Sunday, December 8, 2019

Are the FHFA newbies birds of a negative feather?


Quack, Quack………

I am going to repeat something I did before, lead with a “news” story from Inside Mortgage Finance, which I suspect most readers didn’t see, to illustrate a point I make below.
Inside Mortgage Finance, Paul Muolo
“IN CASE YOU MISSED IT: The Federal Housing Finance Agency recently added two new members to its cohort of Cato Institute alumnae: Thaya Knight and Lydia Mashburn, who join Director Mark Calabria in the agency’s senior leadership team. Knight comes aboard as senior counsel for policy and regulation. She previously served as counsel to Securities and Exchange Commission chief Hester Peirce. Mashburn joins FHFA as deputy chief of staff. At Cato, she served as managing director of the institute’s Center for Monetary and Financial Alternatives. Prior to that, she was a member of the financial markets working group at the Mercatus Center at George Mason University. George Mason is Calabria’s alma mater.”

 "If it looks like a duck swims like a duck, quacks like a duck, then it probably is a duck."

I’ll fall back on this hackneyed explanation above of abductive reasoning to offer more insight into my opinion of Mark Calabria and his management of the Federal Housing Finance Agency (FHFA), the Fannie/Freddie regulator.
My thumbnail sketch of him—until proven otherwise—is he is a doctrinaire GOP agency head who has consumed the Conservative Kool-Aid and is uncomfortable, possibly opposed, to his primary mission (as per President Trump and Treasury Secretary Mnuchin, who are pretty tough foes to cross) to free the GSEs from “Conservatorship” and return them to privately-owned institutions, providing their superior securitization skills to investors in the nation’s secondary mortgage market.
To me, Calabria’s current slow-walking of all things-GSE reflects that. This shouldn’t be a three or four-year process, as he’s suggested.
There’s a big part of him which just appears reluctant to untether the GSEs, cutting their current chains. But it may just be inevitable because too many of his bosses predicted it and--finally--recent court decisions. (Thanks, Judge Sweeney.)
To people who understand the market dynamics, Fannie’s and Freddie’s mortgage market presence, efficiency, and underwriting guidelines support what primary market lenders—banks, mortgage bankers, non-bank lenders, credit unions, etc. (all the facilities where consumers go to get mortgages)—do best.
In my view, however--and less understood by many--is the GSEs' greatest value. In setting underwriting guidelines, i.e. “the rules of the mortgage road,” Fannie and Freddie act as a governor/decider, temptation restrainer on primary market lenders' temptation to go rogue and reintroduce very risky subprime loans through the system, which yield more money to that lender. 
Those loans largely are banned from GSE trading, but still can be originated if that lender is willing to keep those subprime loans on its own books and themselves assume the credit and interest rate risk those loans contain or sell them to a lesser angel.
Ironically, although few will admit it, I believe many bank execs  in operational roles support the GSEs for their competence, efficiency, and ability to generate revenue for commercial bank mortgage banking purposes.
I don’t know who else MC has hired to FHFA, but clearly, he is unhappy with resident folks he inherited and is seeking different skills.
At FHFA and for the Director, what are these new folks, Knight and Mashburn, going to do? Will MC elevate them to senior FHFA players? Is he going to bring in more, with similar backgrounds? Will deadwood FHFA incumbents—as some should-- feel the heat and get the message, “You are not giving the Boss what he wants, prepare to clean out your desks?” (I could offer MC some names of people he might “retired!”)
But my question is, if we are to ignore his management stumbles, his delaying tactics, and his efforts to stretch out the first GSE IPO (it would be nice if he postulated his required capital) and the fact that he hasn’t even brought in his touted Wall Street consultants—what jobs are these new folks (whom I don't know) going to perform??
Will they be in charge of throwing CATO and Mercaitus sand in the efficient GSE gears or the equivalent, which is where I think the Director would like to go?
Their backgrounds, Cato, Mercatus (founded by former SBC chair Phil Gramm and his wife Wendy, herself a conservative economist), etc., both are institutions which historically have displayed major animus and strong opposition to the concept of GSEs and certainly to Fannie and Freddie specifically. That doesn’t give me hope they new guys will be GSE-positive contributors.
Are they just hired ideological guns brought in to creatively scuttle future GSE operations and success?
If those new folks are to play some role in an evolving Fannie and Freddie, do either support the GSEs affordable housing mission, are they sensitive to the problems of minority mortgagors; do they believe that active GSE involvement means more homeowners and more jobs for those employed in affiliated industries, which is not usually the ken of conservatives??
There are a lot of ideological ducks walking around FHFA. Has that flight just grown?
It never hurts to read what smart GSE lawyers have said
Here is an excellent brief by GSE plaintiffs’ attorneys - submitted to SCOTUS--in response to the government’s false/misleading GSE narratives.

