Sunday, March 31, 2019

The good guys win one, with CMLA and Prof. Levitin my heroes.

What happened in GSE-World last week????

Well, you had a very predictable Senate GSE hearing set, with all the usual blowhard big trade association suspects lavishing praise on SBC Chairman Mike Crapo (R-Idaho) and blowing political kisses his way. Yak, gag, barf.
That show also had two star witnesses, because they communicated the truth not the standard behemoth trade group froth. First was Georgetown University law professor, Adam Levitin who politely told Crapo his GSE reform principles—since the Senator merely offered talking points not a legislative proposal-- were the equivalent of the Emperor caught not wearing enough clothing. 

Inside Mortgage Finance (IMF) less crassly than I reported, “Georgetown University law professor Adam Levitin basically trashed Crapo’s whole outline, saying a transition to a multi-guarantor model would destroy the current system, which, he argued, is working well.
“I am deeply concerned about the basic direction of the chairman’s housing-finance reform proposal outline, Levitin said.” 
Second, was the offering from the Community Mortgage Lenders of America (CMLA),” which declared the following in their submitted hearing statement. 
“For our community bank members, complex, untested, theoretical secondary market changes will cause them to reconsider offering mortgages at all—hardly the outcome desired by anybody.

“Based on numerous conversations around the country and in Washington, we can say with confidence that none of the Think Tank or academic authors of the myriad complex, untested systems can say to our faces that these systems will work without fail. None of the authors can promise us that today’s dependable, extremely liquid market will, once changed to their chalk-board plans, continue to “get the job done.” (Even assuming that the new system works beautifully, any complex changeover will have a lengthy transition period, and this alone will raise uncertainty costs for small lenders and consumers.)”
Rare and well-structured candor from lower profile witnesses, but I hope all those Senators were listening because Levitin and CMLA nailed it, telling it like it is!
Then--amid all this fun--LIGHTNING STRUCK, when President Trump called for his Secretaries of Treasury and HUD (? the latter heretofore absent from most GSE conversations) to produce and submit a new GSE proposal removing the GSE’s from conservatorship
If that tomfoolery wasn't enough, Larry Kudlow, the President’s star-crossed head of the National Economic Council got thrown into the study mix for some reason.
That factoid caused Joe Gasparino to launch a Fox News column reporting on an Admin schism, a major GSE dispute within the Administration.

Gasparino didn't name any names--and has often been "bigly" wrong in his past GSE reporting —but if there is any validity to the theory, my bet will have  Mnuchin-Phillips-Otting on one side and Kudlow-Calabria (possibly)--with big bank help--on the other.
(And the people ask, “If he pays his $75,000 in past due federal takes, will Steve Moore—DJT 's latest ‘only the best appointee’ to the Federal Reserve Board--join this cabal, too, once he makes up his mind if he wants the Fed  to expand or contract the money supply, since he’s been on both sides the past few months?”)
Now—all my Ben Carson jokes aside, i.e. “The Secretary will himself write the HUD report as soon as he learns who Fannie and Freddie are and if doing so will get him that dinette set he so badly wanted!”
There is a very legitimate reason for HUD’s inclusion in this group and it’s important for Crapo allies and those backing similar schemes to understand why?
Sen, Crapo's plan is to have HUD’s Government National Mortgage Association or Ginnie Mae to replace Fannie Mae and Freddie Mac, with Ginnie’s few hundred employees which never have worked officially in the conventional mortgage market, i.e. securitizing non-government guaranteed mortgages as do the GSE’s 12,000 largely tech employees.
Ginnie--using its lender network to do the hard consumer interaction work--has a narrow mission to securitize only government-guaranteed mortgages generated by the FHA, the Veterans Administration and the Agriculture Department, is having big problems with rising risks, losses, and “back office” issues which the WH wants HUD needs to address quickly, so it has been included in the Trump reform call.
Ginnie’s shortcomings underscore why Fannie and Freddie are a dream walk in the park to Ginnie Mae’s woes, which are real and current—just the opposite of so many observations at the Senate hearings noting there are minimal problems in the conventional mortgage market, which cannot be claimed today about Ginnie’s “government market only” territory.
Don’t tell that to the big banks and their largely GOP political allies which insist the GSEs are pending disasters. Ahem, these are the same GSEs which have had years of infrequent credit losses and have sent more than $300 Billion to the US taxpayers just since 2013. (Conclusion: Fannie and Freddie must be doing something right!)
Even Tuesday’s witness Ed DeMarco—who while an FHFA employee (acting Director)--a Quisling (?) for you WWII buffs--helped Michael Bright write legislation, which gave birth to the Crapo “principles”—admitted grudgingly Ginnie Mae would have to hire hundreds of employees to take on that new Crapo task. (Actually Ed, the number is more like thousands!)
I can see them all, Eddie, flocking to work for HUD and Ginnie, maybe even following you now that Michael Bright took the money and ran from the Ginnie post.

