GSE Cats and Dogs

Who is the nation’s most beloved woman and why?

Ruth Bader Ginsburg, Michelle Obama, Laura Bush, Barbra Streisand, Betsy DeVos, Oprah, Hillary Clinton???

Any one of them could lead many such lists, but now with the full disclosure about his unnecessarily complex, heavily ideological proposed risk-based capital, the FHFA’s Mark Calabria has catapulted 65-year-old federal claims court--Judge Margaret Sweeney--to the top spot because she seems to be the only federal judge whose decisions say anything positive about Fannie and Freddie, the US rule of law, and the prospects of GSE plaintiffs securing some relief from the government’s heavy-handed pillage of GSE profits and market operations via the 2013 “sweep.”

GSE fans have been sending her all sorts of gifts to insure she enjoys a long, vigorous, and happy life: vitamins, personalized COVID-19 masks, pelotons, health foods, chickens, sleep adjusted mattresses, names of age-appropriate trainers, meal suggestions, strength techniques, etc. It’s rumored that RBG’s trainer even chatted up Sweeney on correct barbell usage.

You get the picture. Judge Sweeney represents an element necessary to all heavy underdogs….hope! 

RBC

Speaking of Mark Calabria and his latest risk-based-capital proposal—for those still struggling to grasp it--what’s not to understand?

It’s a highly ideological capital construct designed to make the GSEs less effective while, simultaneously, leveraging the ability of the nation’s largest banks to compete in the mortgage world.

No matter how much MC and his staff dodge and run, they can’t escape its inherent higher costs which will impact mortgagors and knock some of them—likely the lower-income segment—from being able to afford a mortgage.

No matter their history, the FHFA posse doesn’t consider Fannie and Freddie real businesses which in the past returned dividends and growth to rapturous investors

There is Calabria’s other hidden problem with hamstringing Fannie and Freddie. He needs them in the future “as real businesses” so they can attract billions of dollars from new investors who would like to see their GSE stock purchases earn money, which is what most investors seek.

FHFA’s and Calabria’s actions to date seem more destructive than constructive which is why GSE fans are rooting for Judge Sweeney’s health and willingness to continue her exposure of government lying and perfidy against Fannie and Freddie in hopes, some court gets that message.

The SCOTUS ended its current session without acting on the “Selia” case, which could have decided the constitutionality of the FHFA, mooting some of its actions.

So, more delay.

And now Mark Calabria gets to oversee another deferral tactic a “GSE-driven Wall Street MMA battle,” with today’s announcement that Fannie (Morgan Stanley) and Freddie (J.P. Morgan-Chase) have chosen their own Wall Street investment banking warriors to rumble in an eight-sided octagon office FHFA has built for the negotiations.

All of this pisses away more GSE money on “outside consultants” and chews up more of the clock to help decide the ground rules for any GSE departure from Conservatorship.

Why does FHFA have 600 or so employees, but every time they do anything important, the agency requires outside consulting help or is that just a Calabria MO?

In his “2019 Report to Congress,” sent this week to the Hill, Calabria seeks even more power to destabilize the secondary mortgage market by seeking statutory authority to create competitive guarantors. (Maybe he’ll use his 600 do-nothings to work on that task??)

Maybe it’s the slowly drying up optimist in me, but I believe when all the dust settles, much of the Calabria plan will fall by the wayside because of its negative financial impact on the families Congress wants/expects to benefit the most from GE operations.

Now we all get to watch just how?

Maloni, 6-16-2020

George Floyd, Donald Trump, and Mark Calabria

My GSE thoughts will follow, but first, a discordant presidential note

For those who care, last Friday was not a good day for George Floyd, no matter what the POTUS claimed.

Floyd still was dead; his family reeling from his ghastly killing; protests over his death raging in major US cities; more than 110,000 of his fellow Americans dead in five months--not from police brutality like Floyd--but COVID-19, a virus which continued to infect and take lives; unemployment still hit 13.8% (meaning millions of his fellow citizens still were without but sought jobs); our President continued his lying and campaigning for office failing to offer any succor to US demonstrators, but trying to suggest he was responsible for fewer unemployed. 

In violation of the Constitution, DJT wanted US troops to patrol US cities. (Someone sounds politically rattled and desperate.)

Hiding and Ignoring Facts, FHFA Produces a Predictable “Snooze-in-ar” 

Two days earlier, one of President Trump’s more recent appointees, Mark Calabria who heads the Federal Housing Finance Agency,  presided over a farce agency “webinar” about the new risk-based capital regulation pre-sold as open and transparent but with no revealing information or answers to the question about how the agency put forward this controversial regulatory order which seems to diverge from history and conflict other promises Calabria made—when he was nominated-- about returning the GSEs to health and private ownership, once they raise additional capital.

After waiting nearly a year, spending millions on outside consultants, FHFA’s Director all but crapped his pants and unloaded a wholly made up new capital design consistent with very little except his goal to injure the GSEs vis-à-vis commercial banks.

Check the facts not just his rhetoric.

He did so with a draft  to set fresh capital standards for Fannie and Freddie as they return to some semblance of their pre-2008 status quo, instead. But he did so with ill regard for low, moderate, and middle income people who the two serve and who most in Congress would choose to support, since it is those would-be mortgagors who will pay for Calabria’s capital enhancement or “buffers,” as he calls them.

Some smart staffer must have suggested that FHFA hold a public “webinar, presumably to field questions about all the bizarre twists and turns, MC’s draft regulation took. But none were explained or simplified. Few listeners were enlightened.

