If the WH is waits for the Fifth Circuit before moving on its GSE plan, it is missing a political opportunity and risking trouble

Why wait on the Fifth Circuit???

I am going to try to write some 700 GSE words, without mentioning President Trump in any ill manner. He/it's a 2020 electoral matter, anyway, which I won’t be able to influence, greatly.

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If one looks at the Fannie or Freddie GSE pages, on Investor’s HUB (IHub)—but elsewhere, too--you can see a plethora of guesses and wild eyed explanations about why we haven’t heard from the Fifth Circuit en banc reviewing the Collins case. Those thoughts often are accompanied by equally--in the event of a plaintiffs win--soaring stock price touts which follow that writer’s reasoning, including leaps into the “100 per share” for common stock “if XXXXX happens.”

I admire the creativity and certainty some posters put into their prognoses and estimates ( including some speculation about possible court cash awards to plaintiffs) to the point of arguing and debating other “guessers” about topics and timing which remain just as unknowable. 

Hardly sinful, this is just is another version of our beloved “American hot stove,” where sports fans—often when seasonal play ends for their favorite professional teams—postulate and then media-argue about possible trades or other personnel additions and subtractions to and from their favorite squads. (They, too, have as much influence on management as court case watchers have on judges and juries.) 

A great frustration for many judicial observers is the fact that the Fifth Circuit’s decision parameters seem as expansive as the judges’ concepts of possible federal government law violations and possible relief. 

If the Court rules the “sweep” violates the Fourth Amendment against “takings,” the remedies are several. If the Court finds an Administration Procedures Act violation, it could rule additionally against Uncle Sam (the Treasury and FHFA).

If the defense (the government) wins, the only remaining question--barring some Admin executive action--is will the Supreme Court hear a plaintiffs appeal? 

My instincts—because of the “GSE Shitwall” presence—are the Fifth may find for plaintiffs but will go light on financially penalizing Treasury and taxpayers given the huge amount of red ink this Administration currently is recording. 

Despite a certain light investor stirring of the GSE part of the stock market last week, I am surprised the Admin—if it has a ready GSE plan—still holds back implementing it. 

Embedded in this quandary is the possible Calabria/Mnuchin internecine jockeying and who wants what and when?  IMO, it’s time for the Treasury Secretary to stand up, put on his big boy pads,  and use his authority or—if he’s waiting for Calabria—Secretary Steve, patiently, could be waiting until 2024 (as per Calabria to Reuters). 

Whether the financial powers that be want a court decision to force its GSE action plan or give it an excuse for issuing one still is unclear to me. 

I’ve heard it argued both ways and still believe, given its promises and political needs/desires, the WH should act first and position itself to take 2020 political/election credit for ending the “Conservatorship,” rather than letting others claim it only moved because the Fifth Circuit forced it (assuming the Court decides for the plaintiffs). 
The Admin has staked out ending the "Conservatorship," which I am sure PO'd a lot of their political allies and donors. What happens if the Fifth Circuit rejects the plaintiffs and a ton more ideological noise arises when/if President Trump gets louder with his end Conservatorship pledge?
Follow your instincts Mr. President, end the internal belligerence and do it now!

Admin Dumping the “Patch” 

With last week’s news that the Consumer Financial Product Association (CFPB), in two years, will drop the “patch,” an artificial adjustment which allows lenders, the GSEs, FHA and the VA, to finance loans for borrowers with slightly higher debt profiles.

People seem focused on what the impact will be on Fannie and Freddie business (yes, it should mean less), but instead markets/media should be seeing this move as a misguided boon for the big banks?

Looking only at Fannie and Freddie misses a major point. (Also secondarily, it means greater direct risk to the government, since the early proposal doesn’t apply that new criteria to the FHA and VA which still will be able to finance those more risky borrowers, meaning the government is directly behind any losses those federal agencies incur.)