Related/Unrelated, Stock prices up

The other dominant GSE news is the stock price increases for both companies preferred and common shares, as investors go through the kabuki of which are more valuable when and if the GSEs get busted out of conservatorship???
(Don’t scramble to fetch Grandma’s butter and egg money and rush out and buy shares of what turns you on, just yet, since there is a long way to go before our GSE fun bus makes it to Disneyland.)
In the midst of all of this sturm and drang, I had one senior trade person suggest, once again with huge candor—despite the great obeisance heard on the Hill those two days--it seemed to him that most of the industry witnesses—despite what they claim—liked the GSEs stuck in conservatorship. (Fear of an Admin effort might the one reason they all claim they want Congress to act since they know that ain't soon going to happen?)

My head was buzzing with all of the conflicting input and possibilities.
I turned to a very, very wizened battle-scarred, pro-GSE lawyer/investor and asked him the question, "What just happened in GSE-world last week?"

His answer, without any hesitation, “We won!”

“We won?”

What I can’t predict is when will we hear from the Fifth Circuit and what could/will happen then, especially if those judges reach a pro-plaintiffs decision??

Maloni, 4-1-2019

Happy April Fool's Day

(What's that odor coming from where you are sitting??)

Thursday, March 21, 2019

SBC GSE Hearings, which tough questions should/could be asked and issues explored?

Yawn, yawn, Ho Hum, Gag, Yak, Barf!!

In an email exchange with a reporter the other day, I announced what he already knew—pointing to next week’s Senate Banking Committee hearings on GSE reform--“GSE season is back!” (See latest witness list below for the SBC’s two hearing.)

Banking Committee Schedule for Week of March 25, 2019


Full Committee Hearing: “Chairman’s Housing Reform Outline: Part 1.”

Witnesses: Ms. Sue Ansel, President and CEO, Gables Residential, on behalf of The National Multifamily Housing Council; Mr. Edward J. DeMarco, President, Housing Policy Council; Mr. Greg Ugalde, Chairman of the Board, National Association of Home Builders; Mr. Mark M. Zandi, Chief Economist, Moody’s Analytics; Mr. Hillary O. Shelton, Washington Bureau Director and Senior Vice President for Advocacy and Policy, NAACP; and Mr. Adam Levitin, Professor of Law, Georgetown University Law Center.

Time and Location: 10:00 a.m. in room 538 of the Dirksen Senate Office Building.


Full Committee Hearing: “Chairman’s Housing Reform Outline: Part 2.”

Witnesses: Mr. Michael Bright, President and CEO, The Structured Finance Industry Group; Mr. Robert D. Broeksmit, President and CEO, Mortgage Bankers Association; Ms. Lindsey Johnson, President, U.S. Mortgage Insurers; Mr. Vince Malta, President Elect, National Association of Realtors; Ms. Carrie Hunt, Executive Vice President of Government Affairs and General Counsel, National Association of Federally-Insured Credit Unions; and Mr. Michael D. Calhoun, President, Center for Responsible Lending.

Time and Location: 10:00 a.m. in room 538 of the Dirksen Senate Office Building.

Note: All hearings are webcast live on and archived video will be posted on

Looking at the (usual) witnesses as well as the last 8 weeks of “all over DC GSE dialogue,” my media friend asked me why Senator Crapo (R-Idaho) was wasting his time  trying to move legislation (based on his previously published principles which have yet to morph into Crapo legislation—but which several of the witnesses have their version and could discuss their ideal evolution of those anti-GSE principles) didn’t have any chance of passing the Senate or emerging from a House-Senate conference if Chair Maxine Waters (D-Cal) drove her ideal Fannie-Freddie legislation through the House???