After FHFA blah, blah, blahed about transparency, the agency must have handed out “No Doze” pills to its audience, after pre-approving all questions, so FHFA execs and Director Mark Calabria would not be surprised by questions/questioners for which they had not prepared or had no answers. FHFA then presumably achieved “webinar” Valhalla, when boredom caused most listeners to hang up and check out.

One could almost hear the wafting soon-taken-back salute, “Way to go Brownie," or Markie.

I’m told insomniacs have made requests for the FHFA event tape to help with their sleeping difficulties.

From Calabria’s perspective, that result was a lot better than having to stand up and answer why he contends the GSEs and behemoth banks are close enough from a risk comparison to capitalize each other similarly, even though they have dramatically different charters and do not compete with one another in their standard business lines. Fannie and Freddie are monoline companies and only can guarantee mortgage credit on US homes, while the leviathan commercial banks can operate all over the world offering a variety of complex commercial products (loans). The GSEs do single and multifamily mortgage credit, domestically and--unlike the big banks-- have generated more than 10 years’ worth of superb very low credit losses. 

People who understand the FHFA scheme will see the possibility that Calabria’s rule could end up costing low-moderate-and middle income families as much as a 150 basis points (one and a half percent) more than families with higher credit scores.

Is that what congressional Democrats want??

Challenge this point Senate Banking Committee; don’t buy a pig in a poke because Calabria once was a glib GOP committee staffer and labored for VP Pence. 

If you bless his RBC proposal, you wear it.

Maybe the SBC Senators listening to Calabria on Tuesday will cut through the FHFA’s previous bull crap and ask the Director point blank questions about MC’s ideological  GSE/large bank risk and capital comparisons, as well as who in the mortgage chain will bear the real cost of a GSE capital increase? 

Remember Senators, we are talking about 40% to 50% of all future American mortgages? Do the math for your own states and the negative impact on your constituents in this election year. 
Then take another look in the streets.

Maloni, 6-7-2020

Joe Light earns an infrequent Maloni “Yay”

 Protestors should visit Mark Calabria at FHFA 

FHFA’s recent RBC re-proposal reg (compared to its original one) shouldn’t confuse anyone, it’s not rocket science and it is exactly what it looks like. 

A series of complex capital proposals—when applied in concert— designed to blow up or disable the main Fannie and Freddie battle tanks and to the advantage of the large commercial banks, which still envy GSE mortgage market control and revenue. 

Calabria’s ill-fitting scheme to give Fannie and Freddie “bank like” capital requirements, has gone way beyond that and produced something way beyond “bank like”—since there are no existing conflicting analogies in bank law or regulation designed to deny a regulated institution market generated revenue to establish the capital to escape “Conservatorship,” which is what this long-delayed exercise is all about.

Based on specious reasoning, it allows FHFA’s too ideological director to point to something which embodies the idea, “With the GSEs, you never can have enough capital.” 

Instead what we have is Calabria’s “wet dream” of how he would solve all of the lingering big bank problems with active Fannie and Freddie market competition. He would starve the GSEs then give Fannie and Freddie no chance to escape continued FHFA control—not to return to privately owned, market-sensitive financial institutions (which ironically is the charge in his other GSE responsibilities). 

Light to the Rescue??? 

But the bloom may have left that planned rose—to Calabria’s regret—when this week, Bloomberg’s Joe Light wrote a most useful article saying what FHFA foes have been saying the new proposal will hurt those who most need GSE financing, i.e. less wealthy families many of whom are black and brown. Then, look at what we are seeing and hearing in America’s streets.

In terms of added pressure (political) on FHFA and Calabria, Light’s article and its headline--in a major business publication--will get the attention of stakeholders—and maybe a few Senators and Congressmen-- more than what the few GSE allies have said.

https://www.bloomberg.com/news/articles/2020-06-01/fannie-freddie-capital-rule-seen-harming-less-wealthy-borrowers  

 (See headline and segment below.)

Fannie-Freddie Capital Rule Seen Harming Less-Wealthy Borrowers
By Joe Light

June 1, 2020, 6:00 AM EDT 

“A top regulator’s plan for boosting Fannie Mae and Freddie Mac’s ability to withstand losses could mean higher costs for many mortgage borrowers, with the burden falling most heavily on those with less wealth and lower incomes, according to economists and housing-finance experts.

The 424-page rule released for comment by the Federal Housing Finance Agency last month would dramatically raise the amount of capital the two mortgage-finance giants must hold and likely increase fees they charge for guaranteeing loans, which would hit borrowers in the form of higher interest rates.

FHFA Director Mark Calabria’s proposal highlights the fine line his independent agency and the U.S. Treasury Department must walk to achieve their stated goal of freeing Fannie and Freddie from the government’s grip. To claim success, they will likely have to pull off a juggling act of keeping down borrowers’ costs, protecting taxpayers, appeasing mortgage-bond holders and enticing stock investors needed to re-capitalize the companies.

Mortgage rates would have to rise between 0.15 and 0.2 percentage point on average to meet Calabria’s proposed capital requirements, all else being equal, according to Bob Ryan, who was a senior FHFA adviser until mid-2019 and now consults for firms in the mortgage industry.

The higher interest rates could weigh most heavily on borrowers with lower credit scores and smaller down payments, said Moody’s Analytics chief economist Mark Zandi. In a stressed economic environment, those borrowers might see rates as much as half a percentage point higher than they otherwise would, Zandi said. That would mean, for example, that someone with a $200,000, a 30-year mortgage would pay an additional $58 a month if their interest rate was 4.5% rather than 4%.

“It’s confusing to me,” Zandi said of the proposed rule. “I’m not really sure who benefits from this. I’m not even sure it helps their goal of privatizing” Fannie and Freddie.

If either capital requirements or return demands increase, fees also rise.

Maloni, 6-3-2020