Waiting for Mr. Corker

Early in December Politico, Bloomberg and the American Banker each published an article on the same day revealing that Senators Bob Corker and Mark Warner were circulating a draft of a revised version of their mortgage reform proposal from four and a half years ago, and also that House Financial Services Committee chairman Jeb Hensarling had dropped his long-held opposition to government guarantees on mortgage-backed securities to now join Corker and Warner in supporting them. The impression conveyed by these coordinated articles was that a new consensus had emerged around mortgage reform legislation that would make its chances of success much higher than the original Corker-Warner bill. Mortgage Bankers Association (MBA) president Dave Stevens, who very likely was one of the sources for the articles, expressed his enthusiasm and optimism to Politico, saying, “It’s exciting that this effort is finally coming to reality and there’s a lot of positive buzz about what may come out.”

The year-end burst of activity—and publicity—around reform legislation seemed to have been triggered by a confluence of factors: increased speculation that the director of the Federal Housing Finance Agency, Mel Watt, might allow Fannie Mae and Freddie Mac to begin withholding payments due to Treasury under the net worth sweep agreement in order to build capital buffers (which subsequently turned out to be true, although the buffers were limited to $3.0 billion for each company); passage of the tax reform bill, which cleared the way for Congress to consider other legislation, and perhaps most importantly the announcement in September by Senator Corker—who for many years has been the most active Senate proponent of replacing Fannie and Freddie with a bank-centric alternative—that he intended to retire when his term expires at the end of this year.

Following the Politico, Bloomberg and American Banker pieces numerous articles were written, papers released, statements made and speeches given about what might or should be in what quickly was dubbed “Corker-Warner 2.0.” And in mid-January FHFA director Watt weighed in with his views on reform. In a letter to the chairman (Mike Crapo) and ranking member (Sherrod Brown) of the Senate Banking Committee, Watt reiterated his “strongly held view that it is the prerogative and responsibility of Congress, not FHFA, to decide on housing finance reform.” He further told Crapo and Brown that in response to “a number of new or renewed requests” he was providing a seven-page paper titled Perspectives on Housing Finance Reform “for your information and for distribution to Committee members who have requested our views, and to others at your discretion.” When this FHFA paper was made public, advocates of all variants of reform alternatives predictably found elements in it that they contended supported their view of what was likely to happen next.

Then, on January 30, an actual draft of Corker-Warner 2.0—labeled “staff discussion draft 29”—appeared, apparently through a leak. While several sources said that draft 29 was not the most current version, and that changes have since been made to it, the fact that the leaked document was the twenty-ninth draft meant that it was the product of a considerable amount of time, thought and effort.

Draft 29 is an undisguised attempt to write the bill that the banks, and the MBA, have been asking for. The seven “Purposes of the Act” on page 1—adding an explicit government guaranty to mortgage-backed securities; protecting taxpayers with private capital and a guarantor-paid Mortgage Insurance Fund; ending “Too Big to Fail”; promoting competition through multiple credit guarantors; financing affordable housing with guarantor-paid fees; accommodating lenders of all sizes, and providing for a smooth transition to the new system—mirror seven of the ten principles in the MBA’s April 2017 proposal, “Creating a Sustainable, More Vibrant Secondary Mortgage Market.” And the three MBA principles that aren’t explicit purposes of the Act—a “bright line” between the primary and secondary market, preserving where possible the existing Fannie-Freddie infrastructure, and re-establishing the private-label securities market—are addressed in it somewhere.

Early reaction to draft 29 has been, to put it mildly, unfavorable. Affordable housing and civil rights groups, as well as community lenders, have been harshly critical of it, as was Senator Elizabeth Warren, who upon reading the draft put out the following statement: “I appreciate the dedication Senators Warren and Corker have shown to addressing this critical issue, but this draft isn’t even close to a solution that works for families who hope to buy homes. This draft bill would disrupt the housing market, raise mortgage costs, sharply reduce mortgage access, and create new, private Too Big to Fail institutions. This bill would end up creating more problems than it solves.” Yet the statement that best captures the failings of draft 29 is one made by novelist and Francophile Gertrude Stein more than eighty years ago: “There is no there there.”

