Bum actors perform a very bad movie...

(Artwork by the reknown, "Doc")
Seiberg’s Fantastic Six—Ain’t

Jaret Seiberg who writes about GSEs and other matters for Cowen Associates is someone I’ve known for 20 years. In the past, he and I, and occasionally Tim Howard, would meet for lunch and discuss all matters GSE, just to give him our perspectives on whatever the day’s Fannie and Freddie horror stories were.

I’d say it’s been four or five years since my last meal with Jaret.

A very smart guy, Jaret’s has become negative on anything good happening for the GSEs, through legislation or even regulatory fiat, via Treasury and FHFA. (I agree with him on legislation, but don’t on regulatory changes which is where I believe this will get resolved.)

The truth is Jaret doesn’t know any better than Maloni (or the sainted Tim Howard) what the hell is going to happen. He’s relying on his experience, his instincts, and some hope he’s correct.

But, in a most recent report (see link below), he suggested that an infamous “Gang of Six,” which most recently penned an article for The Hill newspaper, represents a phalanx of experts he feels can set the stage for any congressional and/or Administration consideration, with their respective housing finance histories and past negative GSE positions.

Jaret argues the half-dozen/could represent the kind of thinking that should carry the day.

I’ll be crude. Whether their article arguing for major changes that would eviscerate Fannie and Freddie-- was signed by six or 60 of their ilk—it doesn’t matter. They are running scared of a possible Trump/Mnuchin regulatory plan because as uphill as their torch-the-GSEs ideas were when the GOP controlled both congressional chambers that mountain just got steeper with the Democrats due to take over the House in January.

https://cowen.bluematrix.com/sellside/EmailDocViewer?encrypt=211be49c-666a-4472-9134-794ec919ee5a&mime=pdf&co=cowen&id=jim%40fallingcreekadvisors.com&source=mail&fbclid=IwAR0lgBj77Idn3ftu4DjOtFOUxmlttREMkya_I3oGfstLXqBwodEUtKhGntg

Quoting Jaret, “To us, the collection of authors of this op-ed represent the roadblock that recap and release advocates need to circumvent to succeed. The authors provide a broad front that appeals to just about every constituency other than investors in the GSE debate.”

Really Jaret, where, in this big-bank-supporting cabal are the affordable housing interests, and the keep-the-cost- of-housing-down for more people to become homeowners folk, or the “we like the efficiency and fairness when Fannie and Freddie systems govern the worst interests of the nation’s largest banks.” 

For years the big guys have displayed greed and market segment indifference, but they still hope to disguise it behind fawning industry panels, press releases, and  slick advertising.

Don’t you think Rep. Maxine Waters and all those new Democrats might demand answers to some of these questions and become obstacles to your changes?

There is a reason this same group of GSE hostiles and its allies have failed for 10 years to achieve their goals and one no longer can blame that on Fanie/Freddie lobbyists or lobbying.

Yes, it’s an old argument to point out this decade's old assault is driven primarily by the big banks, with no concern for consumers, but it still is a valid and I believe politically winning one.

As I’ve written before, I think this Administration will find some way to utilize the $100 plus billion sitting on the table waiting for a Treasury plan to resurrect the GSEs.

Don’t ask me about details, I don’t have them. But when you are running this much red ink, you grab the low hanging fruit and—primarily--you don’t screw with and scramble housing finance when the President hopes to run for a second office term in 2020 based on how well the economy is performing.

But, before you and others get carried away in flights of fancy over this latest gang of six, maybe a closer look might suggest they have warts and blemishes.

Let me offer some sides of these guys which Seiberg doesn’t. He nor anyone else should lionize the six more than they deserve and ignore their current or recent paymasters, a fact which often explains their motives.

When all is said and done, each of them is shilling for the financial giants which hope that someone will give them Fannie’s and Freddie’s market slot and annual revenue, without them having to give back anything to make the mortgage finance system more efficient, transparent, or less reliant on the federal government (which because of the banks huge deposit insurance federal subsidy, enjoy $Trillions in federal benefits, but the depositories like to pretend they don’t).

Oh—as icing on their cake, in most of these "new ideas"--the banks and their buddies want Uncle Sam to add a federal guarantee on any new mortgage securities they issue.

Seiberg’s Six Champions/Heroes

Lew Ranieri—whom I’ve always liked and honored for his seminal work on creating mortgage-backed securities in the early 1980s—is a gun for hire. 

If I had a dollar for every time I’ve heard him extoll Fannie and Freddie, and how much admiration he holds for what they did, are, and how they do their job, I’d have a lot more money than I do now.

