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


TUESDAY, MARCH 26, 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.

WEDNESDAY, MARCH 27, 2019

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 onhttp://www.banking.senate.gov.Testimony and archived video will be posted on http://banking.senate.gov/public/index.cfm?FuseAction=Hearings.Home.


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?

Wells

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





19 comments:

  1. This comment has been removed by the author.

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  3. The inaction of the U.S. Congress and the theft allowed by the White House creates a belief within me that I have no reason to purchase any stock in a U.S. company. Where does the U.S. Government have the right to insert themselves into a publicly owned company and take all of the profits for ten years (after being paid back)! Why should I or any person invest in the United States, so the U.S. Government can do it again to another company? I am looking forward to a punitive court ruling against these actions. I am not a hedge fund but rather a long-term shareholder.

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  4. Michael--First off, thanks for reading and writing. I understand your perspective and sympathize.

    I am not a lawyer but I also object to--and still can't understand how--so many federal judges, including Judge Lamberth--ignored the obvious facts in this case.

    For the most part, I believe most of these judges were lazy and took the easy way out and agreed with Judge Lamberth rather than do the hard work and reach independent conclusions.

    I believe the GSEs were engulfed in the "perfect anti Fannie-Freddie political storm, which over 25 or so years brought together anti-GSE sentiment, mainly from the Right and conservative big bank allies, well funded political opposition, and clueless public officials.

    While it is possible--especially if the US is run with by the totalitarian leanings of the current POTUS, I don't think other corporations in other industries face the same threat because of the GSE experience.

    That doesn't mean the bad guys will stop trying to hamstring Fannie and Freddie.

    I will note that serious efforts to significantly damage their operations (not just their ownership, i.e. government warrants) have failed--because all of the alternatives pale in comparison to the current arrangements.

    Lastly, many people who share your feelings believe that the government must settle with shareholders before any structural mortgage market changes--see various GOP bill to accomplish same--can be pursued. Those people claim they'll take this matter to the Supreme Court, if necessary.

    (Excuse any typos.)

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  5. Good morning Bill,

    Thank you for your follow-up note. One of the more disturbing parts of this conservatorship is the length of time that U.S. Congress has taken to not achieve any solution. Whichever way Congress chose to go, either receivership, release and / or change of charter, this situation could have been resolved in 2014 / 2015 and there is simply no reason this situation should have lasted this long in limbo.

    In 2015, I wrote and mailed the following paper to numerous members of U.S. Congress: http://www.gselinks.com/pdf/GSESenateHouseLetter.pdf

    A Simple Solution to GSE Reform: A Fourth Amendment, Authored by: M. Meyer, Cavlogix Corporation
    Included in this letter, on Page 13 of 14 was the following:

    QUICK FINANCIAL ANALYSIS:

    Market Value of FNMA / FREDDIE MAC (000's):

    Annual Expected Earnings of FANNIE MAE: 10,000,000
    Valuation of company using at a 12 to 1 P/E: 120,000,000
    Government Share: (80%) 96,000,000
    Private Sector Share: (20%) 24,000,000

    Annual Expected Earnings of FREDDIE MAC: 6,000,000
    Valuation of company using at a 12 to 1 P/E: 72,000,000
    Government Share: (80%) 57,600,000
    Private Sector Share: (20%) 14,400,000

    Valuation of US Government share in Fannie Mae and Freddie Mac: 153,600,000

    The actual number of years the US Government would have to wait to recover an amount in earnings equal to the amount that the private sector capital markets would be expected to value the common shares of Fannie Mae and Freddie Mac (equal to $153 B. dollars) is 9.6 years.

    Immediately releasing the GSE’s from conservatorship and allowing Fannie Mae and Freddie Mac to return to operation with revised operational guidelines allows the US Treasury a method of recouping greater amount of capital versus waiting approximately ten years to recover an equivalent amount through the quarterly / annual profit sweep. At the same time the US Government is provided the opportunity through an eighty percent (80%) ownership position to exercise guidance for the future operations of both of the GSE’s. Following this path, the US Treasury could exit and / or stay involved as long as they held a majority equity position. Applying this method and following this path, does not restrict the US Government to changing the Freddie Mac and Fannie Mae charters in the future, it simply provides a method for the US Government to gracefully exit their involvement.

