There still are GSE damage seekers; plus Don Layton stayed too long

Jingle your pockets, yes; but pay attention to still present GSE worries

(As I publish this on Thursday night at 11PM, eastern time, comments are flowing on several Net sites about a possible Fifth Circuit decision coming on Friday. Hope it's legitimate and is pro-good guys! See you in 10 days.)

  

I’ve already established myself as a cautious Cassandra or Pollyanna on future GSEs matters, although my hopes and expectations are for the two to have a maximum return to something resembling their pre-conservatorship (2008) roles, as privately owned entities. 

My ongoing fear is that too many GSE fans are looking at the rising share prices and seeing welcome dollar signs but are forgetting or not paying enough attention to Fannie's and Freddie's effective operational/functioning side which makes the GSE mortgage executions more efficient, fair, and superior to any other market competitor.

Lose that and we'll lose what makes them special, distinct, and financially valuable.

Fannie and Freddie offerings, executed through the variety of primary market lenders--which now, always, and only should continue to deal directly with consumers--I'll repeat, are more fair and consumer-friendly than those outside the GSE system.

You hear ignorance when the ill-informed bloviate, “Well, we don’t want the GSEs just to do what they used to do and have the same problems, right?” 
They ignore the fact Fannie and Freddie carried on their institutional shoulders the nation’s primary mortgage market for the past 10 years and before then, making needed liquidity broadly available. 
Also, there exists, today, which didn’t exist then, protective new government lending rules that prohibit low-quality primary market mortgage originations or subprime, from going through the GSE systems. So what's opponents real issue?? Answer: the same old one, $$$$.

(Duh, and if the GSE business models were so bad, how do you think they have been able to generate $300 Billion in after-tax earnings, since 2013, and repay the government for the $189 Treasury gave them—or forced them to take!--in 2008?)

It’s that kind of GSE ignorance which exists in huge quantities among observers and, worse, mortgage market policymakers.

So while everyone’s focused on their current Fannie/Freddie financial profits, the anti-GSE elements still are working the Treasury, FHFA, the Hill,  the White House, and the media, hoping to cripple whatever survives of the mortgage giants, if executive action is forthcoming, before or after, a pro-plaintiffs court action. 
(OK, it’s safe, you can come out of hiding now Fifth Circuit!) 

Recent events argue you don't have to win on the Hill to still win in a major way.

History lesson: Go back and look at how—after trying to vitiate it on the Hill and largely succeeding—the big banks went after the Dodd-Frank legislation and its Volcker Rule through the regulatory process, squeezing the Obama and now Trump Treasury departments.

Too much money, big bank political smack, ego and reputation at stake for Fannie and Freddie (and their shareholders) to emerge from a new WH reg change or even court win as the only and clear victors.

Washington doesn’t work that way. As I said, if all you want is more money for your GSE shares than they cost, you might not care, But, I argue your attention and support still are needed.

Remember, it’s easy for this WH or any other to give away a little cash. Mortgage finance systemic control--which is what's at stake here--is another matter. 

Freddie’s Layton at the Atlanta Fed 

The Atlanta Fed has never been a pro-GSE facility, having a few prominent researchers publishing papers which seldom came down on Fannie’s and Freddie’s side. (I am speaking about you, SF!)

Freddie Mac’s outgoing president Don Layton spoke at the Fed regional bank this week and delivered what I have come to expect from the guys from Virginia.

https://www.cnbc.com/video/2018/06/22/freddie-mac-ceo-wont-see-company-out-of-conservatorship-in-my-tenure.html

As I emailed to a GSE friend when he sent me the news story,
“Give me your headline because nobody at Freddie impresses me. I constantly question their motives, which--even before conservatorship--always were closer to the government's while trying to outflank Fannie.”

Don didn’t disappoint, unless big picture FHFA butt-nuzzling helps, yet to be fair he was informative (if you haven't been following GSE matters).

I could be all wet in my criticism but instead of using his platform and pushing the Treasury/FHFA/WH to put out their long awaited and finished GSE package, Layton just predicted lamely it won’t happen before he leaves and it could take years before the GSEs can be recapitalized. Gag, yak!

Hey Don, if you get another opportunity—be a dire wolf—suggest something like (connecting your departure with an action you want), “It would just super for US mortgage consumers and all the Realtors, builders, lenders in the nation’s mortgage finance system, if President Trump, Secretary Mnuchin, Director Calabria unveiled their much touted GSE reform proposal shortly and receive the acclaim they would deserve. A move I will loudly applaud before I leave Freddie in July.”

