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.

https://www.foxbusiness.com/politics/fannie-and-freddie-fist-fight-brewing-amid-trump-administration-infighting 

(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??)