After telling him: because 1) Crapo can; 2) Crapo’s ego;” and 3) Crapo proving to the big money financial interests-- which bathe the committee Senators with contributions--that he can deliver.

Beyond those, I had no good answers for the reporter because—once again—this GOP effort is not about preserving or enhancing Fannie and Freddie or improving the mortgage finance system, but paving the way for the nation’s largest financial entities to replace Fannie and Freddie. 

The Crapo schemes have little/nothing to do with supporting the GSEs but a lot to do with replacing them. The Chairman does nothing to allow the GSE to retain capital or to enhance their ability to do that which has made them indispensable, i.e., the fair, efficient delivery of billions of dollars of home financing--more easily than any potential competitors. 

Why do you think "GSE Reform" has not happened for the past 11 years, despite when the GOP held control of all three elements of government?

And please don't utter a word about "GSE subsidies" until you measure what impact on big bank working capital operations cheap federal deposit insurance has? (Psst, banks have a lower cost of funds than the GSEs, although most of that is wasted in big bank brick and mortar overhead.)

Back Home

The GSEs no longer provided this information with regularity, but some SBC member should ask the GSEs to provide 5-10 years’ worth of their business data showing how much mortgage capital they supplied in each state represented on the Committee and how many mortgagors (family households) 
Fannie and Freddie have helped with those mission investments.(Remember, Senators, many of those constituents are voters and would be most PO’d if you voted to hamstring the nation’s primary and secondary mortgage markets by endorsing these contemplated massive Crapo changes.)

Once the FHFA supplies the SBC with this important "back home" mortgage data, at least all Senators could see what the near term effect would result from Crapo’s “principles” to diminish GSE services or do away with the GSEs themselves, while he claims to reduce taxpayer risk. (Most of which already has been eliminated by the past 10 years of tighter regulation.)

Senators new to the committee—and those older—just should “follow the money” and ask their favorite witness who—he or she—believes likely gets the GSE revenues, now going to the Treasury, if Crapo and his allies succeed in their campaign?


In addition, and just for perspective some thoughtful Senator or his/her staff should research or just ask those witnesses their familiarity with what role Wells Fargo Bank—whose financial infamies must be fresh in Senators’ minds from the Wells House Banking Committee testimony about a week ago—played in the various “kill the GSE bills,” which have shown up formally before the SBC or are implicit in the Chairman’s “GSE principles?”

Ginnie Mae

Also, a curious Senator might ask Mr. DeMarco to explain exactly what he was doing--as the GSE's acting Safety and Soundness Director--when another witness, Michael Bright, wrote recently how he and DeMarco at thast time wrote proposed GSE legislation to euthanize Fannie and Freddie?

Senators you'll have both of those gentlemen in front of you next week, ask them about their plan to make Ginnie Mae, Ginnie Mae--a division of HUD with a few hundred employees, replace Fannie and Freddie with their 12,000 workers, most of them VIRGINIA residents, Sen. Mark Warner (D-Va). Of course that plan was hatched when Bright was headed to work at Ginnie.

I've written this line before in a previous blog, but if you missed it, I doubt even Idahoans would like to see this headline.

Think about this possible headline. "GOP Senator Crapo gives HUD $$ trillions to manage US mortgages." 

That story could get you un-elected, not re-elected, even in Idaho!

Ask the tough ones, don't play along

Where warranted, tough witness interrogations—at the end of two days—might well find answers to “What happens to the public and to my state if the Crapo principles become law; which institutions benefit from that same action; and who/what has been driving this “solution without a problem,” since the mortgage finance system—with Fannie and Freddie in the lead—has been working well with no explicit help from a government that has aggrandized all but a sliver of Fannie’s and Freddie’s business revenue (some $290 Billion) for the past 6 years. (Gee, doesn’t all/most of those $Billions represent lost protective capital?)

Or just ask those question to Chairman Crapo, himself? I am certain he is completely conversant in all of the operational implementations, and logical consequences of his ideas??

