Saturday, September 7, 2019

Treasury Reports Shows FHFA Head to be Anti-GSE

Fifth Circuit to Mark Calabria: Take that!
(Blog below was written before Friday night's BOFFO  5th Circuit decision came out! More on that in my next blog.)

We all should have seen this coming--although I sensed it--when newly minted FHFA Director Mark Calabria arrogantly began talking like a big bank attorney laying out a writ against the GSEs.

His large piece of the Treasury report ( although all of it is his) shows him not to be thoughtful government executive responsible for fostering the GSEs return to financial health as privately owned, appropriately capitalized financial institutions, able to carry out their national mortgage liquidity role, but as an angry avenger seeking  instead to turn them into perpetual wards of the federal government under his fat FHFA thumb.

Yes, the Treasury Report says they want to re-privatize the GSEs but the Devil is in the details and I don’t find their details attractive. It's a potpourri of hobble Fannie and Freddie--and help the big bank-- memes dressed up as thoughtful proposals.

IMO, it should have been a tip-off after his Senate approval when he told the press that ending Conservatorship might take his entire five-year term.

Forget what he told/promised the Senate Banking Committee during his nomination hearing. (Please God, let them believe everything I say and not question me too closely. Of course, my Republican allies won't but those damn Democrats might force out my real opinions!)

It also appears as if Steve Mnuchin meekly has ceded GSE authority to Calabria--traditionally Treasury's turf--a GSE critic, far less interested in how an unencumbered Fannie and Freddie can help more American families to get their share of the American Dream but instead how he can tilt the mortgage market in favor of his longtime allies the nation's TBTF banks.

The Treasury report is a piece of crap filled with hostile ideological GSE flotsam and jetsam labeled as needs and recommendations.

Its sloppiness proclaims it was written disjointedly by a committee, HUD, NEC, Treasury, FHFA, filled with more caveats and ineffective directions to other government elements seeking help to damage or derail the GSEs.

How many trees had to give up their lives for most of this ineffective report to see the light of day?

Put Ginnie Mae--an on-budget federal agency--into the business of securitizing bank originated conventional mortgage-backed securities, with its meager staff which never has worked on anything but FHA/VA/Ag Department government-backed loans????? (There’s the bone to Michael Bright)

How does that create more private capital and avoid possible Uncle Sam losses? (Stuff like that make the report take on the elements of a garbage bin, hardly thoughtful recommendations.)

Give the nation’s behemoth banks a new federal loss guarantee for their private mortgage-backed securities. (What have the big banks done to deserve any additional federal largess?)

Where in the plan is the answer to Steve Mnuchin two-year-old promise to quickly free Fannie and Freddie, as well make good on what DJT says is important?

Specifically where in the plan’s vagaries are what Treasury and FHFA will do to facilitate that grand Conservatorship objective??  Where is the step by step discussion of the needed choreography each agency will perform to free Fannie and Freddie which the Admin claims are its priority??

Everyone, including the Admin's wool heads know Congress isn't going to work across party or chamber lines to facilitate what Calabria  dictates, especially Calabria, himself, a child of the Senate Banking Committee staff, who counts on SBC Chairman Crapo and VP Pence as his political Godfathers.

Yet throughout this report is loaded with useless demands/dictates that, "Congress should do X, Y, and Z!!"

Where is Calabria's honesty about higher across the board mortgage costs if he gets to stick the GSEs with bank-like capital requirements or capital levels which their recent low credit losses and stress test results indicate are needed?

Naturally, leavened in with his GSE animus/arrogance is the bureau-piggy suggestion that FHFA and Calabria need more authority to make their desired massive market changes which Congress never in the past thought necessary for a second-tier regulatory agency which now seems to have Fed-like aspirational delusions.

But hey, channeling his best Jim Lockhart/Ed DeMarco grander powers (which means more staff and less money going to the Treasury) and ignoring GOP small government hypocrisy, Calabria wants Congress to expand his turf and let him work his will.

I hope observers saw the initial rejections of the Treasury reports by House Banking Committee Chairman Maxine Waters (D-Cal.) and the Snare Banking Committee's ranking Democrat Sherrod Brown (D-Ohio) and early indication of what most Democrats think.

