidity and the absence of jarring headlines, social media emergencies, artificial budget deadlines suggests to me no major congressional “GSE reform” restructuring will happen in this even numbered year.

Now, if we just can get some decent basement furniture for HUD Secretary Ben Carson (and satisfy Mrs. Carson), that department can get back to doing nothing and staying out of the headlines competition with other White House humiliations and dishonors.

I am not going to comment on GSE legal developments and court cases because there is nothing I can add to my belief that the GSEs will get little support from the federal judiciary until the Treasury takes some action to signal it wants Fannie and Freddie around long term. Yes, judges and their clerks read the newspapers and view social media just like others.
Still, reports of Judge Margaret Sweeney’s picture showing up on DC area milk cartons do suggest fears of her disappearance.

GSE fans and GSE Foes

There are two groups of GSE supporters—with the twain occasionally overlapping—investors, who want to see GSE common and preferred stock rise in price, so they can cancel book losses or even make a profit on stocks they’ve held for years and/or bought when the bottom fell out of Fannie and Freddie stock 10 years ago.

The second group is systemic admirers--where I firmly stand (although I also am an investor but with a basis that would not shake my net worth if it disappeared)--those who believe the GSE-dominated secondary mortgage market truly is the most efficient, fairest, and practical method of delivering well priced (for all concerned) mortgage credit to every community in the nation, through a network of primary market lenders present virtually everywhere or via the Internet.

For me, an added bonus is that Fannie's and Freddie's operational systems force the nation’s largest lenders (the “bank financial establishment”) to adhere to the GSE underwriting requirements if they want Fannie and Freddie to bless their mortgage loans converting them to GSE securities.

As long as Fannie and Freddie blunt that inclination, banks can’t run mortgage-rogue, which they surely would with no restraints.

The GSEs act as governors on what I contend is the big banks natural inclination to cut corners and force decisions on consumers which mainly benefit the lender/bank. That control is one of their major fears.

The GSE investor crowd seems to be the lightning rod for negative media and congressional attention largely because some of them include hedge fund interests, while the second group of F/F systemic supporters get steamrolled because most critics don’t understand how the market works or how it did work before 2008. All they know is “GSEs bad.”

That hostility also is ironic because the anti-GSEs battalions have tons of multi-billion dollar financial institutions and their equally fat and wealthy senior execs—whose combined wealth overwhelms the GSE investors--but those folks never get GOP mention or abuse because critics act ignorant if their true objective.
In seeking to vaporize Fannie and Freddie, despite the MBA’s and bigun's rhetoric, the TBTF banks want the GSEs revenue and market place. It’s a simple explanation. The battle is all about the money!!
Triple irony is that most GSE Hill critics lamely would claim, “Well Fannie and Freddie are part of the government,” without realizing that the big banks get and always received far greater subsidies from Uncle Sam than the GSEs, making them far more red, white, and blue. . But try and explain that to Congress, since most banks don’t accept that reality and never inform Congress of that bank business fact!

And that problem potentially worsens, since most of the GOP-drawn GSE alternatives come with even grander federal loan loss guarantees for bank mortgage backed securities. But what’s another hundred billion or so to the guys who recently blessed two trillion in additional red ink with their “tax reform” giveaway.
The  congressional GOP seems to draw distinction between which zillionaires they like and admire and those they dislike and jape, i.e., the hedgies and others who bought GSE stock when it was dirt cheap, hoping it would grow in value. (That used to be country club Republican behavior, but I guess not anymore?)
Systemically and analytically, I most vexed by GSE opponents who can’t describe what F&F do but believe, instinctively, whatever the GSEs do and the way they do it is wrong. The latter’s ability to reason is badly dysfunctional.
I keep trying to think of ways to get through to these elected representatives to focus on, operationally, on what’s best for their constituents, not just on how much the big banks can contribute to their political campaigns.


Two themes seem to be bobbing up and down in DC, in various manifestations, and to me that’s a very good thing.
The first is the “bad guys’” focus/fear that either FHFA Director Mel Watt or Treasury Secretary Steve Mnuchin—separately or together (I just can’t see Watt moving dramatically without Mnuchin agreement) will move through executive or regulatory action to provide GSE relief and therefore remove the restraints allowing GSEs greater freedom to serve the nation’s mortgage finance system. (See legislative caution mentioned above.)

In past blogs we’ve noted that is hopeful (for the “good guys”) and why the optimism exists, i.e. Congress incapable of slicing the GSE Gordian Knot. It’s heartening, but never underestimate the power and tenacity of the big banks and their allies  to suborn any GSE positives.

For me hope #2 is Mnuchin coming back to the GSE warrant values and the $100 Billion plus in fresh revenue it represents for the Treasury, and its “General Fund,” if this Administration chooses in a meaningful way to keep F&F alive. (Just like Watt needs Mnuchin’s blessing, Mnuchin needs Trump’s approval.)

The Treasury and the White House would gain a big slug of money soon and perpetuate a fair and efficient GSE system, which currently is appropriately regulated, although slightly overdone and rigid. The GSE system, for nearly 50 years, has been good for consumers,  the mortgage finance system, and its professional players. The post 2004 segment was an aberration, easily explained by the dastardly political interference which deprived Fannie of experienced and proven leadership as subprime lending heated up. (Read “The Mortgage Wars” for the story.)

Again, despite their constant laments, big banks have earned plenty of money in the GSE dominated secondary market, while they own the primary market.

Another plus, but just beginning to blossom, is the echoing of an argument that Tim Howard and others have made. “Future investors in mortgage debt, securities, and guarantor operations will be quite leery and most hesitant, if the federal government fails to address and re mediate the Fannie and Freddie precedent of Treasury blithely aggrandizing billions of dollars from core mortgage market principals and keeping that money.

Interest rate and credit risk are home loan market issues, but government theft by political fiat is tough to predict and protect against, strongly arguing to crucial required mortgage participants, “Just don’t gamble with that possible jeopardy” and look elsewhere in the economy to put your money.

Staying (largely) Quiet on Trump

I promised myself and others I would lower the volume on my President Trump objections and I will.
I just hope the nation sees and appreciates the institutional chaos, as well as political and policy damage, this tweeting shoot from the hip President is inflicting on the nation and world.
The government is filled with personnel vacancies and the Trump Administration can’t attract quality people to fill them.
Just read the papers, watch TV (seldom FOX) and contemplate if the guy at the top is damaged and inoperative, aren't multiple segments of the federal government likely to be as well?
Where do we see that stability, not the White House or any of the domestic agencies? We’re hoping it exists in the judicial, FBI, and national security agencies, but what if things are shaky there, as well?
These anxieties also are happening among Republicans, just waking up to DJT’s worrisome antics, whether it’s gun control (he’s been on several sides of this matter), military parades, Jeff Sessions, $25 Billion for the “wall,” immigration matters, Hope Hicks, nepotism, i.e. Ivana and Jared, foreign trade, unlimited presidential terms,and more.
Please stay tuned and dedicated to playing your role in our democratic system, meaning educate yourself and vote!

Maloni, 3-4-2018