The objectives of draft 29 are to create 5 or 6 new credit guarantors, require them to hold enough capital that the government can add its explicit guaranty to their securities without putting the taxpayer at risk, and then, once the new guarantors establish themselves in the market, put Fannie and Freddie into receivership and liquidate them. But it’s clear from the draft’s 82 pages of text that neither its authors nor those who have been advising them have yet figured out how to accomplish these objectives. Instead, they rely extensively on two techniques: offering a soup sandwich of provisions designed to reflect the wishes of different special interests without attempting to reconcile their obvious inconsistencies (as in the proposed capital structure), and delegating to FHFA, or in a few cases Ginnie Mae, the responsibility for overcoming the financial, operational, legal and market challenges of chartering and capitalizing the new credit guarantors, getting them established without jeopardizing market liquidity, meeting affordable housing needs, and liquidating Fannie and Freddie without triggering an avalanche of new lawsuits—all after the bill has passed (which, in light of this feature, it has no chance of doing).

So, how is it possible that a process begun almost a decade ago, which has had so many people working on it so intently for so long, could produce a result so empty and unimpressive? To understand this, you only need to know one thing: legislative mortgage reform is not, and never has been, about reducing the cost and expanding the availability of mortgage credit for consumers, or making the system safer for taxpayers; it’s about reducing the secondary market power of Fannie and Freddie to give more primary market power to the large commercial banks.

The Milken Institute, a staunch advocate of bank-centric reform legislation, inadvertently gave this game away in a late-January paper titled “Bringing Housing Finance Reform Over the Finish Line,” when it explained, “The multiple-guarantor model’s existential challenge is creating a system that ends the current GSE duopoly. Without new entrants into the guarantor space, the reformed housing finance system could end up further entrenching Fannie Mae and Freddie Mac’s dominance.” The authors of this paper could not have been more direct: the goal of the banks’ and the MBA’s multiple-guarantor model isn’t to make the system better or safer; it’s to reduce Fannie and Freddie’s market power.

Banks in fact have been pursuing this goal since the late 1990s, and to achieve it they and their supporters have repeatedly and consistently put out misinformation about Fannie and Freddie’s risks and benefits, about the true causes of the financial crisis, and about what needs to be done to reform the mortgage finance system. But this web of deception has consequences. To have any chance of getting what they want, the bank lobby has had to develop a public rationale for what they’re doing that they can say with a straight face (and if you’ve been paying attention you know this rationale has changed over time), and also come up with a mechanism that actually is workable. Neither is easy, but the second is exponentially harder than the first. The reasons banks give for needing to replace Fannie and Freddie are artificial, but the difficulties and risks of attempting to do so are real.

Banks’ most recent rationale for insisting that Fannie and Freddie be subjected to legislative reform—rather than simply released from conservatorship with more stringent risk-based capital standards and tighter regulation—is that only Congress can create the multiple guarantors with explicit government guarantees on their securities (and not the companies) that can solve “Too Big to Fail,” because the failure of one or even two of the new guarantors won’t collapse the entire system. But here the banks and their supporters fall victim to their own fiction. In their zeal to address a problem they mischaracterize, they make the system vulnerable to a more serious problem they overlook.

Critics and opponents of Fannie and Freddie suffer from self-induced amnesia about the sudden rise and spectacular collapse of the private-label securities (PLS) market. Their public story—which they’ve stuck to, despite readily available evidence to the contrary—is that the “failed business model” of Fannie and Freddie, and nothing else, is to blame for the financial crisis. Any serious student of the 2008 mortgage meltdown, however, understands and acknowledges the role played in it by the collateralized debt obligation, or CDO. It was the CDO that allowed Wall Street to become the buyer of otherwise unsalable tranches of subprime and other high-risk PLS tranches, which in turn allowed the PLS bubble to inflate by as much and for as long as it did. The CDO was alchemy, and what made the alchemy work was the insistence of the credit rating agencies that the performance of individual low-rated tranches that made up a CDO would be “independent, and not correlated,” and for that reason up to 80 percent of a CDO’s new tranches could safely be rated AAA/Aaa.

