Coming Up this week in DC
The Bipartisan Policy Center is hosting a GSE conference on Thursday, featuring Senators Bob Corker (R-Tenn.) and Mark Warner (D-Va.). The politicos are followed by a panel of industry types, moderated by Harvard’s Nic Retsinas.
What interests me here is one of the panelists is Mike Fratantoni, the Mortgage Bankers Association, economist and regulatory chief.
Since his boss, David Stevens staked out that he (and presumably the MBA) supports the continuation of Fannie Mae and Freddie Mac (a view which had some of us scratching our heads, since it seemed far away from his and the association’s anti-GSE actions), I will be curious to see if Fratantoni stands up and repeats the MBA support for extending the GSE operational lives (for reasons like “our smaller members need them” or “we don’t want the big guys eating the world”) or if he evades the subject, raising additional questions of where the MBA is on championing the two entities most responsible for MBA members able to conveniently sell mortgages they originate into the secondary mortgage market.
The mortgage community is watching Mike (and David).
Oh, as a small reminder, all of the reform legislation which Corker and Warner have been associated would do away with the GSEs and cede the mortgage markets to the big banks.
At the ABS East 2015 Conference, last week……
A panel of former GSE regulators, Armando Falcon, Jim Lockhart, and Ed DeMarco, tried their best to rewrite history while collectively covering their butts, hoping nobody had the facts to challenge them.
I wasn’t there but a reliable sources informed me that each of the former F&F regulators left the stage with noses much longer than when they started their spinning. (Think Pinnochio!)
And bad for them, I also have some facts which I believe are incontrovertible.
Here are Mark Adelson’s notes on the Miami event; Adelson is a principal at The Bond Factory.
http://www.markadelson.com/pubs/ABS-East-2015-Notes.pdf
Now, speaking only for Fannie—although I believe the same lobbying principle applied to Freddie, as well--in my 10 years of lobbying during OFHEO’s existence, we were ordered, ordered (first by Jim Johnson and then later Frank Raines) to never lobby and/or interfere with OFHEO’s congressional budget discussions, negotiations or proceedings and we didn’t.
Just a further explanation for those not familiar with the budget process. Leading up to January of any year, negotiations inside the (any) Administration between an agency and OMB officials occurs and then an annual spending figure is agreed to for that government agency/program. That’s the figure which is sent to the Hill as part of the President’s annual federal spending request (Budget), which traditionally is sent at the end of January or early February, to allow Congress to produce spending figures for the coming fiscal year beginning on October 1.
My best evidence for the validity of my “non-interference” statement—especially when one hears all of the OFHEO caterwauling about the GSEs army of lobbyists--is OFHEO got every dollar, i.e. never received one dollar less, the WH Office of Management and Budget (OMB) sought for them, first in the Clinton administration and later the Bush administration annual budget requests.
Repeat, OFHEO got every dollar OMB asked for and Fannie Mae (nor Freddie)--despite the OFHEO accusations--tried to derail the process or their funds.
Now all three may have wanted more from OMB, but that’s an internecine Administration debate, much different than saying the agency received less operating funds because of outside congressional lobbying.
My Operation “Pipe Up!”
Here is a task for us all, since I/we know the challenge is coming.
During the various presidential campaign machinations, a Republican--but possibly a Democrat--will try and score points berating Fannie Mae and Freddie Mac. (It didn’t work for John McCain, but that won’t stop the newbies.)
The first time any presidential candidate in either party negatively mentions Fannie Mae and Freddie Mac, we “Pipe Up”--and explode with information setting the record straight--to media, other candidates, the networks, and the individual himself or herself.
(For purposes of this exercise, I am not counting that Carly Fiorina mentioned the GSEs in her first “kids’ debate,” which preceded the then frontrunners, of which she now is one. But, remember, she said it once and could say it again.)
Let’s do our “Chubby Checker”
Here is my twist (think guys!).