For me a salient point ending the patch is that it will create a new class of “subprime borrowers”—outside the GSE credit parameters--and how many banks will react the way they did pre-2008, overcharging in rates and fees and poorly underwriting risky borrowers, as they seek to fund as many of those mortgagors, replicating the same "PLS" (private label securities) mess they employed to start and accelerate the 2008 financial meltdown?

Unless the Fed, OCC, FDIC, and Treasury see the possibility of history repeating itself and step in and impose constraints on those regulated banks before they pitch the patch or even reconsider the CFPB fix?

Maloni, 7-29-2019

Doing recon over my bad-guy targets, seeing who may be doing what and why!!

Calabria in no hurry to fix what the White House said needs fixing!

Despite Steve Mnuchin’s two years of passionate, periodic preaching about this Administration’s need to end the 11-year-old GSE Conservatorship--putting Fannie and Freddie back in private hands with fresh capital—a specific objective also amplified by President Trump  when the POTUS addressed the National Association of Realtors annual conference this past May, seemingly that timetable was changed last week by a rookie.

The Trump-Mnuchin policy declaration apparently has been watered down  to ending GSE Conservatorship "sometime before new Federal Housing Finance Agency Director Mark Calabria finishes his five-year term in 2024." (Emphasis, Maloni's.)

At least that’s what Director Calabria—prancing very high on his implicit “I’m the GSE czar” horse—seems to believe and proclaimed last week to the Reuters News Service.

https://www.reuters.com/article/us-fannie-freddie-stocks/fannie-mae-freddie-mac-shares-down-on-5-year-timeline-overhaul-idUSKCN1UD23F

In contrast to his boss, the President, and his senior colleague, Mnuchin, Calabria expressed little urgency last week to help aspiring US homeowners, address any GSE mission concerns, or remove the GSEs from Uncle Sam's clutches, let alone the need to follow through on what the Trump Administration often has vowed and promised in appearances and public statements.

Is their a schism here? Are we having a failure to communicate? Did you get and read the memo, Mark?

With the Director's self-created new schedule, Burger King may consider suing since the Trump Administration’s forgotten rhetoric seems to have co-opted the hamburger chain’s “Whopper” trademark.

Of course, saying something misleading--to pacify one audience and doing the opposite to sooth a competing group--ain’t nothing new to this Admin crew. In fact, it seems like standard operating procedure, with a hint that some other nefarious group--not this White House--is blocking its GSE path.

“It’s not you or me, but the guy behind the tree,” (to steal a line from Senate Finance Committee legend Sen. Russell Long (D-La.), which he often used to demonstrate on what tax targets a demanding, but indifferent public, wanted Congress to levy new federal fees.

But there is no GSE advocacy group to blame here, hiding behind any homeownership tree or anywhere else.

It’s just the Trump Treasury and the Trump FHFA which can’t seem to get their traditional complementary acts together.

Of course, who knows where arch-GSE enemy Larry Kudlow is lurking or even the current acting Chief of Staff of the POTUS, former OMB Director and equally no GSE friend, Mick Mulvaney. They, easily, could be *&^%$#@ things up... because they can.

Why is Mark Calabria punching suddenly so far above his weight and dissing the Treasury Secretary, showing little fear?

Things are July boring, so let me "Maloni-splain."

My simple answer is Mnuchin is the target of some creeps in/near the White House who covet his job or dislike him (or his actress spouse who doesn't care for DC) and think by goading Calabria into action they’ll expose Mnuchin as not tough/smart enough to deflect Calabria or worse lacking the WH “clout” necessary to stop the FHFA Director from poaching on what traditionally has been Treasury’s leadership role on financial services matters.

In a transparent defense for his possible aggrandizing hubris, Calabria points out in his Reuters interview Mnuchin is now "juggling a number of balls" (which shouldn't mean Calabria can worm in and do his GSE thing because Mnuchin is worried about the Budget, China, Iran, etc).
And what better way to make Mnuchin look bad than aiding and abetting a political wonk and newbie who has his own ideological aspirations?
Ugly form, but that's how DC works, especially under President Trump.