As we now know, this turned out to be wildly inaccurate. The performance of the low-rated tranches was not independent, and very large numbers of them failed together. In retrospect, there was no reason to have expected otherwise. Yet today we have the MBA and the large bank supporters making essentially the same CDO argument, only this time about competitive credit guarantors. We are being asked to believe that a group of 5 or 6 credit guarantors—which will have the same capital requirements, the same limited menu of products to guarantee, the same close regulation and supervision, and potentially the same regulated returns—will not have substantially similar financial performance during a downturn; that is, their performance also will be “independent, and not correlated.”

That, too, almost certainly would not be true. It is far more likely that a small number of very similar credit guarantors either all will perform well or all perform poorly together. And if they all perform poorly, the government will have no choice but to bail out the companies, to keep the mortgage market from imploding. Banks’ contention that it is possible to “guarantee the securities but not the companies that issue them” has little in the way of substantive argument to back it up.

But the need for multiple guarantors with government-guaranteed securities is the MBA’s and large banks’ latest cover story for their insistence on reform legislation, so that was what the staffers for draft 29 dutifully sought to create. The authors of the January Milken Institute paper knew this wouldn’t be easy, saying, “Ensuring adequate competition is a two-fold challenge: first, determining how to provide space for new guarantors to enter the market and ramp up market share in the face of the GSEs’ current market dominance; and second, determining how the GSE market share should be sufficiently ratcheted back to create space for new guarantors before these newcomers start guaranteeing loans without adversely affecting overall market liquidity.” Draft 29 makes clear that no one yet knows how to overcome either of these challenges, or indeed a number of others that emerge from the MBA’s April 2017 recommendations.

Given the truly dismal condition of the work product to date for Corker-Warner 2.0, one has to wonder if a final version of this bill can make it to the Senate Banking Committee at all. And Senator Corker may be wondering the same thing. In a Senate Banking Committee hearing on January 30, Corker asked Treasury Secretary Mnuchin, “What would be your options if we don’t act?” When Mnuchin gave Corker the response I’m sure he thought Corker was looking for—“There are certain administrative options that we have; these entities are very complicated; I would just say my strong preference would be to work with Congress on a bipartisan basis to reach a long-term solution”—Corker paused for a moment, then in a low, flat tone, said, “Yeah.” After another pause he added, “But in the event this great bipartisanship doesn’t survive, and we don’t get this done—it’s a very complicated topic—what are some of the steps that you might take?” To me, this sounded like a man who knew his baby was in trouble.

For nearly a decade, banks have been trying to pass self-serving legislation in the guise of mortgage reform, without success. The original version of Corker-Warner, made public in the summer of 2013, was the first bank-centric bill to be introduced, and it could not make it to the floor. Today the hill Corker-Warner 2.0 has to climb is steeper. One reason is that there now is a concrete, realistic and workable alternative in the form of the Moelis administrative reform plan, released last June, with which any legislative initiative inevitably will be compared. Another is that recently the community banking interests—led by the Independent Community Bankers of America and the Community Mortgage Lenders Association—have become much more open and aggressive in labeling Corker-Warner 2.0 a “big bank” bill, that would be bad for both smaller banks and consumers. Dorothy is pulling back the curtain.

The big banks don’t support the Moelis plan because it doesn’t give them what they want. But what they want they can’t come up with a way to do. Draft 29 is Exhibit A for that. The attempts by banks to pretend to do well something that shouldn’t be done at all no longer are fooling people. Legislative mortgage reform may limp along for another few months, but it looks as if it’s about played itself out. Once it finally has, and Corker-Warner 2.0 officially is declared dead, administrative reform will be back on the table, and we’ll learn how serious Secretary Mnuchin was when in December 2016 he said, “we gotta get [Fannie and Freddie] out of government control…and in our administration it’s right up there in the list of the top ten things we’re going to get done, and we’ll get it done reasonably fast.”

95 thoughts on “Waiting for Mr. Corker

    1. I don’t believe anyone contends this case is NOT “alive and kicking;” the question raised about it has been whether Washington Federal’s lead counsel has the intent and the wherewithal to see it through to trial rather than settle it, if given the chance.

      Separately, I understand that Fairholme also petitioned Judge Sweeney today for a two-week extension to file its amended complaint, so if these motions are granted the complaints won’t be filed tomorrow, but on March 8.

