Saturday, February 9, 2019

Count the ways Crapo 2.0 is DOA ver 2

“I am always disappointed when a liar’s pants don’t catch on fire,” (line from a whacky get-well card from Dulcie, my sweetheart sister in law)

“We are the sycophants, the sycophants, the sycophants,
We are the sycophants, watch our abject groveling grow”

You have seen/heard already--and soon will hear more—political air kisses as the usual bank-centric suspects come out of their hidey holes, fawning and frothing about their support for and willingness to cooperate on birthing the latest anti-GSE “reform bill” unveiled last week in a three page summary by its sponsor Senate Banking Committee Chairman Mike Crapo (R-Idaho). (Cue the supplicants'  praise and applause.)

Early support for the plan is directly linked to kissing butt and ingratiating with Crapo, how much revenue the interest groups think they can get from this latest iteration of “Let’s needlessly and ideologically scramble the national mortgage markets, again” or conversely, “How much damage can we do to Fannie Mae or Freddie Mac?”

Some examples:

The  Mortgage Bankers Association (MBA) which has been in on and advocating anything which screws up the GSEs, ironically, since the GSEs created the modern mortgage company. (Ah, what short memories.)

WASHINGTON, D.C. (February 1, 2019) - Robert D. Broeksmit, CMB, President and CEO of the Mortgage Bankers Association, issued the following statement in response to today's release of principles for housing finance reform by Senate Banking Committee Chairman Mike Crapo (R-ID).

"MBA welcomes the release of Chairman Crapo's principles for housing finance reform as a significant sign of his continued commitment to work toward finally ending the conservatorships of Fannie Mae and Freddie Mac and ensuring a stable and liquid market - with an explicit, paid-for government guarantee - for both single-family and multifamily mortgages. MBA looks forward to continuing to engage on a bipartisan basis with congressional leaders, the administration and other key stakeholders on reform efforts to create a system that supports borrowers, serves lenders of all sizes and business models and protects taxpayers." 

The U.S. Mortgage Insurers (USMI), hoping for huge new business volumes from, a Ginnie-run conventional mortgage security business. But to take on this new federal role, should those com- panies continue to be state-regulated—as they all are--or should they come under federal regulation??? And Congress--before escalating their role--should look closely at the MI's historty of slow claims paid as well thir 1980's experience, when it’s newly flush members, confidently, started taking on greater and greater risk (insuring riskier loans), generating almost $6 Billion in industry losses and reducing active MI companies to around 10, with fewer existing today.

“Today Chairman Crapo released a thoughtful outline to reform the GSEs in order to put the housing finance system on more stable footing. The reform plan covers many areas and USMI is particularly pleased that Chairman Crapo recognizes the importance and value of private mortgage insurance in enabling access low down payment conventional mortgages while protecting taxpayers at least to the levels that they are protected today.  Ten years after conservatorship of the GSEs, it is essential that meaningful reforms be done to better protect taxpayers and to ensure consumers will have access to mortgage finance credit through all market cycles.

