Will MC present a big GSE present bought/wrapped by another??

Next from Treasury and Mark Calabria?

"Blue 280, Blue 280, set, hut, hut, hut"

In my last blog, I engaged in humorous license—at Mark Calabria’s expense (sorry MC!)—putting my own congressional nomination hearing thoughts “in his mind,” based on my four decades of seeing these Washington events and understanding what goes on in nominee’s psyche when they are being grilled or, pu-leeze,” treat me gently Senators.

OK, joke’s over!

Calabria showed—from a financial services and GSE perspective--he could walk and chew gum at the same time, didn’t insult any sitting Senator, and showed no (public) apostasy.

The Fannie-Freddie regulator’s job is his.

There is no reason why Calabria should not get approved by the SBC and the full Senate and become the latest Federal Housing Finance Agency (FHFA) Director, probably in a few weeks.

But, as I suggested--and some of the analytic weasel words, public/media commentary which followed confirmed--there was a certain amount (possibly a great deal of) discussion in Treasury among Steve Mnuchin, likely, Craig Phillips, and acting FHFA director Joseph Otting prior to MC’s hearing about some sort of executive/regulatory plan to alter the current Fannie and Freddie arrangement.

All of the self-identified GSE experts—me, too--have their fantasy GSE revamp schemes in mind, when dreaming of what this “Trump Admin cabal” might be planning. But most of us will be wrong…if only because the preparations likely aren’t complete—and even those could be jeopardized temporarily by an unrelated DJT “national emergency” jaunt into unchartered Constitutional authority land.

Just stay tuned, buckaroos. Shouldn’t be too long before we see evidence of the fire creating all of the GSE smoke signals.

Calabria will be invited to sit in the extensive ownership suite and may already have started his initiation. But when all is said and done, this will be Treasury’s plan with Calabria having a good perch, but a junior investor’s 40-yard line seat, not a principal’s location exactly at midfield on the 50!

Goose and Gander 

I want to repeat an idea I’ve broached before and hope to hear from those who think it’s a good one or not? 

Dick Bove wrote a very useful GSE review (along with a Buy recommendation), that I blog-linked last week, in which—IMO--he established a valid economic argument on why skillful freeing up housing finance (and Fannie and Freddie) would stimulate GDP, boost the national economy as it inevitably starts to slow, create good jobs in associated industries—which don’t require heavy technology skills—and carry out a societal good, to which I added, (paraphrasing)..”With major political benefits flowing to those responsible, just as the nation starts to focus on the 2020 presidential and congressional elections.”

Let me get back to my own thought, which should be adopted for practical and equity reasons if policymakers chose to follow Bove’s thinking.

As most people know, with the seminal 1992 GSE legislation creating a new safety and soundness regulator (then the Office of Federal Housing Enterprise Oversight, OFHEO, and now the Federal Housing Finance Agency, FHFA) and a new risk-based capital regime. Fannie and Freddie also were handed statutory housing goals which required them to purchase/securitize low, moderate, and middle income (defined in law) single and multifamily mortgages for people “in central cities and other underserved areas.”

It was designed as a method to force very reluctant primary market lenders to make loans to minorities and others who had been shutout of the conventional (non-FHA and VA) mortgage market.

Fannie went after those loans with a vengeance, hiring significant numbers of new employees, creating a number of new and ancillary business units to find and make those loans---even when the HUD officials raised those goals to the maximum 55% of GSE annual business.

As I often remind people, shortly after the legislation became law Fannie started simplifying its business and marketing materials; producing them in 11 different foreign languages, including two dialects of Chinese; conducted major housing fairs around the nation; partnered with the National Basketball Association (NBA) and ran its Fannie Mae Foundation “how to qualify for a mortgage loan” advertising, opened nearly 50 new Partnership Office around the US, and much more to facilitate its new efforts.
Fannie succeeded virtually every year because it was the law and its executive leaders wanted to prove they could.
(Sorry, but Freddie, without the executive zeal or culture, always lagged and trailed Fannie’s effort, as the Northern Virginia company regularly claimed a variety of excuses, seeking several HUD-granted relief mechanisms. i.e. getting one and a half units of credit for every multifamily unit financed when Fannie only got one for one.)

And for those about to say “and that’s what produced the 2008 meltdown” ---don’t go there.

Just read the last year’s (2018) Federal Deposit Insurance Corporation (FDIC) report looking back at 2008, that blamed the debacle not on the GSEs (which did play a part) but on the nation's major banks  and the hundreds of billions of big bank produced “private label--non-GSE--mortgage-backed securities (PLS),” which were shoddily underwritten, poorly rated, thinly guaranteed, but which the big guys profitably sold throughout the world.

https://www.fdic.gov/bank/historical/crisis/

The ersatz big bank PLS quickly failed leading up to 2008 as US residential real estate values softened .

The bank losses were three times what Fannie and Freddie were alleged to have lost (GSE issues still being contested in federal courts) and cost the US taxpayers over $500 Billion in Troubled Asset Relief Payments (TARP) in 2009.

But it can be done--therefore 10 plus years later--I call for housing goals in the primary market, too.

With my magic wand--and an assist from Congress--I would require every mortgage lender, banks, mortgage companies, non-banks, varied for size, to have statutory numeric housing goals similar to what guided Fannie and Freddie.

I would tier those obligations so that the GSEs still had higher ones than the primary market lenders. And I would ensure that Fannie and Freddie’s future mission was to securitize those loans (thus removing the originator’s primary financial risk) with GSE guarantees of timely payment to attract capital market investors.

Any GSE future regulator—as its current regulator now does—would set those minimum underwriting standards to prevent a return to the temptation lenders would have to try and repeat their PLS subprime escapades, with appropriate oversight from their federal bank regulators.

Before those knew jerk critics start screaming, “Fannie and Freddie are rushing to the bottom” and financing people who can’t afford to own a home or finance a mortgage.”

Naysayers should note the last 10-year history of high-quality underwriting and very low GSE credit losses—far lower than all primary matter lenders,
What I am describing is not far off from today's Qualified Mortgage (QM) rules that exist today in the conventional mortgage market, save the statutory obligations.

But the anti-GSE Amen Chorus still will shrill their belittling scorn, ignoring that shoddy secondary market underwriting lending doesn’t fit with the two companies which have paid the Treasury more than $290 Billion in profits since 2013, including some $4.7 Billion for 4Q 2018 just last week.

My suggestion requires legislation, but I hope both Senate and House Banking committees look at the idea and not wilt when the big banks start saying they can’t possibly make those mortgage loans to those (in their minds non-credit worthy?) borrowers.

My bank response before they bitch is, you sure have made a lot of money in the past several years and this is a solid way to put it back into the economy and help a new generation of homebuyers and create a ton of jobs for those to build, decorate, paint, provide electricity, carpeting, furniture, roofing, landscaping, and even buy that house or the older one from which those new owners move!!

Maloni, 2-19-2019