Oh, most of these Crapo-chosen witnesses  expect a lovefest (or he would not have invited them), but if some hard driving take-no prisoners Senators refuse to play the “nice-nice game,” they could benefit by avoiding 2 hoary days of:
"Yes sir and thank you, Chairman Crapo, for holding these important hearings and for your introduction of these GSE postulations leading to possible legislation...gag, yak, barf!! You'll hear no harsh language or disquieting opinions/analysis from us.....of course, we can't be sure of the law guy or the NAACP woman, but “Messrs. DeMarco, Zandi, Bright and we trade peeps, won't disappoint you. Did you read our Otting letter, your Sirness?"

Maloni, 3-21--2019

Monday, March 11, 2019

“Letters, we get letters, we get stacks and stacks of letters..”

Wonderful Letter, signed by a strong set of interests, but….

In Washington DC’s political machinations, it’s great to have friends and allies.
First off, congratulations to those (said to be the National Association of Realtors) who initiated, drove, and signed last week’s housing/building/community group letter --sent to acting Federal Housing Finance Agency (FHFA) Director Joseph Otting, calling on the (acting, since Calabria’s still in the wings somewhere) GSE regulator to handle with care any Admin desired GSE regulatory changes since Fannie and Freddie are crucial to the nation’s homeownership aspirations for low, moderate, and middle income families, and for all that aspirational activity means to the US economy and its citizens. (It always helps to pause and think about what means in our massive economy.)
Lots of good and important names from a political and social policy perspective. But sometimes, all that glitters is not gold. (Wait, I think I just made up that very pithy line!!)
The letter’s true target was Treasury Secretary Steve Mnuchin, the Admin’s GSE point person, who will decide what will be in any regulatory GSE relief package and when it is offered. But, it was aimed more broadly to policymakers and caught people’s attention.
DC advocacy letters to the Hill or any Administration (this or any previous) are standard fare, often suggesting far greater common political ground among the signatories than truly exists, as in, “Sure we will sign the &%$#@^ letter but don’t expect us to do any heaving lifting, since we have our own priorities in addition to Fannie and Freddie, which are more important to us than the fate of the GSEs.”
This particular letter’s signers might wave it all over town Hill to indicate how much support the GSEs have and—possibly--not so subtlety in a message to the Hill warning Senators and Members, “Don’t mess with Fannie and Freddie or you could lose votes at home or--equally worrisome--some of our campaign contributions you’ve grown to expect.” (Truth is, with Fannie and Freddie long gone from active lobbying, these GSE allies are absent true political leaders who would follow letters with that kind retaliatory action.)
Now, even as bold/brazen as Fannie was when it lobbied way back when—absent definitive action against our interests—we’d never say those implicit words, but they were hinted. And if the letter's requested actions were produced, possibly a prompt exclusive fundraising event to which all signatories would be invited and their PACs—where they existed—and top officials leaned on to give.
Those public letters communicate more carrots than sticks.
Fine letter, very fine letter
Except for one major thing in this letter, which if you’ve closely followed the political GSE reality and the remember the distinction what “speaking with a forked tongue” or “out of both sides of your mouth” mean, as well as my just invented “gold and glitter” observation. 
The letter’s rather obvious predicate--since it both is written between the lines and stated—is the letter signers’ wish that Congress buy into whatever this Admin might do. Fuggedaboutit!
Congress couldn’t pull off this kind of policy unity when the GOP controlled the House, Senate, and the White House.
Democrats and Republicans look at the same data and reach opposite conclusions. That's why, no matter what may be going on in the courts, always subject to appeal to the SCOTUS, the fastest resolution to revive the GSEs requires a thoughtful executive/regulatory fiat.