    --
    As it is now 2019, I have resolved to simply wait and look forward to a punitive action against this inaction.

    All the best to you,

    Michael

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  6. Mayopoulos served at the mortgage giant for more than 10 years before moving on to become the president at Blend, leading its go-to market and corporate support functions and serving on the board of directors.

    In an interview, Mayopoulos explained that over the past 10 years, the GSEs had already seen reform. And indeed they did - opening access to credit, serving the underserved markets and much more. Now what is needed, Mayopoulos argued, is housing finance reform.

    "Reform of the government sponsored enterprises has already happened," he said. "What people are really talking about is housing finance system reform. It is often frustrating to me that policy makers often don’t acknowledge that Fannie Mae and Freddie Mac are fundamentally different organizations today than they were 10 years ago, before the crisis."

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  7. OK Michael, stay involved and active (it's better than the alternative)--

    Blame first the courts; next the Congress; then the Obama and Bush Administrations.

    Hold on before you go after the Trump Treasury (Trump on this matter) until you see where it really is (not all of the airy-fairy statements and false leads it has been laying down, i.e. agree with every stakeholder.

    And then go after the SCOTUS, if we are rebuffed everywhere else.

    I don't know what to do about the lower courts. The Hill is and has been a standoff, even when the GOP controlled the House, Senate, and WH. Even more so, when you compare Crapo's and Waters' priorities.

    A shorthanded version of GSE friends best hope--if no relief from Fifth Circuit--is an executive/regulatory move from Mnuchin, Calabria, Phillips, and Otting.
    If you haven't yet, look at what spooked the market today, the talk of an inverted yield curve and economic slowdown.

    Then look at the stuff-some of which appeared in earlier blogs--Dick Bove has been saying about the need to jump-start the economy by activating the GSEs.


    Of course, his concept may be too logical from official Washington unless DJT can figure out someone to blame and mock their name/spouse/ethnicity by galvanizing the GSEs.

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  8. Michael, GSEs need to sell new common shares to raise cash capital of $150B. I believe government has to given up the 79.9%. Otherwise, existing common shareholders would have little and file lawsuit to halt public offering.

    My estimates for Fannie: $120 market value, sell 2B new shares for $80B at $40/shares . Existing shares worth $40B.

    I tend to believe NWS and 79.9% option would be voided when 5th circuit makes decision. Then a recap plan follows.

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  9. Michael--Now you have another perspective.

    The more people who stay tuned, the better the situation is for a positive resolution, as along as those people remember how much politics will play in whatever is the outcome (hopefully a positive one).

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  10. Yes, hopefully a positive one...however long that takes. In the interim, I look forward to Mr. Crapo, Mr. Stevens, Mr. Parrot and all the other 'fellow travelers' losing the ability to control their narrative through punitive court development(s).

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  11. Hi Bill,
    How is that Collusion and your pick for the Democratic nomination going?
    Just sayin. All in fun.

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  12. I guess I'll just have to root for President Beto/Bernie/Kamela/Joe!!

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  13. While some are chortling over the Mueller report's non-findings, I acknowledge those facts and keep asking the chortlers what's this President accomplished??

    I can see the economy juiced up with our children's and grandkids tax money--stolen from future generations--but then I ask about inverted yield curves and slowdowns, North Korea, infrastructure, China, NATO, the EU, Iran, Iraq, the environment, PUTIN, nepotism and Trump-famil financial benefits, extreme narcissism, the comings and goings of dozens of DJT appointees,, and why does George Conway sound like an aggrieved husband, while Kellyanne sounds like a fan club president???