https://www.supremecourt.gov/DocketPDF/19/19-563/123839/20191127103429028_USSC%2019-563%20Brief%20for%20Respondents.pdf


Judge Margaret Sweeney

Not ignoring Judge Sweeney's Friday decision, but, since I am "NAFL," I still am trying to figure out the parts and pieces; I will cover that in my next blog.


Maloni, 12-9-2019

20 comments:

Anonymous said...

BM,
I ask this very question over at the real smart blog TH,of course it was vetted to the abyss.
If all these ladies and gentleman are very well aware of the false narrative that has been and continues to be floated for last 10 years, are they going to be found liable, and held accountable for there actions.
Average Jane/Joe are clueless about the issues, which is the way these guys want it, I'm going out a limb here (not) these fine folks know damn good an well what has happened (lies) continues to happen (more lies) are they complicit?
The whole caper reminds me of Scooby Doo when Sweeney begins to grind some nuts!
Rut row raggie

Bill Maloni said...

Anon--

That's why I asked, but I doubt we'll get an answer. (You ask good questions!!)

Their careers suggest a philosophical orientation that's inconsistent with turning the GSEs loose and let them do the excellent and broad mortgage financing work which they've demonstrated. Calabria's going to demand changes --as we've discussed ad Infinitum--which give him wins, "scalps" he can show proudly to his peeps, that won't be good for Fannie and Freddie or the public which benefits and would pay higher prices if those obstacles are worked into the mix.

He also has to keep one eye over his shoulder at future investors who may need to kick in $150 Billion to $200 Billion (last week's IPO report) fresh GSE money.

But, you are right, so few people--in the media and in Congress--understand the mortgage market tradeoffs.

Anonymous said...

If he slow walks a thing, he doesn't want to finish it.

In 2021, a new President, if DEM, will replace him quickly. When he leaves in 2021, he looks good to financial industry where he will get a good paying job. This is his plan.

Bill Maloni said...

Anon--We agree.

Somewhere in a past blog, I laid out that exact sequence.

Anonymous said...

Hilarious.

No chance whatsoever a Democrat wins the White House and they lose the House since their evil deeds are now exposed to the American people.

As far as getting a great job in the privet sector, who doesn’t? I say he gets more done then Husain henchmen Watt.

Bill Maloni said...

UNLESS SOMETHING GSE DRAMATIC OCCURS, I'LL TAKE A BLOG-BREAK FOR THE REST OF THE MONTH.

MERRY CHRISTMAS AND HAPPY CHANUKAH TO ALL, FRIENDS AND CRITICS ALIKE!!

Anonymous said...

Merry Christmas Bill.

Thank you for all the entertainment this year. Both fiction and non-fiction.

Bill Maloni said...

Anon--

Thanks. I'm glad I could make 2019 better for you.


Good health and peace to you and yours.

Anonymous said...

Best wishes to you for the New Year. You have the courage to let people post as they wish -- unlike your former colleagues.

My prediction for the GSEs:

1) GSEs released from conservatorship in 1Q 2020

2) Treasury does not exercise warrants and considers Senior Preferred Shares paid in full

3) Current federal guarantee covers only MBS issued prior to termination of conservatorhsip

4) Credit protection for any new MBS issued by FNMA and FMCC covered solely by new capital raised by GSEs (FNMA/FMCC shareholders are free to determine this amount)

5) Federal charters for FNMA and FMCC revoked



Bill Maloni said...

Anon--Fair enough, but an aggressive schedule.

--what happens to their low-income goals if their federal charters are revoked? Who/what then drives that service, since Primary market lenders won't do it UNLESS MANDATED WITH THEIR OWN STATUTORY LOW-MOD GOALS!!!?

(I prefer the GSEs having the goals' obligation, setting the corresponding underwriting standards for those loans, and have them bid for that product with their lending partners.)

--Currently, F&F pay FOR all regulatory expenses (FHFA'S HUGE STAFF AND OVERHEAD); would that still be the case if their charters are revoked?