(Speaking of which, it’s stunning to me that the WH--which obviously is concerned about the 2020 election--does not implement its GSE plan and take credit with the nation’s middle class and lower income voting families for expanding homeownership opportunities for them and their children, plus all of the associated jobs that would flow from new homeowners moving in, fixing up, and furnishing their homes??)

Use your departure as an advocacy tool, Mr. Layton, you don’t need to ingratiate yourself to anyone, any longer. You’ve done fine in the Freddie job to which you were recruited.

BTW, Layton mentioned the cost of the common securitization platform was not the early report of @$400 Million but “$2 Billion.”

Label those GSE profits, poured into the “help Freddie because they can’t/won't  help themselves” project, as money which didn’t go to the taxpayer, just to outside contractors.

On their always fat bank side of the ledger, you’ll want to add these federal taxpayer benefits (from GSE revenues), because—in addition to not paying for it--the FHFA’s plan is to allow private securities issuers (think, banks and investment banks) to use the GSE-financed CSP.

Layton said the mandated joint project took about seven years (with  Fannie slow walking it every step of the way I hope). 

Fannie always had a better mortgage security design, while (typically) Freddie insisted on clinging to their 1980’s model, which made its “pc” or participation certificate less financially attractive.

So Fannie is the CSP loser here and Freddie—which will get a better MBS vehicle--and the banks win, when the latter get access eventually to issue their own securities. (never paying for any of the development costs).

Don Layton may have said too much at the Atlanta Fed….

Layton said some other things which caused me to question his "inside the Beltway" common sense.

He marveled to the bankers about all the GSE politics he encountered in DC and kept referring to lobbying and lobbyists. 

Don, Freddie is HQ’d in the DC area--where everything is politics and disdain--it makes $billions per year, and you and Fannie have a legion of business, commercial, and ideological foes which never stop targetting you. For years before you arrived, they have been trying to eliminate the GSEs.

And you're still shocked at the politics of everything? 

Were you expecting picnics with sessions of “bean bag” (in a nod to the late Speaker Tip O’Neil who reminded all of us what politics is not)!*

And, unless your employees have been sneaking around the law, the Conservatorship took away Fannie’s and Freddie’s right to politically lobby Congress, the Administration, or anybody else; no advocacy through communications, etc., either. That included the GSEs retaining political consultants.

Mr. Layton, IMO what you did by innocently mentioning your personal awe at DC GSE political actions—mostly aimed at the GSEs, no longer Fannie and Freddie pushing for relief--is confusing and just will convince some in DC that the GSEs still try and twist arms on the Hill and elsewhere.

Enjoy your retirement, Mr. Layton, try not to do any harm as you leave Freddie.

(*Tip O’Neil, quoting “Mr. Dooley,” said “Politics ain’t bean bag!" The entire sentence is worth looking up readers, just Google the four words I’ve quoted.)

Maloni, 5-23-2019

GSE wishes and curses.."That's the way, $, I like it ; that's the way, $, I like it .."

Prez says a little; Lamberth says less, 
I hope Fifth Circuit says/does more

When he addressed the National Association of Realtors last week, I don’t know if the budget-conscious NAR didn’t offer President Trump a teleprompter or the POTUS said he didn’t need one?

It’s a shame because the prompter’s presence tends to produce more serious and better developed presidential commentary. Without one—it suggests sometimes he’s winging it—and what we got was some airy-fairy nice housing GSE-budget comments but without much/any substance or timetable.

However, I’ll happily take it (before “Anon1” reminds me Obama never went that far) and nod approvingly.

I’ll continue to assume there’s a busy team behind President Trump working on what I think—at this point--is a tractable issue. (They’ve certainly given enough signs to think that is the case).

President Trump did say the Admin has “many geniuses working on the problem” and he/they will bring in the best minds from Wall Street to help.

But, they’ll be minus Wall Street vet Craig Phillips contributions. (He can’t be happy staying on in town who knows how long, no matter what words were put into his mouth.)

Philips announced his “whenever” departure, last week, that also made me recall Charlie Gasparino’s suggestion several weeks ago that there was some major internal GSE clashes within the White House working group, which likely would have covered Mnuchin, Phillips, Otting, Calabria, Kudlow and, Trump insisted, HUD Secretary Ben Carson

But rumor has it that Carson, the noted former brain surgeon, has some other issues on his mind. Reportedly, he’s still busy looking for an office dinette set, which meets Mrs. Ben Carson’s standards.

