Thursday, September 20, 2018

Based on Lies, Bad Guys Keep Floundering

My Greatest GSE Fear--People Will Forget GSE Achievements

Nobody should be surprised by what I write or my feelings.
I coined the term “GSE Shit Wall,” signifying the great height and depth of Washington DC opposition to recapitalizing and reviving Fannie and Freddie.
I have little hope that the courts suddenly will reverse Judge Lamberth and believe the last four Administrations (starting with Bush/Paulson) royally screwed the GSEs, for different reasons.
The Big Lie of GSE culpability, greed, arrogance, or irresponsibility has blinded virtually all to their virtues of systemic, operational efficiencies, reliability, low consumer costs, willing/capable industry leadership across demographic and income levels. The latter is part of why they both are envied and despised by their opponents.
Over the past two weeks, I was reading a lot about the 10 year anniversary of the 2008 financial debacle, its related fallout and principals’ ass covering, and came across this thought about another institution, not a GSE, which no longer exists.
I’ll shorthand what one writer said about a certain financial institution (paraphrasing), “Washington insiders will not let anyone they think bore responsibility for the financial devastation to walk away unscathed and/or benefit.”
We can argue all day—and I do and have--about why big banks or other Wall Street firm CEOs never did time or were ousted, but the facts are 10 years ago the GSEs were falsely labeled as being responsible for mortgage failures—despite all the bank botched PLS-- the GSE story was loudly underscored and repeated by their ideological, business, and political enemies for a decade plus.
Consequently there is nobody today around the Capital’s corridors of power or policy making who doesn’t believe it’s true—besides Tim Howard and a few more.
Yes, we have the CMLA and the community and low income groups, Investors Unite, and major hedge funds and other investors, but no constant communicators who rival the constancy, variety, and pitch of the opposition.
I’ll conclude with what I’ve said before, only Steven Mnuchin—or possibly—a Democrat House and Senate—for wildly different reasons can overwhelm the GSE Shit Wall, but it won’t be easy.


One definition of crazy is doing the same thing, time and time again but expecting different results.

Color me crazy.

This past week, the Washington Post had a lead editorial endorsing a new  Jeb Hensarling (R-Tex.) “I’m leaving town” GSE reform bill, which gives the mortgage world to the not so worthy Michael Bright and Ginnie Mae, as well as—naturally—the big banks.

It took me about two minutes after reading the latest commentary to respond, sending a letter to the Washington Post editor based on the paper’s Hensarling proposal ratification. (Linked below.)

Yawn, yawn, the Washington Post editorially pounds Fannie and Freddie, yet endorses an inefficient replacement arrangement which still has Uncle Sam--via Ginnie Mae--picking up the tab for a bank-centric model, that claims to have private mortgage insurance taking major first losses.

Before such a rabid endorsement, the Post should realize that Ginnie is part of HUD--not the sharpest agency in town--has little experience/talent in managing conventional mortgages--meaning non-government backed--which most Americans have. Ginnie has several hundred employees while combined the GSEs have some 12,000 managing their large mortgage-backed securities portfolios, which need close and deftly supervised oversight, "stress tested" multiple times per day as rates and strategies constantly change?

Does that sound like an easy HUD task to you?

Ginnie Mae, in the past relied both on Fannie Mae and Freddie Mac, to provide the agency's "back office," because the government’s resources and talent were so thin. 

Ginnie--as the securitizer of FHA/VA loans, where lenders not Ginnie personnel do most of the work--also was in the middle of several major FHA problems, especially in inner cities where most government loans originate and abuses occur.

After deciding if Ginnie Mae truly is capable of operations envisioned in the legislation, the Post also might want to ask:

--Does the smallish mortgage insurance (MI) industry (a shrinking handful of companies)--which the Post says is part of the solution (to what?)--have or can raise sufficient capital, efficiently, to replace Fannie and Freddie??

--Also why has the MI industry historically had turmoil when lenders sought to get it to pay legitimate claims??

--Whether new Ginnie head Michael Bright is up to the task or merely is a one-trick pony,  carrying water for the big banks, since no matter where he's toiled, he's always been associated with plans to do away with the Fannie Mae and Freddie Mac??

This latest legislative proposal will go nowhere because Congress isn't ready to spring on the American people the inevitable delays, inefficiencies, cost, and chaos, of a new mortgage finance system, when the current one working efficiently.  

Despite the sponsorship of Chairman Hensarling, who soon will leave the Hill, his scheme is far less efficient than the current GSE model and only gives the big banks a greater share and say in US mortgage decisions. 

Lastly, nothing is happening before 2019.

William R. Maloni


I was on a “Don Quixote binge” last week, tilting at anti-GSE wind mill operators, since I also responded via email to Daniel Press at the Competitive Economic Institute, who wrote an article picked up by “GSE Links,” blaming the GSEs for the 2008 financial meltdown.

"That housing collapse itself was a consequence of an unprecedented number of weak and risky mortgages, driven predominately by the government-sponsored enterprises, Fannie Mae and Freddie Mac. When many of these mortgage holders defaulted, the mortgage-backed securities held by financial institutions around the world also buckled, leading to the financial crisis."
                                                                                            (D. Press in Competitive Economic Institute publication)

How does all of that Rightwing Kool-Aid taste Daniel?