I think either Kudlow or Mulvaney, both with sizable but flawed egos, see themselves as possible Mnuchin successors. (But does the POTUS? Likely he does not.)

BTW, if anyone sees the Fifth Circuit judges, en banc or in pairs, tell them we are waiting, but not too patiently, for their decision which could end some of the DC GSE madness.

Maloni, 7-22-2019

All the good guys have left town, leaving just the GSE vermin.....

More Hot Summer GSE Cats and Dogs

FHFA’s Mark Calabria is fast running out of time to prove he is anything more than a doctrinaire GOP anti-GSE traditionalist, who occasionally says something surprising about running Fannie and Freddie’s regulatory operation (the Federal Housing Finance Agency or FHFA), but otherwise hasn’t provided much hope that he’s any different than his Republican predecessors.

This past week with an unrequested letter to the Clerk of the Court of the Fifth Circuit Court of Appeals, FHFA (Calabria) changed the agency’s formal position—most recently established by his “acting” predecessor and the current Comptroller of the Currency, Mark Otting—on what largely has become a non-issue, i.e. whether the FHFA, created in 2008 by the HERA bill, is constitutional or not given the regulatory agency’s unique structure. 

But since that fact is a part of the Collins en banc appeal—which is six months into consideration--it could rear its head, but if it did, it’s unlikely Calabria’s late letter will matter. 

What’s more unlikely is that after three flip-flops, the Fifth Circuit suddenly would say,” Oh the Admin previously was wrong the first two times and now it’s "right," because Director Mark Calabria said so!” 

Here is what the Johnny-come-lately Calabria’s team wrote to the Court to change the record. (Bolded emphasis is mine!)

“Under its new Director, FHFA has considered (don’t you mean re-considered?) this issue. FHFA now advises the Court FHFA takes the position going forward that HERA’s structure is constitutional (even though we argued before it wasn’t). FHFA respectfully requests that the Court consider the arguments on that issue presented at pages 46-56 of FHFA’s Panel brief, and pages 10-15 of FHFA’s en banc petition, as presenting FHFA’s operative position. FHFA withdraws the statements relating to this issue at page 3 of FHFA’s supplemental en banc brief and to similar effect at en banc argument. FHFA respectfully requests that, to the extent the Court finds it necessary to reach the constitutional issue, the Court uphold FHFA’s structure and otherwise affirm the judgment below as to the Third Amendment.”

Why do that, MC? Why was it needed, legally, when more significant challenges face the agency, like the crucial establishment of reasonable GSE capital standards? 

Is Calabria seeking to make a GSE name for himself by trying to plug and paper over errors made by those who came before him and—in many instances—colluded with Treasury creating the circumstance over which the Treasury was sued by so many GSE shareholders? 

Is he seeking to prevent future legal infections by using this lawful but ultra-thin prophylactic??   

Here is a more pithy analysis sent by Cooper and Kirk partner Attorney David Thompson to the Clerk of the Fifth Circuit Court.

Dear Mr. Cayce:

It is no coincidence that since the current President took office the Department of Justice has had one position on FHFA’s constitutionality and FHFA has had three. FHFA’s latest switch, prompted once again by a change in leadership at the agency, only further underscores how this agency’s novel structure places vast executive power in the hands of a single individual who is wholly unaccountable to the President. Humphrey’s Executor (case referenced by FHFA letter) blessed the FTC’s independence because in that case independence—combined with leadership from a commission whose members serve staggered terms—was thought to promote continuity and expertise at the agency. In FHFA’s case, independence achieves the opposite of continuity by leaving critical policy decisions up to the whim of whichever individual happens to sit atop the organizational chart of an agency that answers to no one. FHFA was right the second time, not the first or the third. 

respectfully submitted,

/s/ David H. Thompson 

Skullduggery! No, Treasury is not slow walking or creating obstacles for the Court, Judge (which is as believable of the POTUS’s declaration that he’s not a racist as he tried—for the past several days--to Tweet-maim four minority Congresswomen because they disagree with him and his policies). 