As someone who has been trying to tell the Fannie Mae/GSE story for years, I say eschew that initial approach because it’s almost is too complex to tell simply.
You’ll first have to talk about GOP political crusades, amateur or eye popping regulatory abuse, blatant dishonesty, and Treasury’s constitutional violations—spanning two administrations--which produced more than 20 HERA and Third Amendment lawsuits today pending against the government.
When you do that, watch eyes glaze over.
Yep, it’s a very tough row to hoe, but my suggestion is to reverse the telling and not talk about Fannie and Freddie. You’ll get to the Fannie and Freddie part soon enough, but start with another chilling certainty.
Here is your immediate WEAPON
A majority of the government, political, ideological, and mortgage industry bad guys who want to abolish Fannie and Freddie would replace them with some configuration of the nation’s largest financial institutions (who in turn want more federal guarantees against their mortgage losses).
That’s what we talk about and shout from the rooftops.
They want to Kill F&F and Replace them with….!
Face it, despite our best communications efforts, we won’t be successful repairing F&F’s image, maybe a new President could, but not us.
But we could have a helluva lot of fun and open some knowing/understanding eyes with a full discussion of who/what the GSE enemies would substitute for Fannie and Freddie.
As “public educators,” we need to explain that most of the mortgage system alternatives coming from GSE opponents would give the primary and secondary mortgage market controls to America’s major financial institutions, with practical control falling to the dreaded Too Big to Fail (TBTF) banks, which themselves are GSE’s (Government Sponsored Enterprises) of a slightly different sort.
That connection shouldn’t be hard to show with the Administration’s mortgage reform positioning and the Senate Corker--Warner legislative exercises, which last year later became the Johnson-Crapo bill.
The American people generally dislike the behemoth financial institutions—for many of the right reasons-- but often have no substantive idea of their many specific transgressions, or the severity, variety, and the naked consumer aggression the bank wrongdoings represent.
Think systemic industry aberrance, as in “It runs in big bank DNA to cheat the government and seek profit, no matter the rules.”
The immense crap wall around Fannie and Freddie, built and maintained, by their business and political enemies, may make GSE rehabilitation tough, but we need to remind American consumers/voters of this sobering “successors” fact.
Most who would do away with Fannie and Freddie, substituting some other lending mechanism, would put in charge of our mortgage needs some of the worst financial predators in our nation’s history, which still continue the rampage against supervisory rules and regulations, years after the 2008 financial meltdown—when their actions, more than the GSEs, nearly crushed our domestic economy as well as the world’s.
It’s one of the reasons why Bethany McLean, author of “On Shaky Ground: The Strange Saga of the U.S. Mortgage Giants,” believes that Fannie and Freddie are positive market forces, which still are needed for their mortgage standardization, efficiency, fair pricing, and systemic reliability—all of which benefit American homebuyers—but, also, are irreplaceable as a bulwark against big bank market and political power.
When you next have the opportunity to discuss the state of our national mortgage market, assume your audience doesn’t know or misunderstands what happened to the GSEs. But, be sure and detail what the GSE critics want to run the mortgage markets in Fannie’s and Freddie’s place.
Arm and inform yourself beyond the “Banks are bad” line and educate and advocate. I believe that it will be far easier then to discuss Fannie’s and Freddie’s future.
Here is a general list from the Financial Times of $150 Billion in US banks fines in the past few years, but this article doesn’t give color to many of their heinous “reach around” (the regs) schemes, like ripping off veterans’ housing programs, laundering money for Mexican Drug lords, doing business with US enemies and other extremists in the Middle East, rigging the London Interbank Borrowing Rate (LIBOR), to which most US adjustable rate mortgages (ARMs) are measured/indexed. (Now you know another reason why most banks wanted to sell you an ARM rather than a fixed rate loan).
http://www.cnbc.com/2015/04/30/7-years-on-from-crisis-150-billion-in-bank-fines-and-penalties.html
Additional articles on bank law breaking.
