Sunday, July 28, 2019

If the WH is waits for the Fifth Circuit before moving on its GSE plan, it is missing a political opportunity and risking trouble

Why wait on the Fifth Circuit???

I am going to try to write some 700 GSE words, without mentioning President Trump in any ill manner. He/it's a 2020 electoral matter, anyway, which I won’t be able to influence, greatly.
If one looks at the Fannie or Freddie GSE pages, on Investor’s HUB (IHub)—but elsewhere, too--you can see a plethora of guesses and wild eyed explanations about why we haven’t heard from the Fifth Circuit en banc reviewing the Collins case. Those thoughts often are accompanied by equally--in the event of a plaintiffs win--soaring stock price touts which follow that writer’s reasoning, including leaps into the “100 per share” for common stock “if XXXXX happens.”
I admire the creativity and certainty some posters put into their prognoses and estimates ( including some speculation about possible court cash awards to plaintiffs) to the point of arguing and debating other “guessers” about topics and timing which remain just as unknowable. 
Hardly sinful, this is just is another version of our beloved “American hot stove,” where sports fans—often when seasonal play ends for their favorite professional teams—postulate and then media-argue about possible trades or other personnel additions and subtractions to and from their favorite squads. (They, too, have as much influence on management as court case watchers have on judges and juries.) 
A great frustration for many judicial observers is the fact that the Fifth Circuit’s decision parameters seem as expansive as the judges’ concepts of possible federal government law violations and possible relief. 
If the Court rules the “sweep” violates the Fourth Amendment against “takings,” the remedies are several. If the Court finds an Administration Procedures Act violation, it could rule additionally against Uncle Sam (the Treasury and FHFA).
If the defense (the government) wins, the only remaining question--barring some Admin executive action--is will the Supreme Court hear a plaintiffs appeal? 
My instincts—because of the “GSE Shitwall” presence—are the Fifth may find for plaintiffs but will go light on financially penalizing Treasury and taxpayers given the huge amount of red ink this Administration currently is recording. 
Despite a certain light investor stirring of the GSE part of the stock market last week, I am surprised the Admin—if it has a ready GSE plan—still holds back implementing it. 
Embedded in this quandary is the possible Calabria/Mnuchin internecine jockeying and who wants what and when?  IMO, it’s time for the Treasury Secretary to stand up, put on his big boy pads,  and use his authority or—if he’s waiting for Calabria—Secretary Steve, patiently, could be waiting until 2024 (as per Calabria to Reuters). 
Whether the financial powers that be want a court decision to force its GSE action plan or give it an excuse for issuing one still is unclear to me. 
I’ve heard it argued both ways and still believe, given its promises and political needs/desires, the WH should act first and position itself to take 2020 political/election credit for ending the “Conservatorship,” rather than letting others claim it only moved because the Fifth Circuit forced it (assuming the Court decides for the plaintiffs). 
The Admin has staked out ending the "Conservatorship," which I am sure PO'd a lot of their political allies and donors. What happens if the Fifth Circuit rejects the plaintiffs and a ton more ideological noise arises when/if President Trump gets louder with his end Conservatorship pledge?
Follow your instincts Mr. President, end the internal belligerence and do it now!
Admin Dumping the “Patch” 
With last week’s news that the Consumer Financial Product Association (CFPB), in two years, will drop the “patch,” an artificial adjustment which allows lenders, the GSEs, FHA and the VA, to finance loans for borrowers with slightly higher debt profiles.
People seem focused on what the impact will be on Fannie and Freddie business (yes, it should mean less), but instead markets/media should be seeing this move as a misguided boon for the big banks?
Looking only at Fannie and Freddie misses a major point. (Also secondarily, it means greater direct risk to the government, since the early proposal doesn’t apply that new criteria to the FHA and VA which still will be able to finance those more risky borrowers, meaning the government is directly behind any losses those federal agencies incur.)
For me a salient point ending the patch is that it will create a new class of “subprime borrowers”—outside the GSE credit parameters--and how many banks will react the way they did pre-2008, overcharging in rates and fees and poorly underwriting risky borrowers, as they seek to fund as many of those mortgagors, replicating the same "PLS" (private label securities) mess they employed to start and accelerate the 2008 financial meltdown?
Unless the Fed, OCC, FDIC, and Treasury see the possibility of history repeating itself and step in and impose constraints on those regulated banks before they pitch the patch or even reconsider the CFPB fix?

Maloni, 7-29-2019