Michael Bright on behalf of the Structured Finance Industry Group (his new gig), announced support. (It was Bright—while at Milken--who championed the Ginnie sections of the bill when he thought he was going to run the HUD FHA/VA loan guarantor, but something ($$$?) happened to change his career choices.
*“A future state for housing finance should have clearly defined roles for who is taking on risk, private capital or the government,” Bright said. “It must also ensure that our housing markets work for all Americans. The current structure of conservatorship has helped our country to transition from crisis to economic growth, and the Federal Housing Finance Agency should be commended for the work it has done.”
“But an opportunity exists to make meaningful changes that enhance consumer access to credit, add financial stability guardrails, and ensure a more vibrant and liquid secondary market that does not put taxpayers at direct risk of loss,” he said. “In our view, a role for Congress is critical to effectuate these important changes.”
The National Association of Home Builders, which long ago lost prominence and lobbying stature, commended Crapo for his leadership on GSE reform.
*“NAHB commends Senate Banking Committee Chairman Mike Crapo for taking this important step to move the debate forward on overhauling Fannie Mae and Freddie Mac, and the U.S. housing finance system,” NAHB Chairman Randy Noel said. “He has consistently taken a leadership role on this issue.”
“Sen. Crapo’s plan would maintain a limited federal backstop to the nation's housing finance system, a critical element recommended by NAHB to achieve meaningful housing finance reform,” Noel said.
The National Association of Federally Insured Credit Unions expressed its support, saying it looked forward to working with Congress toward housing reform. NAFCU once was a big GSE supporter when Fannie and Freddie bought their loans and put them in position to compete with banks for mortgage lending. (Also exhibiting short memories. Someone also should remind the CU's of historic big bank hostility toward them. Careful with which businesses  you chose to play.)
*“We appreciate Chairman Mike Crapo’s commitment to reforming our housing finance system, including the recognition of the need for fair pricing and access for financial institutions of all sizes,” NAFCU President and CEO Dan Berger said. “We look forward to working alongside Congress and the Administration to ensure that credit union interests are protected in any housing finance reform proposal that is ultimately enacted.”
*All quotes provided by Housing Wire

It seems not to register on these “can’t see beyond their next golfing leadership event/warm weather conference” special interest groups and congressional sponsors and campaign fund recipients, that similar ideas—many of them drawn by those elements which most would cash in—have congressionally died in the last 10 years, owing to the consumer support/satisfaction, market strength, resiliency, and effectiveness of Fannie and Freddie, which Crapo and others are hoping to marginalize or make disappear.
Expect your collective blood sugars to rise when forced to consume all of the sweet (and self-serving) adjectives directed toward Chairman Crapo and IMO his dead-on-arrival legislative proposal.
One seasoned Washington veteran –a handsome, thoughtful guy, recently hit by a car, who has done his share of “sycophanting”—predicted to Paul Muolo, Inside Mortgage Finance’s GSE guru, “Only Francisco Franco is more dead than the Crapo proposal.”

Why am I certain about its fate??? Let's count the ways….

Crapo’s proposed bill is warmed over gruel, birthed by Wells Fargo through the MBA Task Force/MBA trade association, pumped by David Stevens, et al, written by Michael Bright (and Ed Demarco) while at Milken (and just after Bright and his bank allies lobbied for Bright to get the Ginnie Mae President’s job—for which he signed up and then decided he was too big to serve and could make more money elsewhere, jumping ship earlier this month. (Psst, Michael, your departure created rapture among many in the Ginnie workforce.)
Without getting into the details--even without the other miscreant’s non-lustrous and perfidious reputations--Wells Fargo’s and Bright’s DNA on it, alone should tank the concepts for thoughtful Senators.
But, let me, indeed, get into a few details so I can silence those who think Crapo actually will reshape GSE legislative events this year.
It's not that the Senator and his SBC aren’t important, but his party no longer has total legislative/political control and therein lies the fate of this latest chicanery paid for by bank interest groups. Then, there is the existence of at least two D presidential candidates--Senators Sherrod Brown (D-Ohio) and Elizabeth Warren (D-Mass.--on the SBC who can’t ally with Crapo on efforts to damage homeownership opportunities for low and moderate-income families. (A cadre of dedicated senators can use that chamber’s intricate rules to frustrate lots of unpopular actions pushed by a simple majority.)

The big hoot? Crapo gives major control to Ginnie Mae (Oh, no, that won’t be too chaotic, ironic, or crazy inefficient, Mr. Chairman!)

