Friday, October 18, 2019

One man’s opinion

FHFA = “Wasting Money Is Us!”

I am PO’d but not surprised.
The current GSE regulator (not OFHEO, the first, born in 1992)—the Federal Housing Finance Agency or FHFA--has been around since 2008's Housing and Economic Recovery Act (HERA) 
It boasts some 600 or so employees.
There have been very few departures from this do-little-but-get-paid-a-lot agency. In researching something on FHFA’s website, I saw the various available employee benefits, which makes clear why few people bugout, if they are not canned.
It’s another sinecure and with its track record, but a lame one at that.
And now, Director Mark Calabria’s agency is seeking outside investment banking advice to consult on how to end Conservatorship at the right capital levels, at a cost of somewhere between $20 and $30 million dollars (more?) for that advice, according to Paul Muolo writing in Inside Mortgage Finance. 
In an email with Tim Howard I ruefully suggested be could do that job, start to finish in about 12 weeks, saving the GSEs a lot of money which could be put to needed capital.
Just what have those 600 people been doing for 11 years, if not studying how Fannie Mae and Freddie work and what they do?
We know FHFA cages as much customer information from the GSEs as it can and then reissues it in a variety of formats, pretending its original FHFA work.
Does anyone down there understand how their regulated entities operate and what capital protections are needed to make them safe performers in the international markets, where the sole GSEs assets being securitized, then bought and sold are exemplary and highly liquid US single and multifamily mortgages?
Fannie and Freddie have achieved a highly enviable 10 year track record of minimal losses (not to mention scoring sterling “stress test” results which FHFA just published). How about how Fannie and Freddie each manage their growing low risk securities business, while shrinking their legacy higher risk portfolio businesses?
Seriously, how do FHFA workers spend their days? And what corporate understandings/intelligence have they gleaned from their past decade plus of close supervision of the two mortgage giants?
If the answer is “not many,” then Fannie and Freddie—which cover all FHFA costs—are paying a lot of sloths to shuffle through the halls and spend time in their regulators break rooms.   
Don’t forget, either someone at FHFA  has been faking it or all of the prep the agency conducted for months and months before they issued its much-touted pre-Calabria GSE capital plan wasn’t worth very much. (Probably because it didn’t hurt the GSEs as much as some inside wanted/hoped.) 
It is not quite like the President taking bows and saying “ISIS is defeated,” then flip-flopping and crafting a torturous rationale to let Turkey slaughter the US’s Kurdish friends/allies and turn loose upwards of 10,000 ISIS fighters to go back and rebuild a new a caliphate, drawing inane and ridiculous analogies out of sync with international political reality and the historic US role as an honest broker.
Oh and come stay at my hotel, do I have a room and board deal for you??
But Calabria didn’t do that, his boss did..
He just wants his staff to go back and work with his new consultant to establish the right set of capital numbers and circumstances to end Conservatorship.
So why not try and CUT the cost and seek Treasury assistance or ask the Fed for help, don’t just spend another $30 million, coming from GSE coffers—just like the unneeded Common Securitization Platform, but not as expensive—which denied Fannie and Freddie some $600 million in possible capital, that being the unnecessary project CSP cost?
Bringing in outsiders has value but it also produces a variety of ways to throw sand in the gears of the goal to end Conservatorship, while creating delays and new hoops for the GSEs to run through. Whatever deadline the consultant is given, assume it will go longer and the same thing with whatever the initial cost will be. That’s why they call them consultants.
(Here’s a suggestion: Since the winning firm will have history in investment banking business, ask those competing for this new FHFA contract to take a fee “ haircut” (less money)  based on future profits the broader IB industry will earn when the GSEs start paying investment fees—under the new rules--to raise equity and to issue their MBS.)
The bad news here is this delay gives Mark Calabria more time to figure out where his and the agency’s self-interests are, as well as an excuses to thrust this whole exercise into a presidential election year politics--which likely will, now, feature impeachment issues--solely because the agency which is supposed to know the most of Fannie Mae and Freddie Mac doesn’t and comes up short in more ways than just providing available staff parking spaces.
To test FHFA staff learning or GSE skills’ retention, maybe the GSEs should conduct tests of FHFA personnel on various elements of the GSE business and report those results to OMB and the two congressional Banking Committees to share who knows what and who idling in place just waiting for their federal retirement dates.
And don’t forget the obvious, this drill delay also gives the many GSE mischief makers (whose hearts are not in turning the GSEs loose) more time to drive up GSE costs—including to higher bank like capital—and building in other product and mortgage ceiling impediments (as Calabria has been predicting for weeks as he runs around touting the flawed Treasury Report).
Leopards don’t change their spots!

Maloni, 10-18-2019