Ed Pinto and AEI comment on the industry letter
Former Fannie colleague Ed Pinto, current AEI executive and designated holder of  AEI’s official “kill the GSEs lance” (shared with Peter Wallison, until the world hears differently) rose last week to earn his pay and do a different kind of battle with the same industry letter mentioned above, but based on the AEI’s opinion that the current market is upside down and involves Uncle Same too much. (With great mercy, AEI and Ed saved us the standard lecture on the evils of water fluidization, need to return to the Gold Standard, Communists in our State Department, the case for more flintlock rifles in every home, and no childhood vaccinations against contagious diseases.)
I originally tabbed Ed’s article for blog inclusion because of the number of people who weighed in against Ed’s rant. I’ve removed their names, but their comments are untouched (unless spell check cleaned up any typos.) As I said, it's nice to have friends in DC.
Yay all of you! (Comments to and about Ed appear after the link below.)
 (name removed) March 6, 2019
Good day,
What you seem to be missing is that the Trump administration is going to act and that these people are trying to remain relevant as things churn.
Your dog and pony show, however, continues to ignore the economics of the GSEs, just like it always has.
Good luck, enjoy your paycheck,
name removed) March 6th, 2019
Your alternative to is conveniently missing. I would love to see your proposal for Wells Fargo or any of the “trustworthy institutions” that would replace the GSE’s…or would that be an invite only party after the demise of the two? Where the structure, fees, and cigars are passed out with a pat on the back.
Reply Share(name removed) March 6th, 2019
People complained about federal deficit for a long time. What happened? Nothing
How many people complain about their low mortgage rate because of GSEs?
GSEs are really good for the whole country.
Reply Share(name removed) March 6th, 2019
Dear Sir,
You state the housing lobby is a special interest group as if they were misleading the public down some primrose trial to doom. Yet you and your banks are not “crony capitalists” trying to take away the businesses of two private companies in conservatorship for your own profit. Ironic the “Too Big To Fail” Banks who needed more bail out funds than the two GSE’s now seem to feel they would do the GSE’s job better than these two companies who have done it for decades. Also ironic that these two companies and the US Government had to sue many of these “Too Big To Fail” Banks for misleading the GSE’s on the quality of the loans which they were selling to the GSE’s…however we should trust them now with the health of the entire housing finance industry. That is even though their loss rates on their privately held loans were more than twice the loss rates of the GSE’s. These affordable housing groups are a special interest groups but the “Too Big To Fail” Banks are not???