That doesn’t mean he’s not permitted to evolve. But I suspect given his admirable entrepreneurial instincts, Mr. R sees greenbacks for himself in any new arrangement which displaces the GSEs.

Another guy I like is David Stevens, now a consultant and former President of the Mortgage Banker Association (MBA), a Freddie Mac executive, and one time head of the FHA. But Dave spent too much time playing cloak and dagger with the less-than-mortgage-reputable Wells Fargo Bank (also one of his former employers) and MBA’s big bank members, on multiple “kill, maim, destroy the GSEs” schemes to give him any credibility.

And then we have Ed DeMarco an anti-GSE character in search of someone to pay him to pursue his campaign to gut the GSEs, a job at which he failed when he was working from the inside as acting FHFA director. After various tasks, Ed now is head of the Financial Services Roundtable Housing Policy Council. 

Jaret, there’s a redundancy in that title, since the FSR bankers have not shown themselves to be housing or consumer friendly for years, despite their claims. And, why do I think Wells Fargo has a big Council presence as well? (Came across an interesting article some months old but quoting data from just a year ago showing how big bank mortgage lending, specifically Wells, BofA, and JP Morgan, to lower-income American families, has fallen dramatically from a half dozen years ago, by 50% or more. Not surprising.)

I’ll be gentle criticizing Doug Holtz-Eakin, owing to his birth in Pittsburgh like me. I’ll go easy on him. Noting only that the august Congressional Budget Office, which he once headed, has almost never said anything positive or good about Fannie Mae and Freddie Mac, and still puts out baseless reports—one as recently as last week—misstating how much money could be saved over 10 years by doing away with the GSEs or forcing them to raise costs (screw those mortgage rates, huh CBO) or just serve fewer families). 

(Psst, the $190 billion in 10-year savings CBO estimates can be saved is an entirely theoretical "subsidy" cost, and is dwarfed by the real cash theGSEs pay in federal taxes and in their “annual revenue sweep,” which CBO conveniently doesn't count. Nor does it count the $280 Billion they’ve given Treasury since 2013.)

To be fair, that recent CBO report wasn’t on DHE’s watch but he endorsed many of the same thoughts when he was running the place.

Back to the bad guys, another article author, Jim Parrott,  former Obama official/now consultant, seems to have several big bank financial services clients (Bank of America?).

If one looks at the documents which came out of Judge Margaret Sweeney’s court in the Fairholme GSE case, you see Parrott exposed as one of chief “sweep” advocates, who proposed aggrandizing all of Fannie and Freddie's profits in perpetuity to keep the GSEs poor and recapitalizing.

But where’s Parrott’s practical experience with the secondary mortgage market operations he‘s been damning for several years?

Working for President Obama (who did nothing for Fannie and Freddie), Parrott--as my grandkids might say “disremembered” his true rational for the confiscation idea (did he also lie to Congress?) and adopted the phony “GSEs were in a death spiral” claim. That Parrott falsehood, too, is buried in the detritus left behind when Fannie and Freddie—from 2012 on--earned over $280 Billion, all sent to the US Treasury.

How can the Obama WH (Parrott,) use a statute--HERA, the Housing and Economic Recovery Act of 2008--which states the regulator is supposed to preserve and protect GSE assets and capital, and then implement a ploy to take all but a thin stream of capital from them, just as the two are on the cusp of earning tens of billions for the taxpayers?

The six feasted on the GSEs like termites do on wood.

Which brings me to the Jaret’s final idol, Mark Zandi, a well-known name and longtime Moody’s chief economist (beyond working for a rating agency where, too, is his secondary mortgage market operational working experience?).

I have one question for MZ, this Seiberg solon?

Where were you in 2007-2008, when the nation’s largest banks and investment banks engaged in risky gross and indiscriminate private label securities (PLS) creation—outside of the far better and more responsible GSE mortgage underwriting systems--and used inflated ratings from Wall Street rating agencies (suroprise, like Moody’s), sold their quick-to-default bonds all over the world, making the U.S. domestic real estate softening and an international debacle??

Answer: Zandi was working as chief economist for Moody’s watching all of those ersatz ratings fly out the door, attached to those crap PLS mortgage bonds, earning Moody’s millions. 

Why didn’t Zandi raise his hand, call a halt, or just expose it all?

Jaret, you really should pick your heroes more carefully.

Your current “Gang of Six” are just hustlers, with various titles and agendas hoping—for their selfish political or personal gain--to destroy what has been and remains a very efficient national mortgage finance system with the GSEs in the trenches managing and supporting the operation.

Next year, take Tim and me to lunch, again, and we can help you atone for your sins.

Maloni, 12-18-2018

Merry Christmas and Happy New Year to all!!!!