Keeping my eyes on the bad guys and other things…..

“Jots and Tittles,” F&F minutiae, and some GSE things I think

For those of you who read my blog's comments section, you're aware that my major blog-friendly protagonist--Anon#1--and I have agreed on a significant matter.

Based on history (my rationale) and intuition (likely his reasoning), something BAD is due to upset the GSE applecart which has been moving along quite nicely based largely on news suggesting a pending Admin announcement of its plan to free Fannie Mae and Freddie Mac from "Conservatorship."

Not sure exactly what will occur when, but I suspect Fannie/Freddie detractors will assemble a “not now” list and pitch a “wait longer” agenda.

Last week, Sen. Sherrod Brown (D-Ohio) suggested financial chaos if the Admin released the GSEs from Conservatorship, although he and his staff must have missed the past 10 years’ worth of tight regulation and de minimis GSE credit losses as well as their superior and low risk “stress test” result just reported by their regulator, the Federal Housing Finance Agency and its new Director, Mark Calabria.

Plus, nobody I know recommended getting rid of their regulators, as Brown suggested. The GSEs, Treasury, nor the Federal Housing Finance Agency certainly haven't.

But, it is that kind of off-the-wall bloviating which derails trains and schedules.

On the other side—far more tactical than strategic--in a periodic development at which I often point with greet glee** to showcase media hypocrisy, Fannie and Freddie, led the Saturday (8-24) Washington Post stock market table of "local gainers and losers" each with 24% percent growth over the previous week. 

(**The Post for years has been a GSE-opponent, often arguing against the GSE mix of public mission and private ownership--at least until the 2008 conservatorship, which took away most of the GSEs private control--yet still reports on them as if the two were totally shareholder-owned, in a way making my primary point that their private ownership drives their success. The alternative GSE replacement being some configuration of the nation’s largest banks or some purely government HUD or Ginnie Mae concoction which for good reason Congress rejected in 1979, when the original Fannie was recreated/rechartered, and I strongly believe would still do that today.

The horns of the Post’s “dilemma” are not unlike the federal government’s own, because of the inconsistent (“Are they government or not?”) longtime ideological treatment of the GSEs. The Congressional Budget Office (CBO), a historical (and hysterical) GSE critic, still treats the GSEs as if they were part of the federal government (“private shareholders, what shareholders?). While the Office of Management (OMB)—which, is seldom GSE-friendly, and fashions the Admin’s annual Budget—treats them as private entities, even after the 2008 Conservatorship.

Welcome to federal government accounting schizophrenia GSE-style.

For more detailed understanding of this bizarre ying-yang treatment—which makes it easy for F&F critics to hide behind one or the other formal mistreatments of the GSEs, read the CBO document which elaborates on the historic conflicting budget treatment. (This doesn’t occur anywhere else with multi-billion financial institutions and the Budget.)

https://www.cbo.gov/system/files?file=2018-09/54475-GSE-report.pdf

Also, remember, if you treat the GSE as one of Uncle Sam’s parts, you would need to put all of their debt and MBS on budget, which is a $5 trillion “add on” matter no pol wants to touch even for consistent federal accounting purposes.

Say it ain’t so

While shopping last week, I bumped into an old acquaintance, who for the past 20 years or so has worked for the GSE regulator at OFHEO/FHFA and—as with most employed there---never has been a GSE supporter.

After making agency small talk with the person, I asked, “How is it working for the new Director, Mark Calabria?”

The concerning answer was, "Oh he's fine, reminds me a lot of Ed Demarco, touching this little thing and that, always trying to make small things work!"

In view of the fact that most people looking back at Ed’s tenure think, “Only termites were more destructive to housing than Ed Demarco's GSE time,” I didn't react warmly to the veteran regulatory employee’s analysis.

Say it ain’t so, again (the Return of "User Fees?")

A few years ago, the Obama Administration started tapping the GSEs for non-housing, non-GSE purposes, to wage war against their deficit spending. It employed a 10 basis point fee which went to the Treasury for deficit reduction purposes.

But one mortgage policy analyst, Cowen Associates’ Jaret Seiberg  believes the matter could get back into a Trump budget if the Admin needs additional revenue to pay for an election-year tax cut.

JS says using the GSEs as cash cows, just as Obama did, could be in the cards. 

In my Fannie lobbying days when similar issues arose, we coined the derisive term “homeownership tax,” to describe and defeat (for several years running, every time it came up) a Reagan Administration proposed 25 basis point fee on all Fannie and Freddie debt and securities. 

It was a very successful meme which allowed us to rally housing organizations and consumer groups across the nation--as well as the media--to denounce or editorialize against any similar mechanism, instantly making most in Congress very hesitant to endorse it.

Interestingly Cowen (Seiberg) quickly jumped to the same conclusion/rationale we did --possibly because he was around way back when and saw it in use--when he wrote, “What starts as a temporary 10 bps hike could become a material and permanent tax on housing.”

Also, remember, if you treat the GSEs as one of Uncle Sam’s ribs, you would need to put all of their debt and MBS on budget, which is a $5 trillion add on matter nobody wants to touch.

Over the weekend, the Trump team said a new tax cut was “off the table,” but I suspect that means for the nano-second it took Kudlow and others to correct the POTUS.

New Fannie Board Appointee

The Administration named former FDIC head Sheila Bair to the Fannie Mae board, a collection which seldom says anything or does anything for their $125K-$150K annual base comp (just like their Freddie counterparts).

These rubber stamp entities represent (R's and D's, when they hold the White House) sinecures to be ladled out in return for past party allegiance, which is why—if Conservatorship ever ends—new shareholders will elect different directors.

Maloni, 8-27-2019

(Thanks, again, MrF for your invaluable help; while "jots and tittles" is a phrase a brilliant former Fannie boss, Bob Zoellick, used to describe important but small details.)