Are things looking Up?

Mostly Fannie and Freddie...and very little Trump

I have lots of GSE contacts, friends across the country, east coast, west coast, New York, DC (where most of the bad guys strut their stuff). And when you start to hear some messages being repeated and getting complementary, veteran ears should pay attention.

Shush, listen; tramp, tramp, tramp, they’re marching…tramp, tramp, tramp, they’re marching, tramp, tramp, tramp, they’re marching…tramp, tramp, tramp, they’re marching, tramp, tramp, tramp, they’re marching.

They’re marching, marching, marching—not quite in step, yet--hear the tromp of their boots…tromp, tromp, tromp. THEY are behind us, not out front! Behind us, as in behind the policy scenes.

What am I heralding and where am I headed?

Is it VP Pence’s Space Force, dressed up in new version of the old “Richard Nixon” Student Prince unis, which Nixon hoped to have his own White House guards wear? (For all of you history buffs out there, a friend says there is one of Tricky Dick's original stilted Prussian prototype outfits in the Smithsonian, but not sure where).

Oh, here’s what one of my favorite political writers—Alexandra Petri—thinks of Pence’s Space Force.)

https://www.washingtonpost.com/blogs/compost/wp/2018/08/10/we-need-a-space-force-there-is-literally-nothing-more-pressing/?utm_term=.7b3e41781750

Could the budding multitude be a GSE cavalry—minus John Wayne—possibly rallying around a White House initiative built along the “Moellis plan” lines,  contained in the Moellis public commentary on the FHFA’s proposed GSE capital rules?

http://gsesafetyandsoundness.com/wp-content/uploads/2017/06/Safety-and-Soundness-Blueprint.pdf

It just might be, trying for a workable Fannie/Freddie scheme, but not quite ready yet consensus!!!

Whatever it is, it seems to be attracting people to a GSE solution that to date has been intractable because of conflicting priorities.

But Mnuchin is positioned to deliver if the WH lets him.

Tim Howard likes some of it, but hardly all because the capital requirements are historically out of sync and quite high with what a contemporary Fannie and Freddie will need (paraphrasing TH: “There is a steep operating cost to unneeded capital”).

But that looks like part of the heavy tariff the banks will demand, hoping to hobble the GSEs will excessive capital, because who can be opposed to protection against terrible things happening again—even if the banks were the primary progenitors of those terrible things, if Treasury moves forward and turns the GSEs loose to operate, again, with private ownership.

*(see my italicized GSE/bank capital comments below.)

The MBA and their big bank friends like it, because they think they can use new implementing regs to inflict more damage to the new GSE successors, all the while saying they are supportive.

Not sure where the NAR (Realtors) or the NAHB (Builders) are, since both have given up their historically primo lobbying roles, deferring to the aforementioned lenders and now waddle in the background not taking a major stand because of their myriad “other priority issues.”

(Hey Builders, if you want more housing constructed improve the GSE mortgage finance delivery system; Realtors want more clients with loans to buy homes on the market, do likewise!!)

There is more to this story, as always is the case with the GSEs, so dear readers don’t rush out and use the kid’s college fund or Grammy’s butter and egg money to start buying Fannie/Freddie common and preferred.

Possible obstacles in the path

--Look at the FHFA proposal “subject to change” written all over it, means just that and what looks workable now could become very not so, when the bureaucrats and most importantly Treasury sees all of the final comments and does runs against assets and liabilities the capital conclusions produce.

--FHFA’s Mel Watt’s status is in doubt. His term, expires in January 2019, but the recent accusations against him of sexual harassment from an FHFA employee—backed up by her tapes of same behavior—might accelerate that departure. Who knows what his successor will seek and what his/her (not likely!) plans are for the GSEs.

--If it’s one of the less-than “Magnificent 7,” who the American Banker previewed as possible successors a week before Mel Watt’s problems hit the news, the guy might just want to slowly strangle Fannie and Freddie.

*BTW. This is as good a time as any to point out something with the recent Dodd-Frank capital “stress tests” mandated by 1)Treasury and FHFA with Fannie and Freddie and  2) Treasury for the big banks. Plug this in when you look back at the MBA/bankers position on GSE capital.

Fannie and Freddie's combined stress credit losses in this year's test were only $21.2 billion, or 40 basis points of their total mortgages held and guaranteed. The stress credit losses for the large banks subject to the test were $429.3 billion, or 640 basis points of their average loan balances. So banks' stress loss rates are sixteen times Fannie's and Freddie's.

So what do you think the GSE chances are to get a capital requirement fair shake under Treasury/FHFA/Moellis???

--There always is the November election and the chance Democrats can do a “Phoenix rising” act, capture the House and hold Senate losses to one or two, positioning the party to be a much bigger player on any matter the Trump Administration seeks. I guess part of that latter possibility is even the Senate falling into the hands of Chuck Schumer and his allies.

--Doubtful but—if there is a “blue wave” on November 6^th, just 11 weeks from now—one has to consider that. In addition, observers have to discount all of the ”blue wave” crap, believe as I think they did Trump supporters lied to pollsters leading up to the 2016 presidential contest, afraid to admit they thought they wanted/needed the “Orange Baby.” Those same voters will lie, again.

--And despite a flurry of new lawsuits owing to the Statute of Limitations time running to file a GSE lawsuit--added to the existing legal actions targeting Treasury's past behavior--any new executive relief under Mnuchin will occur faster than the courts can definitively act.

Maloni, 8-12-2018

(Thanks to the invaluable and talented Mr. F for the cartoon assist!)