      Liked by 2 people

      1. Hi Tim, when you say that the counsel in Washington Federal may settle the case, does it mean that they can settle for the benefit of those few that filed the claim and disregard the right of all other shareholders?

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        1. No. I meant that in the event the government offers a global settlement to all plaintiffs I expect Washington Federal’s counsel to accept it, rather than opting out and continuing to press their particular case on their own. I think there is a near-zero chance the government will offer the Washington Fed class plaintiffs a settlement of their own.

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      1. The general view is that a loss by plaintiffs in the Perry Capital case–which asserted that FHFA violated the Administrative Procedures Act in the way it implemented the conservatorship provision of the Housing and Economic Recovery Act of 2008–strengthens plaintiffs’ claims in their case before Judge Sweeney in the Federal Court of Claims, which asserts a regulatory taking. That is, if the government CAN legally appropriate all of Fannie and Freddie’s profits in perpetuity while claiming to be “conserving” them, that action constitutes a regulatory taking for which shareholders (both preferred and common) must be compensated.

        The Supreme Court’s denial of cert in the Perry Capital APA case also leaves alive several other courses of legal relief currently being pursued, including the breach of contract and breach of fiduciary duty claims remanded to the Lamberth court, the Jacobs-Hindes action in the State Court of Delaware (claiming that the net worth sweep is a violation of Delaware corporate law, and thus is void ab initio), and the actions in Collins, Bhatti and Rop, which raise issues related to the constitutionality of the FHFA director (independent of the executive branch) and the appointments clause (FHFA director DeMarco was not properly appointed to his position, and thus not empowered to agree to the net worth sweep).

        Of these, Jacobs-Hindes, Collins, Bhatti and Rop all challenge the legality of net worth sweep (under different theories of the law from Perry Capital), and if successful would (or should) result in the net worth sweep being unwound. The Sweeney case and the Perry Capital remands, on the other hand, would leave the net worth sweep intact but award shareholders damages, in amount to be determined by the court.

        Liked by 6 people

        1. Tim, would you not expect the publication of the amended lawsuit in Sweeney’s court to be a turning point? Won’t this have references to the 1,000s of documents already handed over in quick peek which show “bald-faced lies” and “unambiguous” proof that UST lied to the US citizenry and perjured itself in multiple courts of law. This must be the beginning of opening up all the salacious material which can then be used in all the other cases?

          Liked by 3 people

          1. We should have answers to these questions by tomorrow evening.

            Judge Sweeney’s “quick peek” order (issued almost four months ago) granted plaintiffs the right “to review the approximately 1500 documents dated May 2012 and later, which defendant is withholding pursuant to the deliberative process and bank examination privileges.” These documents must have been produced to the satisfaction of plaintiffs’ counsel, because they didn’t file any further motions with Sweeney to compel them.

            When plaintiffs file their amended complaint tomorrow, we should get a decent sense of both the scope and significance of any new revelations from these “quick peek” documents, based on the context of and the number of redactions in the complaint. I personally don’t expect there to be any bombshells, but I do think there will be more evidence of what we already know: that officials from Treasury and elsewhere in the government deliberately misled the public and the media about their motives for undertaking the net worth sweep, claiming that it was done for the benefit of the companies and the taxpayer when the real reasons were to transfer more than $100 billion of retained earnings from Fannie and Freddie shareholders to the federal government, and to keep the companies in conservatorship with virtually no capital until it or Congress could determine what could be done with them.

            If there ARE new documents of significance among this latest batch of 1500, they may not be released from their protective orders and made available to the public, but they very likely already have been shared with the courts hearing other cases related to Fannie and Freddie. In these cases they will be helpful, but in my view not dispositive. The really odd thing, to me, about the majority of the Fannie-Freddie cases is that the facts of what the government did don’t seem matter that much.

            The APA case in Perry Capital, for example, has been purely about the law. The government so far has claimed, successfully, that HERA allows FHFA to do whatever it wants with Fannie and Freddie in conservatorship, irrespective of its motives and the egregiousness of its actions. I continue to be stunned that this original (seriously flawed) ruling by Judge Lamberth was upheld by the D.C. Court of Appeals, and now won’t be reviewed by the U.S. Supreme Court. Even the government doesn’t believe what it’s saying in this case; if it really did think HERA allowed it to do whatever it wanted to with Fannie and Freddie, it wouldn’t have gone to such lengths of deviousness to hide its actions—it would have just taken their money outright and have been done with it.