Bear in mind that Ginnie is the “Government National Mortgage Association(GNMA)—part of HUD, you all remember HUD and its leader Dr.  Ben “find me a new dinette set now” Carson, right *&^%$#^ now.
Ginnie—hardly is competent (except in Michael Bright's eyes)  to carry on its thin bureaucratic shoulders the Crapo proposal, because Ginnie has no real private market staff, no history, no management, nor true capacity to run a conventional (non-government guaranteed) mortgage market securities operation. (But, who cares since about the public's interest since Crapo’s buddies the nation’s largest banks are the major beneficiaries of the plan?)
At various times in history both Fannie Mae (I know) and Freddie (I believe) had to help Ginnie (the government) and became its “back office” to carry out Ginnie's statutory government mortgage securities work, because Ginnie didn’t have the onboard resources, experience, or plain sense to run their own business. (Remember, in the legislation privatizing Fannie in 1970, Ginnie was spun off from the original Fannie to allow the former to work exclusively on securitizing government loans, while Fannie took on a new set of conventional mortgage loan responsibilities.)
According to Ginnie’s 2018 “Report to the Secretary” (Ben Carson, signed by then, acting President Michael Bright,) Ginnie has some 150 employees on board and as I noted only deals in safe, guaranteed by the federal government FHA/VA mortgage-backed securities. (Those 150 interact with @2500 dedicated FHA/VA lenders. Who then can step up and deal with a gaggle more who will want to do conventional lending???)

In contrast Fannie and Freddie—with almost all of their assets being conventional, non-government guaranteed mortgageshas north of 12,000 employees between them working closely to administer their voluminous portfolio assets (which are tightly managed and never left unwatched once they go on the GSE books)  and the fresh billions in new business which comes in over the transom every month.

In light of these facts Sen. Crapo, ask HUD and Ginnie what are their significant mortgage histories (bearing in mind that Ginnie already delegates much of the hard mortgage lending work to the very lenders who bring them product)?

Can HUD really attract hundreds or thousands of quality new employees to work at one of the dullest and unimpressive locales in DC to help oversee the nation’s $11 Trillion primary and secondary mortgage markets (which is what their primary mortgage market client institutions will require)??

Remember, too, it was an earlier Congress which gave a new "private Fannie" the mission to operate a secondary mortgage market for conventional loans because it didn't trust HUD to do it in 1970. 

How many dinette sets do you want to bet me Ginnie/HUD still won't be able to perform?

Think about this headline Senator Crapo, "GOP Senator Crapo gives HUD $$ trillions to Manage." That may get you un-elected, not re-elected, even in Idaho!

Truth (please, check!), it took then OFHEO--Fannie’s original regulator, now the FHFA—10 years just to develop its own risk-based capital regime, which it was charged by Congress to complete by year two of its operation. New federal bureaucracies don’t work quickly/efficiently, even for DJT,

Senator Crapo, I will “guarantee” (Ginnie FHA/VA pun intended) the country’s slick financial mortgage operators are licking their lips at having Ginnie try and mastermind their mortgage activities.

Also, while the SBC conducts “Groundhog Day” GSE hearings, once again--with the same witnesses, going down the same dead-end paths--I think I confidently can predict very little meaningful legislation will result.

Just as Chair Maxine Waters (D-Cal.) and the House Banking Committee won’t accept a “destroy the GSEs bill,” which is what Crapo and his cronies have proposed, nor will Crapo cooperate on the GSE bill HBC Chair Waters would write and lead the House to pass.

Ergo, GSE-advocates would do well to pay close attention—reading between the lines and scrawling through the entrails of any Treasury statement—what Mnuchin/Phillips, Otting, and Calabria are doing (not just saying).

And, oh yes, there are the federal court cases. (For an excellent discussion of the Collins case and related matters, see the  Investors Unite link to Attorney David Thompson's presentation to en banc judges in the Fifth Circuit Court .)

and the top 10 takeaways from Thompson's discussion...

Let me repeat something I wrote earlier in this blog.
It seems not to register to the “can’t see beyond their next golfing leadership event/warm weather conference” special interest groups and congressional sponsors/campaign fund recipients, that similar legislative ideas—many of them from those elements which most would financially benefit—have died in the last 10 years, owing to the consumer satisfaction, market strength, resiliency, and effectiveness of Fannie and Freddie, which Crapo and others are hoping to marginalize or make disappear.

It's GSE efficiency, structure, and success you want to destroy, that's why it has been so hard, politically to obliterate them. (And all those greedy bankers banging on you to kill Fannie and Freddie still are making money, tons of it!)

Maloni, 2-4-2019

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