A rumor still circulates  that former Treasury executive, Craig Phillips working for Steve Mnuchin, crafted a solid end of Conservatorship plan, but got muscled out of his job by Calabria and his allies, paving the way for Calabria to make multiple changes to Phillips work--as Secretary Mnuchin  was looking elsewhere busy on more important Trump Admin priorities.

It certainly would be revealing if the Hill would demand a copy of Phillips original work and what alterations the FHFA and its new Director made to it.

I guess a real test of Calabria's brooding about sufficient GSE capital will be tested at this months end when he has a chance to allow the GSEs to retain their earnings, or, once again  force them to ship that cash to Treasury  with the @ $300 Billion already shipped over since 2012 to pay off the original $190 Billion debt. (Please note the "2012 in perpetuity profit sweep" still is being argued in federal courts.)

I wanted to get this off my chest so before the counter ass-kissing comes from the happy with the Treasury report trade associations and other interest groups start their chirping, although most of the news going forward will be about the Fifth Circuit's pro-GSE decision yesterday.

Besides the predictable partisan happy talk, let’s see if any of these matters come up next Tuesday when the Senate Banking Committee hosts Secretary Mnuchin, HUD Secretary Ben Carson, and FHFA’s Calabria or as someone tabbed them, "Hear no evil, see no evil, and GSE Evil."

Maloni, 9-7-2019


Anonymous said...

No surprise indeed:

Anonymous said...
Was and is Mark still buds with the Banking Senator, Shelby? If it walks like a duck, then it must mean that the fox is in Fannie and Freddie's' house.

July 23, 2019 at 3:43 PM
Bill Maloni said...

Dick Shelby--is #2, right behind Sen Crapo on Banking--but now is Chairman of the Senate Budget Committee and has been busy on macro federal budget matters and, apparently, successful with the bi-partisan new deal unless DJT backs out. (Worth noting that Mnuchin had the lead for the Admin on this.)

While I suspect MC knows the Senator--having worked for him on Banking for a period--I would find it doubtful that Calabria would go to Shelby for help unless it was an "all hands" threat.

But, again, nothing surprises me in the GSE world.

July 23, 2019 at 7:18 PM

Glen said...

how do you write this and miss the major legal victory?

Anonymous said...

Mark Calabria is a low life, cares about his salary and job and not his legacy.

Jeff Wood said...

Thanks Bill. Nail that MF to the wall.

Bill Maloni said...

Glen--Give me a little credit, man. I noted that it was written BEFORE the Fifth Circuit decision came out--which I described as BOFFO--and I would address the latter in my next blog.


Yep, not on my Christmas card list!


It will be interesting to see how he's handled by the SBC next week?

Anonymous said...

You clearly showed your partisan ideology as soon as you mentioned the two liberal loony Senators. While you continue on slamming the GOP and this Administration, not one word, not one, of anything that Husain’s folks did, someone say Mel Watt or the real culprit who developed the NWS in the first place.
I for one am happy this Administration, alone, against his own party of the party of loonies is the sole person who put words into action. Thankfully, there are still a few courts that follow the rule of law.
Knowing what has transpired over the past 10 years, I highly doubt this is the end of the story.
Anon #1

Bill Maloni said...


BHO was over six years ago. What does any of that have to do with the GSE price of tea in China? (Ooops, bad simile or something)???

I was venting against the current FHFA Director and his words and deeds.

Other than the hint of ending Conservatorship, there is very little in the Treasury Report which is good for the GSEs. And note that promise, from Mnuchin, has been out there for two years.

And while you are blaming me, does the timing of all of this--meaning Treasury Report andf the Collins decision suggest some Judge and the Admin were swapping tweets or otherwise communicating?

I forgot, no Republicans break or bend the law.

C'mon man, hope your GSE investments rise, since the Treasury report alone won't help them.

Anonymous said...

Bill, can you help or just rant? You were a lobbyist, so why not lobby, knowing that you will not get a check. Tell us the next steps, what will happen on tuesday etc.

Bill Maloni said...


Please note for more than 10 years, that I have actively lobbied those on the Hill I still know, both staff and Members of Congress (which includes Senators). Add columnists, reporters, and housing opinion leaders.

It's tough to rally people (CONGRESS!) who have little understanding of the mortgage finance system and also think things are fine because families still are getting mortgages.