            Similarly, Jacobs-Hindes is about what Delaware law permits, and Collins, Bhatti and Rop, post-SCOTUS’ decision not to grant cert in Perry, now mainly are about the constitutional issues of the independence and appointment process of the FHFA director. In these, “bad facts” about the government will be helpful to the plaintiffs, but not dispositive. The Perry Capital remand (breach of contract and fiduciary duty) and the Court of Claims case (regulatory takings) are where the government’s bad actions will be of the greatest value: the more blatant and obvious the government’s behavior with respect to Fannie and Freddie, the greater the damages that are likely to be awarded should plaintiffs ultimately prevail in these cases.

            Liked by 6 people

          1. ROLG,
            ON the blog you referenced, the author does not mention our case on the “petitions to watch” from the Feb. 16th conference. That doesn’t sound promising, in my opinion, that our case was not mentioned on his list. I guess we will have to wait until tomorrow to find out.

            Liked by 1 person

  1. There is some chatter about placing the gse’s in receivership. What would be the likelihood and process for this? How long would this take to resolve and would equity holders gain anything based upon current financials in this type of scenario?

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    1. The reason there may be “chatter” about putting Fannie and Freddie into receivership is that are two ways FHFA can respond to the net worth deficits the companies reported for the fourth quarter of 2017 ($3.7 billion for Fannie and $0.3 billion for Freddie)—it can either request a draw from Treasury to cover the deficits, or it can put one or both companies into receivership. Each time FHFA has faced this decision before (all of them between 2008 and 2011), it has requested draws for both companies.

      If FHFA were to put either company into receivership, the receiver would, by law, have to either restructure them or liquidate them. There is nothing close to a consensus as to what restructured versions of Fannie and Freddie would like, and liquidating the companies would leave our financial system without a functioning secondary market credit guaranty mechanism for conventional mortgages.

      Absent a plan for restructuring Fannie and Freddie, there is no way to evaluate how existing common or preferred shareholders would fare under such a scenario. In a liquidation scenario, the problem would be Treasury’s liquidation preference, which for Fannie is $121 billion (or over 3.5 percent of the company’s consolidated assets). Shareholders almost certainly would challenge that liquidation preference, but if it were upheld it is highly unlikely any preferred or common shareholder would see anything. Fannie calculates and publishes a fair value balance sheet each quarter—marking both their assets and liabilities to their estimated market values—and as of December 31, 2017 it calculated that the market value of its assets actually was less than the market value of its liabilities (by $19 billion). Fair value evaluations are notoriously conservative, but starting out $19 billion in the hole, then having to pony up another $121 billion to Treasury, would pretty much shut the door on anyone else.

      Liked by 2 people

      1. Tim,
        Aside from our financial system without a functioning secondary market credit guaranty mechanism for conventional mortgages if they are put into receivership, what happens to the US $ 5-6 T MBS the GSE holds ?
        Thanks for your blog and knowledge.

        Liked by 1 person

        1. I don’t know. I doubt Treasury would explicitly guarantee them, because then it would need to put them on the government’s balance sheet. I imagine it would simply say that Fannie and Freddie’s credit guarantees are still backed by the senior preferred stock agreement, but even so I imagine the MBS (and PCs) would suffer price deterioration from diminished liquidity.