Apparently, the seldom-seen-heard Carson also is very agitated, after the 7-11 public relations department asked to come in and take a “milk carton” photo of the Secretary, “for contingency purposes,” they claimed.

The Secretary now is feverishly checking his family tree to make sure he isn’t related to Judge Margaret Sweeney!

Until I see something to the contrary, I will assume Gasparino’s prediction had something to do with Philips getting elbowed out. If I had a choice, the next one I’d want “out” is Kudlow. 

Judge Royce Lamberth, next to NADA 

Shame on me!

I was hopeful--when I misread the news report on Judge Lamberth’s May 16, 2019 ruling--and then my hopes largely were dashed,.

The infamous jurist—who issued the original decision, much cloned by subsequent cowardly colleagues, suggesting the government can do whatever it wanted to Fannie and Freddie--leaped into the GSE limelight, a little bit, last week.

Unlike other smarter observers, Maloni (this “AAFL*”) wanted to believe that Judge Lamberth’s new rejection of defendants (FHFA, Fannie and Freddie, i.e. the GSE lawsuit “bad guys”) request to reconsider part of his ruling re plaintiffs rights to challenge the sweep, was something special for the GSEs. But, I was mostly wrong.

One lawyer friend did say it allowed preferred investors to possible secure contractual damages, but not a lot more, since it requires some Judge/court to say those investors were damaged, which hasn’t occurred, yet. (See Lamberth ruling link below.)

(https://gselinks.com/wp-content/uploads/2019/05/13-mc-01288-0104.pdf)

His 5-16 decision put Lamberth albeit mildly and briefly on the plaintiff’s side.

But more noteworthy, if you believe/hope/fantasize that Judges talk to one another across jurisdictions and circuits, the grand optimist in me says—for a judge who might want to clean up his legacy after being lied to by the government and issuing a ruling he might want to forget—Lamberth’s opinion is a teasingly perfect gesture setting up a Fifth Circuit Court decision rejecting the 2012 Treasury “sweep!”

Just so I don’t curse any GSE positives, I am going to do a heavy Dionne Warwick on this one, i.e. “Wishin', hopin', thinkin', and prayin', plannin', and dreamin’.”

(*ain’t a *&^%$#@ lawyer.) 

Washington Post does it, again

The element in me which chortles when I catch the Washington Post, an avowed anti-GSE editorial opponent, with its lacy hypocrisy showing, loves these events (which might occur, again, next Saturday, after Monday, May 20^th significant GSE stock prices increases)!

Last Saturday’s Post (May 18), as it does every Saturday in its business page stock listings, carried its regular “Local Gainers and Losers” list.

Prominent under “Gainers” were Fannie Mae, with a 4.9% weekly improvement, and Freddie Mac with its 4.7% gain.

How do you like them apples,”Posties?”

Tough—but not impossible for you—to contend the GSE citizen investors, along with Uncle Sam’s 79.9% ownership, don’t matter when you celebrate that performance along with other successful corporations. 

Am I being a “Cassandra?”

Do GSE eyes bigger than our stomachs=“Danger Will Robinson?”

When I was a kid, announcing my great hunger, asking for more food than I could possibly eat, and then failing to consume it, my mother—or one of her doting seven sisters—would say, “See, your eyes were bigger than your stomach.” 

My youthful piggy requests and leave behinds may not be a perfect analogy, but I am bothered by a lot of the website talk about GSEs common shares yielding ten or more times their current prices (@$2.70)—I’ve even seen $100 common estimates--based on nothing more solid than investors’ wild appetites and yield dreams.

Given the GSE stock return multi-year drought, it’s perfectly understandable when things appear to be going right.

But it may unrealistic and, frankly, because of all of the tricks still available to the “bad guys,” the results and returns may not happen just the way we want them!

Although I root for the Trump Admin (Treasury and FHFA) and for the Fifth Circuit to fix the mess, until it does, don’t borrow against your “winnings” or use Grandma’s butter and egg savings to leap into greater investments

It may be premature, but some of us are going to commit that error.

As GSE investors and veterans we should realize there are no sure things…until there are.

I know I sound like my cautious mother and her sisters, who were always quick to remind they “had to survive during the Depression” and remembered lean times and bad things happening.