Bank Violations and fines in 2013
http://www.ft.com/cms/s/0/802ae15c-9b50-11e3-946b-00144feab7de.html#axzz3nTpwhvj1
and
http://www.ncsl.org/research/financial-services-and-commerce/national-mortgage-settlement-summary.aspx
Bank Violations and fines in 2014
http://www.wsj.com/articles/no-more-regulatory-nice-guy-for-banks-1419957394
Bank fines and violations in 2015
http://www.justice.gov/opa/pr/five-major-banks-agree-parent-level-guilty-pleas
The billions of dollars in fines paid in recent years for these offenses are spelled out in bank regulatory agency press releases which the public seldom sees or reads, although the public’s correct instincts are to distrust the major financial depositaries.
So, fan those flames, let your audiences decide who the greater threat is Fannie and Freddie, now well-regulated, successful (albeit denied capital by Treasury), and unlikely to return to the norm of 2008, or the big banks and their cohorts, which never have stopped their financial rampage?
What Others Are Saying
Presidential Corner
US News Says 2016 nomination belongs to Cruz or Rubio (with the R’s at my Friday poker game saying it will be Rubio).
http://www.usnews.com/news/the-report/articles/2015/10/02/forget-trump-carson-and-fiorina-2016-will-come-down-to-cruz-v-rubio
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Enjoy him while you can, Rand Paul says Cruz “pretty much done in the Senate.” (But, Maloni says, he could come back as Trump’s VP.)
http://www.politico.com/story/2015/09/rand-paul-ted-cruz-214240
Huckabee’s Campaign Targets lobbyists and donors. (I am certain Huckabee-backer Ronald Cameron has no political agenda he might want to see his fellow Razorback implement.)
'WASHINGTON: IT'S A STRIP CLUB': Mike Huckabee released a new ad taking aim at K Street, charging "the political class dances for the donor class," over an image of crumpled dollar bills near a stripper pole. The super PAC supporting the former Arkansas governor's campaign raised $3 million, almost its entire haul, from Ronald Cameron of Little Rock, the CEO of the agribusiness giant Mountaire.
Jeb on Community College Killings
http://www.politico.com/story/2015/10/jeb-bush-oregon-campus-shooting-stuff-happens-214386
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What Trump Said
http://www.aol.com/article/2015/10/03/trump-defends-2nd-amendment-following-oregon-shootings/21244536/
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Fannie and Freddie Corner
Banks still abuse after settlements
http://www.politico.com/story/2015/09/foreclosures-mortgage-lenders-2012-settlement-banks-213322
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Inside Mortgage Finance’s Carissa Chappell on “Jumpstart GSE Bill.
GSE Reform Bill Reintroduced but ‘Passable’ Reform at a Standstill
By Carisa Chappell
cchappell@imfpubs.com
A streamlined version of the “Jumpstart GSE Reform Act, ” recently reintroduced in Congress then placed on hold and reintroduced again, could be considered before the end of the year.
The bill, sponsored by Sens. Bob Corker, R-TN, Mark Warner, D-VA, and Elizabeth Warren, D-MA, would bar the Treasury from selling its stock in the two GSEs and prevent increases in Fannie Mae and Freddie Mac guaranty fees to pay for other government spending.
An earlier version of the bill that Corker tried to fast-track through the Senate did not include the prohibition on using g-fees to pay for unrelated government spending. Warren reportedly refused to back that version, and the Senate instead passed a much narrower bill that only repeals pay hikes provided to Fannie’s and Freddie’s chief executive officers this year.
With Congress pressing to enact legislation to keep the government running beyond a short-term continuing resolution, industry groups are concerned that GSE g-fees could be tapped again. For more details, see the new edition of Inside Mortgage Finance.