I share with them F&F information, gave a heads up months ago on the Fifth Circuit--not knowing when it would happen--but urging my small Hill/media network to stay tuned for major events, if any court found for the GSEs.

I have written--for 10 years--constant comments on GSE media articles--often correcting the author's errors for the benefit of their readers.
(Just sent one today to a WSJ reporter who--talking about the 5th's finding, skipped why the GSEs financially came back to life in 2012, large the natural reversal of phony accounting changes Treasury forced on them so F&F would look financially worse then they were.)


What you can do?
First off, as I often have counseled--everyone who cares about the GSEs should have opened communications with their congressional representatives office. Each of you have two Senators and one Congressman, who potentially can help IF YOU APPROACH and EDUCATE THEM.
Many are not the sharpest knives in the drawer, but their job is to assist you with any federal matter you bring to them.

The ones on the two Banking Committee are the most valuable for this matter, but sharing your opinion with any of them is valuable.

If you think--as I do--that the T report is crap, tell them and make your message as specific as possible.

As to what specifically will happen on Tuesday, mostly NADA.
There will be lots of nothing as the GOP will seek to soak up as much time under as the "5 minute clock will allow" (the clock being very important).

You'll hear the witnesses slow walk their answers so they don't have to face and many tough challenging inquiries (mainly from the Democrats). A skilled Senator and witness can kill five minutes very quickly and there will be three witnesses on Tuesday (each of whom, if it is an early hearing, will have an important lunch.")

HBC Chair Waters wouldn't let Mnuchin go one day when he claimed such a meeting.

The media will focus on the Admin report theme but not wanting to free the GSEs, but not on the inconsistencies in their statements or the reports subtheme of "let's see what we can do for the banks if we must do something for the GSEs" (made more so by the 5th Circuit's decision...which still is not a bright line, even for the NWS?).

Read the Senate report and then write to Congress and your hometown media about your views and how you think the recommendations will impact your community.

Anything which drives up F&F operational costs, like higher GSE capital, by definition, will increase the cost, by some degree, every mortgage the GSEs are permitted finance in your community.

Bill Maloni said...

Previous Anon--

I think I missed part of your "next Tuesday" question.

From my "30,000 feet" perspective, I would be surprised if any of the Admin witnesses announced any decisions based on the Fifth Circuit opinion, but it's possible.

Given the generally poor communication and coordination among the affected agencies, I can't see the Admin dropping the NWS, etc., before it decides whether they want to work the lower courts or appeal to the SCOTUS?

There seems to be a lot of uncertainty on how the 5th's decision works out.

Anonymous said...

Pertaining to the En Banc ruling that was just issued in favor of the P's
What happens to the cases that where dismissed, Judge Lamberth Famous punt "not ripe for a taking"...Causing the cascade in the stock price. Is there a statute of limitations in the cases. Judge Sweeney case is on going but has been in quick sand!!!The "Whole Theft" has been unbelievable... Can't believe it has taken 12 years for this to get some relief "Unreal". 43 Bush,Paulson, Geitner, Berneke,TBTF the original robbers along side the Secondary robbers...BHO,Parrot,and Stevens TBTF.
The Complete system is a "BIG HOT MESS" Just look at the current Admin..WOW JUST WOW
you just can't write this shit, "I know you not a lawyer" thank god.. anyway any insight would be gratefully received.

Bill Maloni said...


Thanks for writing. It's been an odyssey, but it's not nearly over!

While the Fifth Circuit's call is welcome, it's not definitive enough for us to start dancing and counting our chips, yet.

It's a small but important first real win...but small relative to future GSE treatment.

The notorious "GSE Shit Wall" is high for a reason and there still are many people in this town willing to wage war against the GSEs

For openers, I will have to hide behind the "AAFL" because as noted this decision seems to have a lot of still moving parts and I don't have the tools or legal skills to deduce them all.

Re your questions, much will depend on what position the Admin takes and when with regard to the NWS which seems deader than Francisco Franco, but it depends on how much the Admin wants to fight?

Tim Howards has offered in his blog some helpful analyses about possible next investor legal steps the Jr Pref investors can take, so I urge you to read what he says.

I think If the P stock rises, common should, too.