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  14. Bill,
    If you can’t see progress in every single category you listed, then maybe you are just blinded by ideology? I know it’s a sad day when all the lies have been exposed, that Socialism isn’t going to take hold, that Mississippi has protected the unborn, a Wall is going up, that with Avinetti now jailed the Democrats have almost no one to represent them, that Blacks are seeing the Democrats for what they are, America Jews are following, Union Workers who have been lead by corrupt leadership, Hispanic citizens and College Campuses soon will be able to hold free speakers again are all signs of hope for our great country.
    You NEVER mention BHO added $10 TRILLION dollars to our debt, no one has made ANY progress with NK until Trump. No One. NATO now starting to pay their fair share. First time ever. How bad are those Steel Tarriffs? LoL.
    How about ISIS?
    George? Whole country views him as a Loser. Regardless of what side you are on, he embarrasses his wife. A nobody.
    You seem right on a lot of things GSE, but seem about 99% wrong on political issues.
    Only fun. We know it’s not a good time as we endured Husain for eight looooooooooooooong years.

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  15. Anon--

    So all of my points are wrong and all of yours are correct??

    First off, I seldom mention BHO because he no longer is President. That's also why I seldom mention HRC. But the blog writing is proof--while I voted for both--I also was critical of them. On Obama for his GSE positions and what I perceive as a weakness on Russia, although not as namby-pamby and subservient as Trump, who has set a post WWII low int hat regard.
    (If you understand why I would appreciate you telling me just what his Putin-bromance is all about?

    I deal with the current guy whom I think isn't worthy, smart enough, or intelligent enough to hold the office, but he does so I can't ignore him.

    You would love my 97-year-old aunt, you sound like her when she yearns for the 1950's, too.

    Rather than reject my position s with generalities, go ahead and show me all of that DJT progress on infrastructure, trade deals, foreign relations, North Korea, Russia and Puting--the last two which are playing him like a fiddle--not to mention China.

    What pools show you him gaining loads of African-American voting support, Jews, and white college-educated women??

    Where are those new manufacturing jobs in Pennsylvania, West Virginia, Ohio, and Michigan??

    Who is paying for his Wall?? How big was that Inaugural crowd size; and what happened to those lies that he didn't know or the Playboy Bunny and the porn star.

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  16. Bill,
    After watching the hearings, this is what I saw and heard:
    --Two groups of "experts" all so cocksure about everything they said. Not at all reluctant to predict future outcomes with great certainty and confidence. Especially the King.
    --Even though there were different opinions regarding some very fundamental and structural issues defining this new transformed secondary mortgage market.
    --Hardly anyone (perhaps one) seems to have paused to ask: "If we build it, will they come?"

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  17. Anon--

    Very close to my review; loved Levitan's and the CMLA's candor and analysis.

    It just reinforces my belief that there can be no substantive GSE legislation until 2021 (since nobody will want the take on that hot potato task in 2020's supercharged election year circumstances.

    So we are left with a White House initiative, via regulation, which so many interests fear because they can't control it and the always possible but, in my view unlikely, major court win for the GSE plaintiffs.

    In a mini victory lap, I think I nailed--in previous blogs--what these hearings would look like.

    Even Ed De<arco said to endorse a "Ginnie in control" new mortgage system model (which he and Bright once drafted), you would need to add hundreds of new Ginnie employees.

    Now that all will go smoothly and not take long, with HUD officials in charge, right??

    I think Ed just gave Crapo's plan a kiss of death.

    Unless someone can build it around a new dinette set for Secretary Carson? ;-)

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  18. Love the anon Trump fan. First they ask you to stop posting about Trump and stick to GSEs. Then they come to stir sh** up about Trump when you actually post about GSE and not Trump.

    Crapo needed Wells Fargo to replenish his campaign fund. #draintheswamp ?

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  19. Beyond the standard trade association oral buffoonery, I think anyone viewing the hearings realizes Crapo got NADA out of this.

    He proposals involve beefing up Ginnie Mae and the President almost immediately announced what bad shape Ginnie's work is on FHA/VA/Ag loans.

    Ed DeMarco says Ginnie, first, would need hundreds of new employees, yep that's going to go over well, the GW law professors says his ideas are a sham, and not workable from a practical perspective...and his ideas still lack affordable housing provisions which is what the SBC D's and Maxine Waters care about very much.

    He held two days of hearings (with most Senators ducking Day 2) and he got a figurative cream pie in the face!!

    (I'll have a new blog out on Monday, discussing more of the heraings.)

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