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