My best advice is to see what I said to the poster who told me I can rant, but asked for more specific advice!! Educate your federal representatives and engage them in a GSE dialogue, especially if your Congressperson or Senators serve on the Banking Committees. Chat them up and lobby them and their staff hard and let them know you're watching what they say and how they act and vote on Fannie/Freddie matters

They exist to serve you on all mater delaign wiht the national government and use them.

Anonymous said...

He's consistently against housing affordability. He will be fired by next President, if DEM.

Bill Maloni said...

I think his big bank friends will find him a nice cozy spot since he already is repaying them with his piece in the Treasury report.

Bill Maloni said...

One additional thought for those of you wanting to engage with your two Senators and your House of Representative member about the GSEs.

Use the spate of articles about both the Treasury Report and the Fifth Circuit's decision to establish with them your interest in and support for how Fannie and Freddie work in your neighbor and go from there.

Again, those three elected representatives are your voices in Washington on anything FEDERAL, including the GSEs, the Treasury, FHFA, and--obviously--Congress.

Bill Maloni said...

Yay President Donald Trump on firing crazy John Bolton. JB was too unstable for that job.

Anonymous said...

The only achievement before next President is ending of NWS.

I don't think Mnuchin / Calabria can recap the companies given their threat to reduce footprint of GSEs.

Bill, can you speculate what will happen to GSEs if Dem wins white house?

I know some Obama people may want to enter next administration.

Anonymous said...

What happens to the BASEL 3 risk weight of securities issued by a privatized F/F?

Bill Maloni said...

Frankly__ I don't know, ask Tim.

But remember, for a fee the GSEs still can have a piece of Uncle Sam standing behind them.

Just part of the Treasury recommendations inconsistencies.

Anonymous said...

Alas,Tim deletes any such questions.

The GSE charge a guarantee fee of 55 bp on the full amount protected.

If the TSY charged 20bp on 5 trillion that would be $10 billion.

Don't think the recap release crowd have done that math

Anonymous said...


With all that is happening, looking forward to your next post.

Anon #1

Bill Maloni said...

Anon#1--It's in draft, trying to get it out by Monday, but doesn't look likely, since--in honor of your coming birthday/Thanksgiving/Christmas, I wanted to make extra sure there's nothing in it negative to DJT.

But he makes that so difficult.

I know he hasn't read the new Kavanaugh book (or any other in years), but he already is calling on DOJ to defend the SCOTUS judge. (Can they do that?)

Anonymous said...

God forbid anyone accuses you of anything that you are innocent of and drag your name through the mud. They had a fair length of time to do their investigations.

In today’s evil media empire you are front page guilty until proven innocent. They protected Hillary & Husain (11,000 GSE Documents) amongst others and now round two for this man.

Who do you like of the Democrat Candidates that would have a reasonable chance at beating Trump? To me they are the largest bunch of loony toons ever assembled since Avenatti had to drop out for his felony incitements. A comedy of derelicts, but the New York Slime and Washington Piss have every one beating Trump even though Hillary couldn’t.

Bill Maloni said...

Biden and Harris, Biden and Buttigieg, Biden and Booker, would do it right now, assuming Trump continues to make the gaffs he's making with 14 more months till the 2020 elections.

Biden is flawed--as is anyone with a long political record--but nothing he does or has done will soil him as much as DJT has injured himself and our nation.

Jobs and income are important, but if they come with the destruction to our national soul which I believe DJT is inflicting, they aren't worth it.

If he's such a super President why are chaos and lies nipping around him constantly? Why can't he keep his own chosen GOP officials from leaving his administration? Why are there so many vacancies in his senior staff ranks?

Why are so many government agencies and officials using his Trump properties with the federal government paying (HIM!) for that? He's a multi-billionaire, why does he need your tax dollars and mine to pump his personal treasure chest?

What about Alabama and the bad weather he tried prognosticating for it, only to be rebuffed by NOAA executives?

He's a bad dude Anon#1 and your kids and grandkids and mine--if they survive the war he wants to start with Iran--will be paying the inflated taxes because of it.

Anon#1 Jr. or Anon#1 3rd--or the Maloni's--shouldn't have those forced heavy financial burdens.

After all of his bragging and self-puffery, which "deal" has he consummated?? I can give you a list of those he broke and backed away from, leaving the country in worse shape.

Let's hope those bone spurs return, totally incapacitate, him, and force him to sit out the next war (at one of his golf course)!

Anonymous said...