It must be flavor rich because you've been writing this drivel for so long, you obviously believe it.

I won't even cite the most recent substantive and total rejections of your "GSE blame game"....(oh drat, yes I will, the 2018 FDIC report on the 2008 financial disaster, Fed Report on same, Phil Angelides' Financial Crisis Inquiry Commission report). Few agree with you, save the AEI guys and many in the GOP.

But riddle me this Mr. Conservative Solon?

How do you explain--in your myopic 2008 scandal worldview--the $2.5 trillion in near worthless, commercial bank "private label securities or PLS" (not GSE) underwritten and originated 2006-2007, securitized with the banks' own flimsy guarantees, falsely rated with purchased agency ratings, and sold throughout the world to institutional investors, quickly gushing red ink everywhere when they soon failed????

Those weren't Fannie and Freddie bonds, which--if you ever were honest--you would note the GSE MBS performed geometrically better in incidence and severity than their ersatz "private label" clones.

C'mon Danny just answer me where those actions fit into your explanation of the era?

They were not costless since the US taxpayers paid out to the banks far more in TARP funds than was infused into the GSEs, an action several federal lawsuits have suggested wasn't necessary because both Fannie and Freddie had market access (and capital), despite Hank Paulson claiming they didn't?

You bank-apologists always seem to ignore that commercial bank episode of the 2008 debacle.

Pardon me for being sarcastic, but I have to wonder why so many of your ilk pay no heed to this financial perfidy?

(Bill Maloni email.)


Further evidence that the Community Reinvestment Act is hardly the burden the banks suggest.


My letter/email comments above were offered to similarly themed recent posts.  I sent them to various authors, generally Conservative, whose work appeared in different venues. But you get the flavor and feel. 

Knowing the Post wouldn’t accept my letter, I shared a copy with Tim Howard. He responded this way.

“The editorial board has no understanding of what they're writing about; they just repeat what their "trusted sources" tell them. And I did see your response. But remember, you're writing to people who don't understand the subject matter and don't care to learn about it--they're just pleasing the "powers that be" that serve as sources for their news stories.” 

(Me) Merde!!


Maloni, 9-20-2018

Monday, September 10, 2018

Do you think they will fight??

GSE Stuff, with a DJT connection

With no significant GSE news happening—(I don’t consider Jeb Hensarling’s new bill last week or phony GSE reform hearing “significant” or even Freddie’s Don Layton leaving his job He’ll easily be replaced)-- I thought I might speculate on what could be a major GSE political/legislative issue a few months down the road in 2019.

For this contemplation and exercise, I have to give credit to Paul Muolo, Inside Mortgage Finance’s (IMF) primary GSE editor/reporter (who I try and tease mercilessly over his writings about a certain trade association and its past leadership), but who raised this possible clash in a recent column and got me to thinking.

So, here is one observer’s take.

We've been told President Donald J. Trump is not a misogynist or racist and he's never ever used the N-word—just ask his staff sycophants, Sarah Sanders, Kellyanne Conway, or the POTUS himself.(Although as reports from Bob Woodward’s book suggest, the President likely has a “potty mouth.” as my grandkids would say.)

The POTUS/Rep. Maxine Waters (D-al.) Relationship

But what happens next January if the Democrats somehow win the House in November and—OMG--Rep. Maxine Waters (D-Cal.) becomes the next Chair of the House Financial Services (or as I often call it, "Banking")Committee??

This environment could matter “muchly” to the GSE crowd.

Would Trump stay on his staff-reported “high road” and continue to avoid the vile stuff his folks claim he never says/does or would he indulge in the opposite and get cantankerous, ugly, and hostile. (I hope he doesn’t and not just because whatever he says often gets taped or leaked to the media.) 

Back to the Waters’ possibilities. 

Could Trump and his Administration ever work cordially and respectfully on financial services or GSE matters, with Waters, who is an outspoken Black woman, representing heavily minority Los Angeles, California, who in the past has called DJT “Putin’s apprentice,” while endorsing publicly confronting and challenging President Trump’s senior appointments whether they are inside their offices, dining out with their families, or at other events?

Waters also has championed Trump’s impeachment, among her other anti-Trump tirades.
For his part, President Trump alleges: Waters is “crazy”; “one of most corrupt women in politics”; has “a low IQ,” and waves variations of these Waters’ putdowns like a red flag at many of his campaign events, to applause/cheers from the MAGA crowd(What do you really think of Ms. Waters Mr. President?)

The positional juxtaposition of these two protagonists—if Waters gets the Chairmanship--is not exactly a set of circumstances Trump respects or in the past has been comfortable managing.

All of that might make it a little tough for the President and/or more likely Secretary Mnuchin to sit down and negotiate with Waters on the many banking, financial service matters that require House Financial Services Committee approval.

Waters—if a Blue Wave gives her the Committee chairmanship--already has announced she will give high priority to unresolved GSE issues, which I believe means considering legislation to fix the problems associated with both the Bush and Obama Administrations treatment of Fannie and Freddie and their shareholders, and likely demanding more financing of affordable housing.