There’s a reason growing up we were advised to be safe, not sorry; not to count our chickens before they were hatched; don’t buy that expensive dress or suit until someone asks you to the dance or offers you that job; don’t make plans that depend on something good happening before it actually happens, etc. etc.

Good financial luck to all, just don’t run before you walk!

(Yes, I saw and benefited from Monday’s market results--clearly stoked by Mark Calabria's bold statements--yet still urging caution/restraint. Note, the rest of my investments lost me more money yesterday than my GSE positions produced, so what do I know?)

Maloni, 5-21-2019

(Headed to the west coast and family stuff for a week, probably won't write for a while, unless the dramatic happens, i.e. Maloni wins Pulitzer, Nobel Peace Prize, or hits big at the casino.) 

Waiting for the Fifth Circuit and Goodbye Craig Phillips

Perdue and Menendez, for the people!

At least, a bipartisan set of Senate Banking Committee members, Sen. Sonny Perdue (R-Ga.) and Sen. Bob Menendez (D-NJ), have recognized the BS in using GSE revenue to fix non-GSE-red ink in the mammoth deficit budgets—which didn’t start with President Trump (originally that was President Obama’s DNA on them), but certainly they have grown larger under the Trump administration. 

However, the problem is this legislative idea is too much "good government," which means its unlikely to get considered. 

Although it’s a righteous idea, I doubt if this proposal passes de novo (especially not if the White House still has plans for that roughly $20 Billion or so they collect annually from Fannie and Freddie for other budget costs) or attached to some other piece of must-sign legislation.

I only hope these two SBC warriors are doing it for the reasons they claim so that G-fees (which are set not by the companies but by the Treasury/FHFA based on capital requirements) don’t rise and push would be mortgagors outside the necessary homeownership income requirements. Also, that the Senate pair stay “GSE friends” if a plethora of related matters come before their committee. 

Mark Calabria from Mt. Olympus!!

The new FHFA Director, speaking earlier this week at the National Association of Realtors (NAR) conference, hurled some headline-making lightning and thunderbolts which got the mortgage financial world’s attention, especially his declaration the Admin really doesn’t need Congress to seek GSE changes (um, who didn’t know that?) and Fannie and Freddie could IPO or start searching for required capital by early 2020 (that’s assuming the executive’s magic GSE reform package is implemented by FHFA and Treasury, to which Calabria now claims in these matters he’s equal)! (I wonder if Mr. and--certainly--Mrs. Mnuchin think that way? Don‘t assume the boss’s wife isn’t important here!)?

Thursday's Inside Mortgage Finance (IMF) reported that some economists in attendance, sharply disagreed with the Director,  apparently after Calabria departed.

Since I couldn’t get/read a copy of that IMF story, I’ll need to see a more fulsome report of those opinions before I can comment. 

Let’s hope a few of those economists--I suspect not one a GSE fan--pointed out the capital flaws in Calabria’s plan; the BS about multiple guarantors if the Treasury still threatens to do away with the GSE charter (what would investors buy?); and the same question, if the WH doesn’t settle with current GSE shareholders. 

Who is going to put money into anything, where that is the risk, along with the chance some future Administration mirroring Bush and Obama chose to aggrandize all of the future profits of the “new mortgage finance system?” 

David Stevens said what???

My friend David Stevens authored a piece worth reading. But it won’t be surprising, the man who spent several years in league with the large TBTF banks, or  “Too Big to Fail,” now argues any Trump regulatory effort should be avoided because it won’t help the GSEs just the behemoth financial institutions.

Say again?

It’s all conjecture on David’s part tied into the belief that GSE mortgage-backed securities (MBS) will lose their national and international investment profile because of the absence of an explicit federal government back up. 

Unfortunately, DS appears to be running with the same old anti-GSE crowd, with his report offering support from “the old AEI fellow traveler” Jim Parrott and then a Moody’s analysis (say, isn’t that Mark Zandi's employer, whose DNA is all over the hugely inflated of bank PLS ratings form 2007-2008).

https://www.mortgagemedia.com/dave-stevens/analyzing-the-impacts-of-administrative-gse-reform 

Dave is and will be a smart guy and I guess his prognosis is no worse than mine, when I say any massive restructuring of the GSEs will produce a slow, cumbersome inefficient set of bank-connected replacements which will cost US consumers tons of money. 