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“Conservatorship wasn’t necessary”….
http://www.housingwire.com/blogs/1-rewired/post/35143-trending-thursday-more-research-questions-why-treasury-snatched-fannie-mae?utm_source=dlvr.it&utm_medium=twitter&utm_campaign=housingwire
Investors Unite
http://investorsunite.org/bob-corkers-jump-start-gse-reform-will-only-prolong-the-conservatorship-of-fannie-and-freddie/
Looking for hope on this legislative possibility, one GSE veteran noted, "If you want to find two Senators to guarantee a provision will die before it hits the floor or get altered, start with Corker and Warner.”
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Wash Post carries (positive) review of McLean’s book
https://www.washingtonpost.com/opinions/mortage-mavens/2015/09/30/b446e476-55ae-11e5-8bb1-b488d231bba2_story.html
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Wayne Olsen on the GSE courts cases.
http://seekingalpha.com/author/wayne-olson-cfa/instablog
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Hedge Funds in the “Neighborhoods”
http://prospect.org/article/hedge-funds-ultimate-absentee-landlords-fall-preview
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Maloni puts on his best Don Quixote outfit and seeks audience with Post editorial types. (Since I haven’t heard from the Post’s Mr. Hiatt, I assume I am back to windmill tilting.)
First off, I can't offer a huge rationale for you meeting with me, save being 45 year subscriber to the Washington Post and someone who enjoys reading newspapers, as well as the new electronic media.
The purpose for my request is to get some insight into the Post's editorial (and reportorial) thinking on a subject I think I know well, federal support for home ownership and Fannie Mae and Freddie Mac, in particular.
Again, yesterday, the Post editorialized against Fannie and Freddie and I am mystified why the paper has such a bleak outlook for these local companies, which employ probably 10,000--12,000 residents in DC, Maryland, and Virginia, major federal taxpayers (plus providing the Treasury with all of their current earnings) and, ironically, in the case of one them, moving into the Post's physical location after new construction.
As I often explain in my sometimes letters to the Post editor, I worked on the Hill for a dozen years, at the Fed for Paul Volcker, and at Fannie Mae for 21 years--as their chief lobbyist-- before retiring almost 11 years ago. For the past five years, I've written a financial services/GSE blog, which from time to time mentions the Post. I don't represent anyone, not a housing or bank interest, no trade association or an individual institution.
I blog (and produce typos) and I read and talk
I understand the call for more private capital, less government involvement, but based on my near 40 year involvement with these issues, no comprehensive alternative system I've seen (in the various commission reports, legislative proposals, etc. etc.) has the consumer benefits, the systemic efficiency, common pricing, and standardization of the Fannie/Freddie model.
Not that they can't be improved or that they didn't make mistakes in the post-2005 era (when competent leadership was forced out in a regulatory putsch) but doing away with them and substituting--over an ill-defined but certainly lengthy, chaos inducing period--some large bank dominated system, as most of the hill and this White House advocates, seems so unwise and chaotic. That approach ignores the history of just 7 years ago, when with no Fannie and Freddie competition the large banks and investment banks unleashed $2.7 Trillion of their own (created outside the Fannie and Freddie systems) toxic mortgage backed securities. The banks sold them worldwide, with inflated labels and insufficient backing, so that our US real estate downturn had dire international consequences. Bank PLS (private label securities) losses were horrendous, three times larger than losses from Fannie and Freddie backed mortgage bonds.
Every week in my blog, I try and list the latest major banks transgression or rule busting--which have been lengthy, frequent, and quite varied offenses-- to remind people why these institutions hardly are the correct stewards of the nation's primary and secondary mortgage markets.
So, that's where I am coming from and I truly hope you could find time to discuss with me--maybe with some of your team present--some of these matters in your office or outside over coffee.
Why might this might make sense from the Post's or your own perspective? If it is one thing I've learned in dealing with Congress, other policy makers, media, a plethora of federal agencies, many people think they know and understand what Fannie and Freddie did leading up to the 2008 financial Armageddon, but invariably they are wrong or they don't have the entire story.
That's a significant issue when elements of both congressional parties, not to mention a new President, will be looking soon answer, "What do we do with Fannie Mae and Freddie Mac?"
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