--what does your "#2)" mean for GSE common shareholders and, separately, for Pref shareholders?

Anonymous said...

The Johnson Adminstration (Lyndon not Andrew) tasked Fannie Mae with providing a source of liquidity to the banking system. And the Reagan Administration (the administrtion that, GOOPERs want us to forget, invited Islamic fundamentalists to the White House) taksed the GSEs with moving interest rate risk off bank balance sheets.

The GSEs failed abysmally in both those roles and have abandoned the very reason for their existence.

So missing the affordable housing goals -- which mostly seem to consist of education-- doesn't seem like that big a deal.

No conservatorship, no federal charters means no FHFA.

And revoking the federal charters would send GSE shares close to zero --- and that would be nice a present to all those who repeatedly post how the Kenyan Muslim Terrorist (Obama not Reagan) stole thier money to fund Obamacare.

Bill Maloni said...

Anon--

Have any strong feelings about those issues??

Sigh, a reminder for you.

Banks didn't need the GSEs to totally screw up their own and Treasury's balance sheets in 2007-2008, with their mindless PLS subprime debacle--which didn't involve the GSEs but only bank greed. So you might drop that phrase/line from your lexicon.

"No FHFA."

Once created in the DC world, things don't disappear. You and the other bad guys would want them to stay around to damage whatever "GSE husks" remain, since the GSEs won't be ended.

Look at the useless and duplicative Federal Home Loan Bank System, also house at FHFA.

Now be careful and go home and have a hot toddy, because you are wandering very close to crossing the "only coal for Christmas" point.

Anonymous said...

The GSEs of yore existed to take on credit and interest rate risk. The GSEs of now do neither. They have transformed themselves into some kind of credit guarantor usng those valuable federal charters.

Consider a simple analogy. A father buys a car for his son, pays for insurance and gas. The only proviso is that the son has to drive is grandma to an from her doctor's appointments, to and from the grocery store and to and from church every Sunday.

The son gets a DUI and loses his license. He then sells the car, pockets the money and offers to mow his grandma's lawn in the summer and shovel the driveway in the winter.

Great offer from the son, but the grandma still needs to get where she needs to go. The GSEs are similar to the son.

The GSEs have made a bundle but that money belongs to the taxpayer. And the financial system still needs an entity to take the interest rate and credit risk of fixed rate residential mortgages.

I think the Band anticpated the crisis with their song, The Weight (recall the pre 2008 stock symbor for Freddie Mac was FRE):

Take a load of Fannie, take a load for FRE, and put the weight right on me.





Bill Maloni said...

Anon--great allegory but you lost me, shortly after "Grandma!"

They do something quite well since the industry is paying them @15 Billion-$20 billion per annum to do something??

What's your guess as to the result, if the GSEs were de-chartered?

Would it be good for consumers, the nation, or bad? More expensive or less expensive??

Again, happy holidays to everyone!

Anonymous said...

The industry is literally paying extortion to the GSEs in the form of gurantee fees which they claim as income. The fair market value is between 20 and 30 basis points and the GSEs are charging upwards of 55 basis points.

Anonymous said...

Breaker, breaker...got a perspective on the Fannie/Freddie release plan...

Come on back, with a quack-quack...

services said...
This comment has been removed by a blog administrator.
Anonymous said...

Attorney Michael Avenatti was arrested by Internal Revenue Service (IRS) agents Tuesday evening during a break in a disciplinary hearing in Los Angeles over allegations the lawyer scammed a client out of $840,000.

An original Democrat darling.

Bill Maloni said...

Anon--

Yep, and I tabbed him for my Cuomo-Avenatti political ticket.

That fantasy political twosome still is a much better presidential choice than Trump and anyone.

Onno Phillip said...

"Greetings to You,

2% LOAN OFFER, We are Certified to Offer the following Kinds Of Loans * Personal Loan(Unsecured) * Business loan (Unsecured) * Debt Consolidation Loan *Improve your home * Investment Loan.

We are privilege to meet your financial needs. The issue of credit shouldn't stop you from getting the loan that you need. we can finance up to the amount $10,000 to $100,000,000 in any region of the world as long as our 2% ROI can be guaranteed on the projects.

If you are interested, please contact us today E-mail: nodebtloan@gmail.com with the following information below:

Full Name:

Employment status:

Amount of Loan requested:

Country:

Best Regard

Yours In Service,

MEGG Funding Management.