Maloni, 3-11-2019

Monday, March 4, 2019

Some very "Scawy" anti-GSE Scallywags Out there

GSE Cats and Dogs

Except for low unemployment (which is good news), most US economic indicators are showing downturns and sector declines, whether it is revenue to the Treasury (certainly as compared with what’s is flowing out), December consumer spending, Toyota, Honda, Chrysler-Fiat new car and trucks sales down, and softening in manufacturing, and related manufacturing jobs.
Much of this is blamed on the government shutdown and the Trump trade war with China and Trump tariffs targeting other nations.
My point here is not to beat up on the POTUS, but to help answer a GSE matter which came up last week in an exchange I had with a GSE friendly interlocutor.
The guy quizzed me about a recent Dick Bove column in which Bove suggested giving into Mark Calabria’s opposition to fixed-rate financing could jeopardize the US economy.
My buddy was worried that Calabria may back away from things that  support the GSEs, i.e. Fannie and Freddie as a consistent source of fixed-rate financing in all US  mortgage markets, etc.
Without chatting up Bove, I assured my inquiring friend that I interpreted Bove’s Odeon column thusly. Bove’s entry back into the world of GSE analysis featured his GSE buy recommendation and his veteran observation that any Administration seeing what Bove considers an economy starting to wheeze (see comments above), would want to resurrect Fannie and Freddie—as rumors to that effect swirling around inside-the-Beltway, based on  statements and indications coming from Treasury Secretary Steve Mnuchin, his top GSE aide Craig Phillips, and acting FHFA Director Joseph Notting, who is the current Controller of the Currency (the national banks top regulator). 
I supported my argument, as I have with you readers in previous blogs, suggesting no matter what Mark Calabria thinks about the desirability of adjustable rate mortgages (ARMs) over fixed-rate mortgages (FRMs)--which doesn’t make him a bad guy or a bad regulatory candidate, even though he doesn’t have Senate approval, yet, but should shortly—unless President Trump decides he doesn’t want to win the 2020 GOP presidential nomination, he won’t endorse any FHFA or the big bank unending demand to curtail GSE fixed-rate financing.
I doubt if any politician seeking office in 2020, all 435 in the House and 34 (counting the McCain seat) US Senators, would support that very, very voter-unpopular stance!
So, when and if there is an Administration GSE regulatory reform package, there will be few Treasury and FHFA opponents and certainly not vocal ones, or they won’t have their jobs very long.
I will offer one assessment—which you have seen from me before—it’s actually the ying to the no-FRM yang.
I still believe because of the Fannie/Freddie (GSE) continued support for the consumers’ fixed rate loan preference, whichever political party can claim credit for freeing Fannie and Freddie from their current FHFA bondage, i.e. tight credit boxes and high always lender fees, always-passed-onto-borrowers, can reap great political benefits in 2020.  
Chair Maxine Waters (D-Cal.) schedules exclusive HBC March 12 Wells Fargo hearing 
Strap on your big-boy pads Wells Fargo, when your execs go before the House Banking Committee (HBC) and its new Chair Maxine Waters.
This won’t be a Jeb Hensarling love fest as often has been the case, since the bank’s highly questionable and proven illegal low-income mortgage lending to minorities and others with lesser incomes.
Wells home mortgage and auto lending deliberate “mistakes, such as not offering available loan modifications screwing low income and military members from taking advantage of Wells’ loan modifications making a Wells borrower’s debt more affordable. 
I’ll bet some bright and well informed HBC member even could ask the Wells witness or witnesses to identify all of the DC lobbyists and consultants who might wander into their congressional offices and advocate the Wells position on pending legislation?
That would be very useful/helpful information for all of the HBC freshmen. Or those MoCs always could ask their GOP committee colleague, former SBC staffer cum commercial banker-- Rep. French Hill (R-Ark.)-- who might have those names in his Rolodex….or maybe not? (Just trying to help the rookies, French!)
How about, while they are at it, asking that same witness how many of the “do away or otherwise hobble Fannie Mae and Freddie Mac,” legislative proposals, Wells employees or bank lobbyists helped write. 
Or possibly, what role did those same Wells employees have in the less than successful Mortgage Bankers Association (MBA) “Task Force Report,” that contained and legislative reforms to cripple the GSEs which Senate GOP sponsorship quickly appeared. It was if the draft bill was written long in advance.
Here's a slightly dated list of Wells consumer violations.
David Stevens & Michael Bright (as my very young sons used to say, “Scawy Daddy, Scawy!”) 
Old friend David Stevens now has become a man for all season, and “speaking freely”—if you believe the works of a colleague, since I can’t believe David would write the subject descriptors used in a recent Mortgage Media publication, which glorified a podcast Stevens produced with Michael Bright, former Corker Senate staffer, Milken Institute employee, to Ginnie Mae EVP, and now trade association head, and finally maybe a collaborator with a possible federal agency rule breakers. Oh, here’s the “gag me with a ladle” prose one of David’s friends must have written.
“You don’t get much more star-power in the mortgage industry than a conversation between Dave Stevens and Michael Bright. When the two recorded a podcast last week, they were speaking their minds freely – something that might not have happened as often in their previous roles. Not that you’d imagine they ever held back too much … you get the impression that their opinions have always been Housing gospel.”
Yak, gag, barf.
I won’t bother to pimp this article anymore. But the link is below so you can see my next point about Bright and his other friends.

What got my attention was Bright talking about how he and Ed DeMarco—in 2013 wrote the bill which became Corker-Warner and then Johnson-Crapo—and currently the Crapo 2.0 legislation, to replace Fannie and Freddie with Ginnie Mae (coincidence that MB put in time there?).
Oh and headline alert, headline alert to HBC wasn’t Ed DeMarco employed as acting-Director of the GSE regulator, the Federal Housing Finance Agency when he partnered with you on writing this legislation?
Was writing legislation designed to tank the two entities for which DeMarco was the chief "safety and soundness" regulator part of his government job or was he working for someone outside the government or just laboring to get his next better- paying position? 
I'll bet some curious minds would like to know???

One last note.

Hey Michael, what entity would guarantee the credit--as FHA and VA now do on government loans for Ginnie--for those multitudinous conventional loans which your fantasy has the "new Ginnie" wrap with its federal government guarantee?? 
I wish I could claim as mine this next line, but I  can't. It comes from a wag who commented to me about David and Michael's Excellent Media Adventure.  
 "You don't get much more star power in the mortgage industry than a conversation between Dave Stephens and Michael Bright."  

"I'll take 'Bullshit' for $1000, Alex."

Maloni, 3-4-2019