Here is Peter Chapman’s review of a recent that Fairholme letter to the Court. 

Fairholme delivered a motion to Judge Lamberth today seeking to compel Treasury to share non-privileged documents Treasury doesn't want Fairholme to see.  Fairholme complains to Judge Lamberth that Treasury has "decided effectively to excuse itself entirely from the discovery process" notwithstanding "Treasury was one of the architects of the Net Worth Sweep and has a direct, and massive, stake in the litigation and resolution of the implies covenant claim."  Fairholme asks Judge Lamberth to direct Treasury to comply with the subpoena it served on Treasury in full without further delay.   

My fanciful thoughts to explain stuff we are seeing this summer? 

There is no hard evidence for any of this, save my devious mind tied to various GSE facts, rumors, and the determination of so many to neuter Fannie and Freddie. But, they sure would explain some murky things happening.

Calabria’s regulatory behavior. 

He’s a poser, self-inflated, who misrepresented himself during his nomination hearings (which happens so often these days, nobody wants to bother tying what nominees said to what they then do). Despite claiming to disagree with the net worth sweep and Fannie’s and Freddie’s nationalization, he’s a secret admirer because now he benefits from their financial GSE burden and gets to play GSE Commissar.

 Mnuchin’s GSE reticence; they're squeezing him 

Calabria sees Treasury Secretary Mnuchin has so much on his plate (and that doesn’t include Louise Linton’s latest movie) that SM's GSE promises as no longer priorities (no matter what some fourth level Admin flack says). Also the Secretary severely was weakened when Graig Phillips, his assistant hailing from Wall Street, was forced from his team and out of his Treasury post. 

Calabria has stepped into that vacuum and has started to flex his jurisdictional muscles, challenging Mnuchin’s much greater access to the President and superior GSE plan to end Conservatorship.

The betting is the Phillips-Mnuchin proposal, is getting pummeled by Calabria/Kudlow and Mnuchin doesn't have the time or wherewithal to deal with it.

Steve Mnuchin hasn’t been around enough—nor seems to possess the knife fighting qualities--to know how to play the "Inside the Beltway" bureaucratic game and step on minor officials barking at his ankles and seeking to steal turf, even when those folks are not nearly as close or as important to the President and shouldn’t be able to outmaneuver the Treasury Secretary. 

But we may be seeing that happen. 

Maloni, 7-16-2019

Only the GSEs face historic regulatory abuse; will they still?

  

Post July 4, GSE Cats and Dogs

OK, it’s lay off the POTUS week, since he did enough to himself with his “Fourth of Trump” show.

God decided to show her displeasure with his administration/him by soaking the Mall; then the Prez—on his own, with the tanks watching and the jets overhead—waxed ineloquently about airports subdued by brave US warrior forces in the late 1700’s.

Hey, I believe him. That was the teleprompter’s fault, not DJT's lack of knowledge or memory of US history. 

One of these days we will see a decision from the Fifth Circuit Court which, either, blesses the abuse the Bush and Obama teams imposed on Fannie and Freddie or the judges strike a blow for logic and rationality and rule Treasury secretaries cannot aggrandize the profits of the two in perpetuity, i.e. see 2008 GSE Conservatorship and resulting sweep. 

The offending actions—which generated multiple federal lawsuits--occurred when various government officials and courts ignored the 2008 Housing and Economic Recovery Act (HERA) mandate requiring US officials to preserve and protect the GSE assets and return them to public ownership and private management control. 

BS, BS Everywhere 

I still am mesmerized by those who care deeply about this issue (I’m part of that group) doing their best to guess legal timetables and implications of a future court decision backing the investor plaintiffs or one which says, “Nope, you’re wrong shareholders and you lose again.”