          Liked by 1 person

          1. tim

            “I doubt Treasury would explicitly guarantee them, because then it would need to put them on the government’s balance sheet.”

            which gets to the next point regarding calls for a treasury mbs guarantee going forward. even if it is “only” a last loss guarantee, wouldnt all fed guaranteed mbs have to go on the fed’s balance sheet? now of course, this would only cover newly-issued guaranteed mbs, but this will grow into a huge number. and with respect to all legacy outstanding nonguaranteed mbs, their price should logically decline (no explicit guarantee in the presnece of other mbs that are explicitly guaranteed calls into question the premise that there is an implicit guarantee that holders could rely on), which will create a major realized loss for a huge swatch of the institutional debt market, no?

            rolg

            Liked by 1 person

          2. I am not an expert on government accounting, but I have to believe that the advocates of a full faith and credit government guaranty on MBS issued by “reformed” credit guarantors–which will be required to meet some defined standard of capital adequacy– have been told there is a reason those guarantees will not have to be put on the government’s balance sheet. Whatever that reason is, however, it can’t apply to the MBS of Fannie and Freddie today, which at most will have 10 basis points of capital backing them. And you’re right, if the government doesn’t explicitly guarantee Fannie and Freddie’s legacy MBS (because to do so would cause those MBS to move on the federal balance sheet) but then DOES subsequently guarantee the MBS of the reformed guarantors (with those guarantees being allowed to be kept off-balance sheet), then the legacy MBS would suffer a significant loss in value.

            Liked by 1 person

    1. Ms. Petrou most likely is referring to a discussion in the 10K about FHFA’s “Conservatorship Capital Framework,” which are new capital standards the company said FHFA directed it to implement in 2017 that include “specific requirements relating to risk on our book of business and modeled returns on our new acquisitions.”

      In two places in the 2017 10K Fannie says, “In December 2017 and February 2018, FHFA, in its capacity as conservator, provided guidance relating to our guaranty fee pricing for new single-family acquisitions. FHFA’s guidance requires that we meet a specified minimum return on equity target based on the conservator capital framework. We must implement this target in the first quarter of 2018.” Then, when discussing guaranty fees on page 79, it adds this sentence: “We may be required to increase guaranty fees charged on some loans in order to meet this requirement.”
      That’s not “utility regulation,” though. Utility regulation implies a maximum return on equity, which keeps guaranty fees down. Here FHFA is insisting on a minimum return on (notional) equity, which Fannie says may push some 2018 guaranty fees up.

      Liked by 1 person

      1. While utilities have a maximum rate of return (on equity presumably), don’t they also have minimum rates to keep investors in the fold? By my understanding those minima are not necessarily hard floors but are tied to the rates the regulator allows the utility to charge to maintain profitability.

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      2. tim

        thanks. seems to me that this is the opposite of utility regulation, in the sense that utility regulators usually seek to limit equity returns in order to promote customer affordability.

        rolg

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    2. Straight from the 10K. I believe this is what Karen is referring to which would imply a Utility scenario:

      In January 2018, the Director of FHFA sent a letter outlining FHFA’s perspectives on housing finance reform to the Chairman and Ranking Member of the Senate Committee on Banking, Housing and Urban Affairs. The letter includes a number of recommendations for a future housing finance system, including:

      “providing for an independent regulator that retains FHFA’s existing authorities and adds additional authority. The regulator’s authority would include the authority to set a regulated rate of return for the secondary mortgage market entities.”

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      1. FHFA’s January 2018 “Perspectives on Housing Finance Reform” was a document prepared for the Senate Banking Committee that gave the agency’s recommendations for legislative reform; FHFA does not have the authority to cap Fannie or Freddie’s returns currently.

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        1. Tim,

          Good morning. I know Josh Rosner respects your work, as many do. He did have this comment earlier today. Do you have any insight as to the differing opinions? It seems like a worthwhile discussion. Thanks in advance.

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          1. I have no disagreement with Josh on this; the problem here is that my response was not well worded. I was referring to the powers FHFA would have as regulator, if and when Fannie and Freddie were released from conservatorship. As conservator, it clearly does have the power to regulate the companies’ returns, and–if you believe that the decision of the majority of the judges on the DC Court of Appeals in the Perry Capital case will be upheld–also to require that Fannie and Freddie finance a project to send people to Mars.

            Liked by 1 person

          2. That was my tweet to Josh.

            Apologies if I misrepresented your statement Tim.

            I believe you two are the smartest people talking about the GSEs on a regular basis, so it is interesting when you see things differently. In this case, you both see eye-to-eye.

            Again, sorry for confusing the issue. There are lots of conversations going on in many different platforms. For us lay people, trying to fill the gaps between the conversations is challenging.

            I’ll take the liberty of speaking for many, but your blog & especially your follow-up in the comments has been really insightful. Thank you.

