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