We all still guess but we know nothing about the true event schedules or possible judicial results.

I don’t know which is more frustrating, reading about the fantasy financial multiples these folks see as future GSE stock prices--- based on their unique formula and belief of what stock values could be--or how they fashion their certainty about when the Fifth Circuit will speak, employing historic guidelines, phases of the moon, the entrails of goats, all of which are useless when the money and political play is so weighty. Wishing doesn't make it so.

I often write about why—in DC—it’s never over until the Fat Lady sings. Mainly because the Hill and the White House always have innumerable deflating options in responding to offensive or defensive events, including a Fifth Circuit ruling for the plaintiffs. 

And, I still have trouble seeing any Court award numbers in the tens of billions ($100 Billion?) to anyone over anything involving the GSEs.

That doesn’t mean plaintiffs won’t win this case, it’s just that a win may not produce the windfall so many pro-GSE people are predicting/expecting. 

OFHEO, FHFA, the Fed and the Home Loan Bank Board 

As some readers know, before joining Fannie Mae, I worked at two federal financial regulatory agencies, the now gone Federal Home Loan Bank Board (FHLBB), which oversaw thrift institutions, and the Federal Reserve Board, which still  exists and is as powerful as ever. 

I was at Fannie--working assiduously with a wonderful team of in-house lobbyists and lawyers--to cooperate with the Congress to enact the seminal Federal Housing Enterprises Financial Safety and Soundness Act of 1992--creating the first non-HUD GSE regulator, the Office of Financial Housing Enterprise Oversight (OFHEO), and also introducing statutory affordable housing goals for the two secondary mortgage market giants. 

Much of my following commentary—especially the contrast--is based on those experiences and the first dozen years of OFHEO, which in 2008 (four years after I retired) evolved into the Federal Housing Finance Agency (FHFA). 

I mention this history only for what I write, now, about the GSE regulatory scene and why it has and still remains today, different than other financial institutions regulation, mainly in how the nation’s big banks are treated by their federal overseers.

It’s germane now because the ball is in the FHFA’s court--with Mark Calabria, its new Director--as it seeks to finally fulfill a 10-year-old outstanding objective to publish a GSE capital plan, as well as helping shape President Trump’s recent request for a method to end the conservatorship of Fannie and Freddie, a major component of which will be the FHFA GSE capital requirements. 

Let me establish my premise upfront. 

Bank regulators—the Fed, the Comptroller of the Currency, and the FDIC--coddle their regulated institutions, despite industry claims to the contrary. While OFHEO/FHFA has been hostile.

History has shown both OFHEO and FHFA guilty of badgering, pestering, and actively harassing the GSEs and their execs (see OFHEO early 2000’s), and establishing unprofessional behavior, some of which remains ingrained. (A former OFHEO/FHFA Inspector General once wanted to arm her lawyers when they interacted with GSE personnel.)

For me, it begs the question of what “tone” Mark Calabria will establish and what regulatory oversight mantra he will project?

Is he a new broom, with new assistants, seeking a fresh approach? Or will he succumb to the old style and listen to the “old OFHEO/FHFA hands,” who have been around for years and who perpetuated the GSE antipathy, while earning their varsity letters in “screwing over Fannie and Freddie?” 

Can he embrace his tabula rasa opportunity, or will he reject being a fresh voice, but instead become another oppressor, not championing the GSEs and their mission?
I hinted last week odds are that he will be yesterday’s tyrant, but wear a different suit and tie.

I have to keep pointing to the REGULATORY CAPITAL issue because his first major test will be the capital standards the FHFA Director seeks. 

For the consuming public, i.e. those who need a mortgage to start the wealth-generating cycle of homeownership, higher  Fannie/Freddie capital is bad because it increases their monthly costs. 

Big bank GSE opponents will offer any excuse for more capital because it hamstrings the GSEs (which their regulator should not want)! 

See a pattern here?

Maloni, 7-8-2019