Anon: "The GSE charge a guarantee fee of 55 bp on the full amount protected. If the TSY charged 20bp on 5 trillion that would be $10 billion. Don't think the recap release crowd have done that math."

The TSY isn't on the hook for $5trn, they're only the hook for $250bn. Questionable whether all that is even necessary, but if you only charge a commitment fee on that amount comparable to a corporate revolving line of credit -- and price it accordingly for being expensive 10% dividend cost as opposed to cheap bank LIBOR-spread interest cost -- the figure is quite modest. You could even have a grid where the commitment is priced based on the level of subordinate preferred and common equity capital at the GSEs protecting the government from draws. It's only the PIMCOs and Blackrocks who want the government to actually be on the hook for the full $5trn.

You are obviously a DC person who hasn't dealt with corporate finance in practice. Quit manufacturing reasons to prevent release based on math you don't understand.

Anonymous said...

The $250 billion is capital -- it is not some line of credit as stated by some GSE shareholders (why do the GSEs need a line of credit anyway).

If losses exceed the 1st Loss capital --- 3% according to some or $150 billion -- the next in line is the taxpayer.

Based on your logic, the GSEs should only charge the gFee on the $150 billion they have at risk.

The TSY needs to charge its fee on the full amount insured (or perhaps $5 trillion less $150 billion) as no one knows which of the $5 trillion will default.

A corporate revolving line of credit is used to cover unforseen expenses. The funds here aren't for unforseen expenses -- they are to cover losses. The taxpayer eats those losses.

Common math escapes many

Bill Maloni said...

I'll stand back and watch you two debate since I don't pretend to be a corporate finance expert, but do understand something about GSEs and DC politics.

I will only note, if F&F ever needed any of the promised $200 Billion of GSE credit, you would find the Treasury/FHFA seeking arduous repayment but also structural and other demands...remember charging GSEs 10% when banks paid %5 and then the NWS.

The bad guys never will pass up an opportunity to ding the GSEs.

Anonymous said...

Playing word-games doesn't help your case.

The $250bn remaining that the GSEs can draw from Treasury is NOT capital by any regulatory definition. It's "phone a friend if you need it" resources. It is promised but undrawn, and Treasury should get a fee for that commitment.

The money drawn to date -- $187bn before hitting paydown, $2bn initial commitment fee, not counting increases in liquidation preferences for foregone December 2017 dividends -- has been repaid at the original 10% rate and then some. It got its return and doesn't need to get another.

The $150bn represented by a 3% capital rule -- is money to be raised that is not the government's. The providers of that capital should get the return on that capital, and it is capital at rest (drawn) not promised so it should get a market return.

The Treasury is not now, and never has been, on the hook for $5trn unless you want to start asserting implicit backstop which does not get paid for. Explicit gets paid for, implicit doesn't. Treasury is only on the hook for $250bn.

Bill Maloni said...

What is it about " I don't pretend to be a corporate finance expert" that's unclear or more explanatory?

Again, sir, if you are unhappy with my blog content or me, don't read it.

Anonymous said...

Investors in MBS (who pay the 55 to 60 basis point GFees) expect protection on their full investment -- not just on 3% of losses.

But let's take your argument at face value. In the new world, the GSEs now offer 3% protection and can draw on another 2.5% protection from the Treasury in a pinch.

What is the BASEL 3 risk weight of MBS under this scenario? Why does this question even matter? Banks are the largest buyer of agency MBS.

Under the PSPA, the BASEL 3 risk weight is 20%. Taxpayers take all the risk and should take all the GSE fees.

With no PSPA and only 3% hard capital -- I doubt the BASEL 3 risk weight will be less than 50%. An 250% inrease in captial costs for the largest buyer of agency MBS.

Anonymous said...

Bill, Bill, Bill-
Is the Blog only for those who agree? This is great healthy conversation. Maybywe all learn a different perspective.

Bill Maloni said...

Anon, Anon, Anon--

I didn't--or never will--cut off blog comments if posters agree or disagree (with me or others).

When I can't answer/contribute personally, I will note that and let other posters do so.

Anonymous said...


Appreciate your allowing posting of questions such as this

If GSE portfolios have such low credit risk why are they charging gFees in excess of 55 bp?

Why do the GSEs need a line of credit if they r simply mortgage insurers