But, I think it easier to look at his column realizing he seems to oppose anything which holds hope for the GSEs returning closely to their former operational roles and with more freedom of movement than they've enjoyed in 10 years. 

On the good side, he did acknowledge that 4.5% GSE capital would be very expensive (and in Tim Howard’s view more than double what’s desirable or necessary).

Stay healthy and well David!

Craig Phillips

Yesterday brought the news that Treasury Secretary Steve Mnuchin’s GSE counselor, Craig Philips, will be leaving his job (which the Admin quickly reported would be when the current GSE housing reform project is completed, which could be “never in God’s lifetime.”)

Thank God, Sarah Sanders didn't say, "Mr. Philips wants to spend more time with his family."

Some Reasons Why CP bagged it?

My analysis of why Philips is leaving, based on my well-known GAPDP (“generally accepted political departure principles”). 

One: he’s tired of his Treasury take-home pay, eating in the Treasury mess, and, publicly tackling the flag, daily, to show his patriotism. New York restaurants and compensation look so good in comparison. Not to mention the low key hum of daily Manhattan indifference. 

Two he’s PO'd having to deal with political buttheads—downtown and on the Hill (can you say Kudlow and Crapo?)--who still pronounce the “t” in mortgage. Phillips can’t understand the reason Treasury is holding back on its perfectly sound GSE reform plan which he helped polish and lock down weeks ago? 

He keeps repeating, “I don’t understand, we didn't operate that way on 'the Street.'”

Three: his third cousin is Judge Margaret Sweeney and he worries if he doesn’t get out of DC “Right &^%$#@* now, his picture will join hers on area milk cartons.

Four The obvious, given the timing, is he thinks he’s smarter, more capable than new FHFA Director Mark Calabria, MC's team and a lot of others who claim to understand the Fannie-Freddie issues and wish to make GSE policy. CP's past few weeks just reinforces that fact.

Good luck, Craig Philips. We hardly “knew ye” and don’t let the GSE door hit you on the way out.

More recent info. Strong rumor is that Phillips lost an internal battle and took the honorable way out, i.e. financial/political DC hari-kari! But, I predict he’ll still have plenty of cachets when gets back to the Big Apple.

Maloni, 5-17-2019

They'll get us, but your choice is to go as a lamb or a predator; I'll go as a dire wolf

GSE Cats and Dogs, GOT, and the Dire Wolf

 “Game of Thrones,” the 8 year old, coarse, raw, dramatic, erotic, wonderful action show, roars to its still uncertain royal climax.  (Penultimate Episode #7 is up tonight, with Episode #8 being the final, but don’t worry, I am sure we’ll see,  future “prequels” or movies likely with the same characters being performed by mostly different players.)

If you haven't realized, yet, this fantasy series has real parallels to our contemporary culture, as one CRITICAL observer suggested last week.

“Westeros politics (where GOT action occurs) and DC politics are similar in that some people treat chaos as a ladder, to use ‘Littlefinger’s*’ phrase."  

“The most honorable people aren’t always the ones who thrive politically. Power is frequently dynastic and often correlates to those with the most wealth. And big, existential threats to life are ignored until they’re on the doorstep.”

(*Littlefinger--for those who don’t know—was GOT’s resident weasel, glad-hander, and frequent turncoat, until he turned once too often and NADA Littlefinger!”) 

I know I want a dire wolf (Canis dirus, "fearsome dog"), male or female, any color you can get. But, if all my readers got together and gifted me with a dire wolf for my birthday later this year, you would make me the happiest man in the DC area.

Reward me with an oversized, alert, fearlessly brave giant wolf to walk by my side--without a leash/harness--protecting me and mine from all threats (including spam phone calls, because he or she—my planned name is for the wolf is “GSE”-- would eat the phones and do away with the spammers), making the world safe again for Fannie and Freddie allowing their mortgage entities to go back to some acceptable semblance of full historic operation.

A question for my loyal reader “Anon,” is that too much to want? (Query your “fellow Anons,” whom I’ve asked to attach a number to their “anonymous” NAME choice, so I can at least sort them out?)

Hope my small fan club can get my dire wolf request right. That will permit me to stop walking my wife’s “must have it now,” six months old, 70 pound Bouvier des Flanders “puppy” (“Look Mommy it’s a bear, a bear”), who is stronger than a horse and now wears a giant cone because of his recent neutering. “Toby Junior” or “TJ,” currently crashes into door frames and cabinets and rambunctiously pulls away from all those who walk him. (Except for the very smart 11-year-old girl, my wife hired to exercise TJ after school.)

