..because that's where former regulators go for their next breadbowl!

Color me GSE-confused, but that’s not new

(Make sure you read Tim Howard's new blog, published this morning.)
https://howardonmortgagefinance.com/

As with most of you, I am attempting to deduce/interpret what happens next in the Fannie and Freddie world between a possible Fifth Circuit Court decision, White House calls for a plan to get GSEs out of “conservatorship,” and (confusing and sometimes incompatible) comments Mark Calabria made in a WSJ article written by Andrew Ackerman.

Tim Howard’s adroit comments on Calabria’s statements tell a far better story than I, so you can read them in this link to his blog.

https://howardonmortgagefinance.com/

As I told a blog commenter last week, Calabria’s academic achievements, his time on the Hill, work at CATO, and whatever he did for Vice President Pence suggests—but doesn’t necessarily prove—he understands markets or their interplay amid shifting GSE politics.

Listening to his public remarks reveals to me, as their primary regulator, he hasn’t clarified his role or what he wants to do with the GSEs although—at the end of the day--everyone knows Treasury will pull all of the strings and FHFA is the passive tail wagging dog.

But to say he wants the GSEs free and out of “conservatorship” and seeks the Hill‘s help to get there is either boilerplate institutional BS or utterly naïve about the Congress and Wall Street.

Calabria just should keep reminding himself, “Senator Crapo (R-Idaho) and Chair Waters (D-Cal.)” and drop the "congressional help" line and remember “money wants to make more money.”

Since the new FHFA Director hopes investors will provide $100 Billion or more in capital for the GSEs to operate—which Calabria says is core necessary--he can’t suggest to those who would invest, he also wants to pull the Fannie/Freddie charters, largely the only thing worth buying!

That’s like trying to sell an exclusive Mickey Mantle or Babe Ruth baseball card, but only after you ask the buyer if your kids, first, can paint on it and your dog chew it?

The Director soon will learn there is nothing easy involving the GSEs and nothing which, politically, doesn’t create rancor on either side of what he proposes or supports.

Even though he’s been in town for years and babbled in his interview about those clashing objectives, I give him a pass because he’s new to the position and, likely, just realizing how few options he might have, given what he’s written/spoken about, i.e. ending the “sweep,” GSE privatization, and dozens of other related things.
Good luck, Mark and lean on your new assistant, former Fannie executive Adolfo Marzol.

One of these things is not like the other...

I had an interesting exchange with one blog reader and explained my perspective on how large banks and GSEs contrastingly are regulated at the federal level.

Basically, in sharp contrast to what I’ve observed of GSE regulation since 1992—which I saw as interventionist, controlling, and sometimes hostile--in TBTF bank regulation, the banks are welcomed, adopted, shepherded and cared for by the Comptroller, Treasury, and Fed (looking ahead to post government jobs?).

Despite constant industry bitching, moaning, and whining, bank regulation is soft, big bank regulatory treatment is almost benign.
Despite $175 Billion in banks fines for breaking laws and regulation, since 2008, which big banker has gone to jail, let alone trial??

My advice to Director Calabria, wait a few weeks before giving interviews and broadcasting your grand schemes (too late???). Wait to see where your Admin bosses want to go, then travel there with them. If you don’t like where they are headed, announce your disagreement and then resign.

If he wants, Calabria can/should help make the GSEs operationally free, again. He can be supportive.

He can remind himself of the GSE’s community importance and the very clear practical reality (and history) that the American consumer and every professional in the mortgage finance chain succeeded and were profitable during the GSEs halcyon years, including the nation’s largest financial institutions, which still are doing well (see revenues, profits, and happy shareholders).

Calabria can grasp it’s not a zero-sum game unless the big guys get even more greedy. When the GSEs are free to do what they always have done for those seeking mortgage finance, the mortgage market is buoyant and uplifting and there is no incentive for lenders to return to fraudulent practices.
Thoughtful regulation already has squeezed much aberrance from the mortgage industry.

The housing/mortgage finance industries benefit from a healthy Fannie and Freddie involvement, but more importantly, so does the nation and its mortgage seekers. That’s far more desirable for Calabria's resume than,  “He succeeded in frustrating the GSEs return to operational success.”

Contemporary legal matters

First off, a reminder, I ain’t a *&^%$# lawyer, now shorthanded to “AAFL.”

(But, I did learn that Judge Margaret Sweeney’s photo has been put in the latest Funk and Wagnall’s encyclopedia under the term “not in God’s lifetime.” You be the judge—Sorry, I couldn’t resist that line.)

The Fifth Circuit en banc review of the Collins decision still is pending. 

GSE hope springs eternal in this season of renewal.

If there is a Fifth Circuit decision for the plaintiffs, i.e. the investors’ side, the government could appeal to the SCOTUS, unless the finding is benign enough to accommodate whatever Treasury, FHFA, and Crazy Larry Kudlow support.

I also was told a favorable ruling for the plaintiffs ending to the sweep would happen immediately, with future earnings going to the companies for capital purposes.

"AAFL," but any of you who is, might want to answer—if the Court decides for the government—what would make a SCOTUS, which can refuse to hear an appeal, hear this one???

Historic legal matters

An old friend and GSE savant, who calls himself "Doc Cartoon" and produces GSE artwork, came up with a rare find, something quite useful especially for that DC audience still very ready to believe any criticism of GSEs, even the distorted suggestion that 15 years ago, Fannie’s mortgage operations featured mismanagement and legal violations.

Most of that original noise stems from actions of a gaggle of lazy and weak GSE regulators at the FHFA predecessor, the Office of Federal Housing Enterprise Oversight (OFHEO).

In 2004, frustrated because certain Fannie execs refused to hew to OFHEO’s cant which sought to substitute  inexperienced regulators’ business thinking for management’s expertise, OFHEO decided to willfully retaliate and announced the company’s senior leaders were guilty of “securities fraud.”

Doc's find was a legal publication’s article discussing Federal Judge Richard Leon’s dismissal of those charges against former CEO Frank Raines and former CFO Tim Howard (as well as a third Fannie official, Leanne Spencer Garmon).

https://federalcriminallawcenter.com/2012/10/another-fannie-mae-principal-dropped-as-defendant-in-fraud-case/ 

It took eight years for that malignant Fannie claim to be rejected by the courts, which is proof of the adage (attributed to Mark Twain), “A lie can travel halfway around the world while the truth is putting on its shoes.”

But also be alert this smear and variations still are employed today by the anti-GSE crowd.

Maloni, 4-28-2019