The Congresswoman likely will seek a way to get copies—through Treasury—of Trump’s tax returns.

She has not been a friend to the big financial institutions, which throw tons of campaign contributions to senior R's and D's on her committee, possibly earning Trump and GOP anger if the banks give the new Chairman lots of cash.

Plus, GOP and Democrat leaders (Speaker and Majority Leader) like to name freshmen to Financial Institutions, because it is so easy for them to raise campaign funds from the many moneyed interests (banking, credit unions, non-banks, insurance, securities, housing, consumer, agriculture, etc.) that look to the Committee for legislative relief or support.

Those campaign cash spigots never seem to turn off and for decades committee hearings which produce major partisan clashes—at least when bank interests are in play--have been dubbed “the best free show in Washington.”

If she succeeds, I expect Waters will inherit all of that.

About Fannie and Freddie, per se, here is what Waters, ranking Committee Democrat said during a Jeb Hensarling (R-Tex.)  “stacked for the bad guys” * GSE hearing this past week.

Rep. Waters:
I am in support of responsible efforts to reform our housing finance system. I believe we must evaluate what Fannie Mae and Freddie Mac have done well, as well as areas where the system still needs improvement and reform. Contrary to the claims of the Majority, Fannie and Freddie did not cause the crisis. The Financial Crisis Inquiry Commission and others have made that clear. As we all know, the crisis was driven by predatory lending, the private market packaging those toxic, risky loans into securities and then selling those securities to unsuspecting investors. Fannie and Freddie did not drive those actions, but the events that transpired during the crisis made clear the need for their reform.” 

“While the Republican-controlled Congress has yet to act, the Federal Housing Finance Agency (FHFA) has taken significant administrative steps to improve the safety and soundness of the enterprises and reduce risk to taxpayers.” 

“As we consider housing finance reform and work to address the structure of our housing finance system, it is a priority for me to ensure that underserved borrowers and communities are not overlooked. This means that at the heart of any reform proposal, we need a comprehensive strategy around access to affordable mortgage credit, as well as access to affordable rental housing.”

(* "Stacked" because three of the four witnesses were longtime GSE foes,  Jim Lockhart, Phil Swagel, and Ed Pinto.)

CRA Squared?

Without asking her or her staff, I’ll bet I know where a first time “Chairman Waters” would line up on a suggestion I made a few blogs ago, i.e. that the very weak Community Reinvestment Act (CRA) be enhanced so that commercial bankers take on real--not illusory— low-income lending responsibilities and generate sufficient mortgage loans to low-income families in the neighborhoods where they have offices.

Right now, those banks—under CRA--have no numerical, percentage of business, or formal obligations, merely their regulators measure their lending in communities where they have offices as one component of a mix “taken into consideration” when depository institutions seek to branch.

Despite predictable big bank bitching, that’s not much of a hurdle.

Currently those institutions just are “encouraged” but not mandated to do anything, with the only sanctions being possible rejections of applications for failure to serve their old branch neighborhoods.

Since a “new” or reorganized Fannie and Freddie certainly will have national affordable housing goals, why not statutorily integrate that GSE exercise with companion requirements for large banks to produce a percentage of those loans and—simultaneously--reduce the possibility of bank discriminatory credit practices against low-income neighborhoods??

This could be a Maloni-strawhorse, since no such legislative proposal exists yet—and the House still is red not blue--but it's not hard to see a Committee Chair positioned as Waters could be-- and believing what she does-- considering some combination of these options.

Note: The above factors could cause the WH to work largely with the Senate, avoiding Waters and the House until absolutely necessary, or—on GSE matters—just move forward with an executive plan which doesn’t require a legislative blessing.

Major Committee Loss…IMO

When Congressman Mike Capuano (D-Mass.) was defeated last week in his primary election, the Financial Services Committee lost a consistent and informed GSE advocate. I have no idea how good his successor will be, but I doubt any replacement will feel as strongly and positively about Fannie and Freddie as did Capuano.

As the worm turns, "the “Industry Letter”??

Great work all hands to generate a strong interest group stakeholders’ letter to the Treasury and Congress supporting maintenance of the GSEs as bulwarks in the US mortgage finance system.

It’s rumored the effort was led by the “Big Three,” the National Association of Realtors (NAR), the National Association of Homebuilders (NAHB), and the Mortgage Bankers Association (MBA), with 24 additional pro-housing groups and civil rights organizations signing the letter. (I hope the MBA’s endorsement signals Bob Broeksmit’s seasoned hand.)

But, as nice as those multi-signed communications are—having been involved with dozens when I was an active lobbyist--they can’t substitute for those organizations, all, spending time and effort sending their lobbyists and members to the Hill and to Treasury, pounding the pro-GSE message--when it comes to Fannie and Freddie efficiencies and consumer virtues-- into some of the policymakers’ closed minds.

I’ll track what follows. While the endorsement is nice to have it's much better if it reflects big trade association fresh thinking and intent to act.

Jacobs versus FHFA
An audio recording of last week’s oral argument before the Third Circuit.

Maloni, 9-10-2018


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