Yes, I need a dire wolf or two if you can find them for me. They only obey and instantly do whatever their owner/masters tell them!! 

Some real GSE stuff

I sit here on 5/9, Thursday afternoon, sorting through the latest Fannie-Freddie buzz, like the entrails of a barbecued goat. Drogon (?) , a fire-breathing GOT dragon or I should say “the last surviving GOT dragon?

Following Mark Calabria’s tease, saying the GSEs could be freed without Hill action (who didn’t know that!!??) and, separately, they could IPO by early next year. I am stoked. But, face it we all have been excited before and charged up with F&F optimism, only to be sent home having wet our pants and crying when nothing good followed???

Last week, too—mostly unfounded--rumors circulated of a possible Fifth Circuit decision, "any moment now," adding more GSE momentary luster and rising stock prices.** (“Navy,” please back up those posts with some facts we all can see and enjoy!!)

Calabria’s comments about not needing Congress struck me as an “I accept fate” realization about his situation, as most see it. The IPO—which the Wall Street guys will tell him ain’t that easy—would be a logical follow to his inclinations.

If the Fifth Circuit bails on the GSEs plaintiffs, that makes Calabria’s comment more compelling (since he made them a few days before any rumored court nod.) 
But, a plaintiffs win in the Fifth also could produce immensely positive results).
(**Riddle me this Senator Crapo (R-Idaho). If Fannie and Freddie are not real companies, why did both--as has happened frequently in the past--wind up in the Saturday Washington Post's list of "local gainers and losers," area corporations with the highest weekly stock gains??)

Mark Calabria and Bethany McLean

Bethany McLean, Vanity Fair author with two GSE books to her credit, and FHFA Director Mark Calabria will appear next Tuesday, May 14, at a National Association of Realtors (NAR) event in DC.
https://www.amazon.com/Bethany-McLean/e/B001K8AGQE  (Buy her books!)

The NAR wanted me to appear with Bethany, but unfortunately, I told them I would be busy in Westeros with dire wolf training class, so I suggested, instead, the new GSE kid in town.

Here’s hoping he says something particularly newsy, beyond announcing I have been named FHFA’s new “Director of Culture and Sports Training!”

It was that post or FHFA’s General Counsel--both jobs had been promised to me--but, as everyone now knows, I’m ain’t a %$#@*& lawyer or “AAFL,” so the new Director will have to be content with FHFA’s old GC Alfred Pollard...for a while. (That reminds me, I have to check the dictionary for the word “sinecure,” again.)

I’ll bet Mark Calabria knows some real sharp legal mind --not just yes men/yes women--who have a solid history in securities and financial market operations, not just as posers.
In my new FHFA position,  I will content myself with buying new agency unis and getting rid of the old ones showing bureaucrats strangling what appears to be a Williamsburg-style building!

Don’t know if this is GSE related, but when Mnuchin testifies sparks can fly

Treasury Secretary Steve Mnuchin is slated to appear (again) before Rep. Maxine Waters (D-Cal.) and her House Banking Committee, on May 22. It wasn’t an edifying or pleasant visit the last time he showed, more like a cat fight.

Maybe somebody should ask him if he thinks big banks should have statutory low-income housing goals or if the Volcker Rule should be strengthened not diluted? Nah, ain’t going to happen, but I always can hope.

What if I lend the HBC Chair my dire wolf--order “GSE” to obey her--and see if the pair working on the Secretary can produce some true policy answers or even secure a SM promise to fess up the Prez’s tax returns (“um, they’re being audited”), which shouldn’t bother the President because as we know he has nothing to hide and the Mueller report said “no collusion?”

My Calabria management hope

My premise is that FHA Director Mark Calabria is a smart guy; he has some traditional conservative views which resemble what big banks and the Right Wing have said in the past about the GSEs; and he espoused some of it, given his variety of past jobs. But he's already stated (paraphrasing) "the 2012 sweep wrong and a mistake" and I suspect he is learning not everything he thought coming is accurate or plausible from a policy perspective.

He's learning or soon will appreciate the GSEs do a hell of an operational job, a major complicated one (made worse by regulatory interference from intrusive political nerds with agendas who never worked in a major financial services business) as they manage their legacy portfolios and newly acquired securities. And he knows that—without the GSEs—there really is no long term fixed rate mortgage financing which the US consumer celebrates and wants. I suspect, too, he is awakening to the realization that he doesn’t want his DNA among the detritus of those "just kill the GSEs efforts," since those won't succeed.

I don’t see Calabria becoming a flaming GSE housing advocate but realizing they are more desirable achievements in the mortgage finance world than being defined by all of the “get rid of the GSE schemes” because Fannie and Freddie do a great systemic job and provide something no amalgam of other financial institutions can, because the banks are reluctant to take it on without Uncle Sam writing them a large cashable financial diaper. 

Again, I hope Calabria surprises and becomes an honest broker and doesn’t engage in ideological fantasies or caprice with our nation’s $10 Trillion system mortgage finance system, a potentially monstrous middle-income jobs/wealth generator and purveyor of the “American Dream,” which has been put in his care.

Maloni, 5-12-2019



Happy Mothers' Day ladies and thank you for all you do for the many people in your lives. We--and the nation--need and rely on you!!

Will one of you #$@&^%*, please, just act??

“You first Mr. Secretary; no, You go first your honors,”

GSEs, GSEs, GSEs, blah, blah, blah. Steve Mnuchin, for two years now, has been saying "free the GSEs!"
When is it going to happen, man?

Only the very politically naïve believe every single individual at the reputed “independent institutions” in the nation’s capital, like the Fed, the Supreme Court justices, or other judicial officials don’t read the newspapers or follow political events and developments.

Not in this town, because where you sit is where you stand.

In my last blog, commenting on when we might get a GSE decision from the en banc Fifth Circuit judges--which could turn upside down the 2012 Treasury cash sweep of all future Fannie and Freddie profits--I admitted that nobody knows the court’s schedule, let alone inclinations.

Also pending is a GSE case before US Judge Margaret Sweeney, which reportedly now has her court assistants putting tiny mirrors under the judge’s nose—just check if she is breathing--since this case has been pending for as long as GOT’s “Night King” has been threatening Westeros.

(Apparently, just last week there were reports of DC area 7-11 stores selling cartons of milk with Judge Sweeney’s picture on them!)

OK, those were(bad) jokes!

However, the delays the two legal actions are experiencing caused me to wonder if the judges in both cases are waiting for the Administration to move with its “GSE regulatory fix,” which reportedly has been in percolating stage for a dozen or more weeks and now is bouncing around between FHFA’s Mark Calabria, Treasury Secretary Steve Mnuchin, and Larry Kudlow, the latter writing the memo inserting himself in the review of the proposal? (I am sure that fact just made Mnuchin’s day.)

I’ll bet every big trade association has seen/heard some of the WH plan, which is probably why they are so twitchy!

BTW, the longer these non-judicial delays, including whatever is holding up the WH, only plays up their embedded  conflicts with  traditional GOP and Right Wing themes and what the latter hope to get out of a future mortgage finance system. Not that anyone seems to care what is best for the American consumers! (Shhh, it rhymes with "GSE.")

Then there’s this reality, the federal government must settle with GSE shareholders since the public’s junior preferred stock represents a “contract” with federal government.
 Any Treasury Department hope to create new “mortgage guarantors” to compete with the GSEs—however Treasury would do that—begs the questions of why would any sane investor put her or his money up when Treasury in 2012 aggrandized all future GSE earnings from Fannie and Freddie shareholders, without any forewarning or compensation?

That’s a lousy precedent to draw fresh money into the mortgage market through some banker’s and mortgage banker’s wet dream to abolish the GSEs.

Flash to the future from Secretary Mnuchin: Please Ms. And Mr. Investor, forget all about Hank Paulson, put your cash in these new whiz-bang thingy do’s and, trust me, I never will take your money from you, honest!

Keep that in mind when the anti-GSE TBTF bank crowd clamors for more private capital but also wants new federal guarantees for their own (which are not truly private) mortgage securities, because it’s a (not!) commercial bank standing behind that bank PLS. (A little more on that point, later.)

Riddle me this, guys, how would elements of this new bank legislative demand reduce the government’s “at risk” profile in the mortgage market?

Oh, I get it, those new Uncle Sam bank benefits (see the latest “Crapo principles”)—just like the bargain basement FDIC insurance it gives the depositories—can’t be considered a federal benefit, especially when the banks say, lamely, but “we pay for it?!!” (The last time I checked, about $7.5 Trillion in bank deposits was being protected by a $100 Billion FDIC fund!! Talk about leverage.)

Where I am headed with all of this is to suggest maybe this WH loves the GSE current status quo, feels no need to change anything, because its total focus is on the 2020 election.

Hurry up Fifth Circuit and/or Judge Sweeney, nothing but a positive plaintiffs’ decision could be big enough to move these Admin guys from their GSE reform odyssey taking real action.

But then—think about it--maybe the courts are waiting for the White House and the Trump Administration is waiting for the Courts, to provide cover with the Right, which may not like Treasury’s plan to privatize or recap and release Fannie Mae and Freddie Mac, about which I’ve often written, since nothing done in DC would surprise me.

Christopher Whalen, GSE Critic

I don’t often agree with Christopher Whalen, a dedicated “only in God’s lifetime” GSE critic. In fact I sharply disagreed with his ignorance/feigned avoidance of how deeply the nation’s banking system is riddled with federal bank subsidies.

https://www.nationalmortgagenews.com/opinion/can-we-privatize-fannie-mae-and-freddie-mac-really

But his article did contain this prose with which not only do I concur but I offer because it makes extremely difficult the task of those who would replace Fannie and Freddie with one of their “reform solutions.”

“The fact is that the GSEs are creatures of Congress and are de facto backed by the full faith and credit of the U.S., regardless of what the law may say. Welcome to Washington. Mess with this convenient fiction and liquidity in the secondary mortgage markets will be vastly reduced. Without the subsidy provided by the federal government, the revered 30-year mortgage will likely disappear as the market for secured mortgage finance evaporates. As the old saying goes, be careful what you wish for Secretary Mnuchin — you may get it.”

Thank Chris for an effective warning and reminder—from a GSE opponent--you offer the pols and DC stakeholders of what screwing with the current system could produce.

And—having little to do with Whalen—the political reality for the GOP and its allies to remember is that you can’t legislate or regulate memories away.

Until Treasury Secretary Hank Paulson, seeking to implement his ideological scheme to neuter Fannie and Freddie--and serve the TBTF institutions, while claiming he was protecting and preserving the GSEs—harassed and blackmailed their boards to accept his $189 Billion ersatz solution 11 years ago--neither Fannie or Freddie ever required emergency federal financial support (and, as the courts now are haggling over, maybe didn’t need it in 2008!!).

The GSEs—which printed the factual law at the time “not the full faith and credit of the federal government” on every debt instrument or security-- covered all of their own losses from earnings before the infamous Paulson Shanghai.

I may be repeating stuff said before but it never hurts to separate the honest facts from the storm of distortions from the big bank, anti-GSE crowd since they keep spreading all town, along with a lot of campaign cash.

For the Record:

In a previous blog, which I think I nailed, I suggested if Donald Trump’s two Federal Reserve Board candidates—Herman Cain and Stephen Moore-- not make it, Sarah Palin, with her rifle rack in hand, still is available for Fed service. Especially, if DJT just wants someone to follow his lead and screw up the Fed’s culture and works.

Well, with Trump’s recent “let me attack the Fed through idiot appointments” now behind him, several new names have cropped up who would support the President on anything he wants and are deserving, since he self-proclaims that he  nominates “only the very best.”

Highlighting my list of colorful potential Fed Board candidates are: losing Alabama Senatorial candidate Judge Roy Moore; former Arizona Sheriff Joe Arpaio; current Alt-Right fuhrer Richard Spencer; front line white supremacist, anti-Semite, and ex-KKK Wizard, David Duke; for balance there’s Louis Farrakhan, not a white supremacist but certainly an anti-Semite, ready for a Faustian DJT appointment deal; and there’s both Marcus Bachman, former Rep. Michelle Bachman’s husband (if he will give up his lucrative practice urging his clients to “pray away homosexuality” or as they call it “Pray out the Gay”--and former Congresswoman Bachman herself, would be good, since she served on House Banking and once visited a bank. Plus, if the Prez chooses Palin, Ms. Bachman  could team with the former Alaska Governor as a cabaret pair, “Fed ditzies for Trump;” last, there’s Ronald McDonald, but he has a good paying day job and gets to wear a neat outfit!

Since all Fed Board nominees require Senate approval, it shouldn’t be difficult to prep any of those “best” folks on the nation’s financial services system, US monetary policy, and the role of the Federal Reserve and related issues, since all would represent blank slates.

Maloni, 5-6-2019