            Liked by 4 people

  2. Tim – Lots of news out these past few days, in regards to the budget line items, draws on the Treasury, and OMB Director testimony.

    A question I have is about the MBA’s open letter to Congress. I know Dave Stevens said the MBA was going to press Congress to act in the next few weeks as this was window they saw closing quickly. Today, they sent an open letter: https://www.mba.org/mba-newslinks/2018/february/mba-newslink-wednesday-2-14-18/mortgage-bankers-post-open-letter-to-congress-on-gse-reform?_zs=SLkMC1&_zl=7AmI4

    It appears to rehash their earlier talking points, but, I hadn’t seen them push for “–A utility-style regulatory framework to ensure a level playing field and equal access to the secondary market for lenders of all sizes and business models.”

    While they don’t detail the ‘how’ this would be implemented, it is interesting they are bringing this into the conversation. Maybe they realize their members and other stakeholders (i.e. investors) will get on board if MBA has Congress’ ear for the moment.

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    1. The “utility-style regulatory framework” was an element of the MBA’s April 2017 white paper, and the only significant one that wasn’t incorporated into draft 29 of Corker-Warner 2.0. The MBA is still pushing for that, so it’s not surprising that some of its members wrote Congress in support of it.

      What I find surprising about it,though, is that the MBA either doesn’t realize–or thinks other people won’t notice–that utility-like regulation and returns for credit guarantors are incompatible with another reform recommendation the MBA is even more insistent upon: the need for multiple guarantors to create competition. Companies subject to utility-type regulation typically are allowed to be the only providers of that regulated product in the markets they serve. Open entry to competitors threatens the one aspect of their profitability utilities otherwise could count on: the volume of business they do. (You don’t see anyone claiming that there would be great benefits from giving consumers three or four power companies to choose among). Moreover, with regulated returns you would virtually ensure the performance alignment I discussed in this post, undermining the MBA’s (and others’) ability to claim that the federal government could guarantee the mortgage-backed securities of multiple credit guarantors without also implicitly guaranteeing the companies themselves. Multiple credit guarantors with the same capital requirements, regulated returns, close regulation and supervision and the same menu of products to guarantee would have financial performance that would be indistinguishable from each other. I’m beginning to think that the MBA and other bank supporters know this, but are willing to pretend it isn’t so in order to have a better story for why legislation that favors them also is good for everyone else.

      On the MBA members’ letter itself, there was one aspect of it that I found very odd. In arguing for the multiple-guarantor model the MBA supports, they claim that the current debate is focused on “two leading options,” the second of which is “an ‘issuer-based’ system that relies primarily on a handful of larger ‘lender-aggregators’ to originate and/or acquire mortgages from smaller lenders and issuing the securities themselves, after securing the government guarantee.” I don’t know who is pushing for that option. (The other “leading option,” I would submit, is releasing Fannie and Freddie from Treasury-imposed captivity.) But creating a straw man always is a good way to make a weak recommendation look better.

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      1. tim

        well put.

        in trying to think through what MBA’s bottom line would be, isnt the right answer simply an MBS level federal guaranty? even if structured as a last loss guaranty, wouldn’t this qualify the MBS they would hold for regulatory capital relief? what would be objectionable from MBA point of view if the GSEs continue subject utility regulation without those other competing guarantors which, one assumes, the MBA banks would control. i just dont see what is in it for MBA banks to have those additional GSEs if the existing GSEs provide a federal guaranty. they have a hard enough time managing their businesses as it is.

        rolg

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        1. What would trigger a federal payment on an MBS-level guaranty? Previous proposals have suggested you pick some extreme level of loss, say 10 percent (which would be 20 percent loss incidence and 50 percent severity), and have the government cover pool losses in excess of this amount. The problem with that approach is the government ends up making payments it can’t recover (unlike the “bailout” payments it made in 2008, which it did recover) for losses incurred on “outlier” individual MBS pools that the guarantor easily could have covered itself with revenues from its better-performing pools. I’ve never understood how pool-level government guarantees can be described as “good for the taxpayer;” they’re not.

          Alternatively, you could have federal guarantees of MBS triggered by a guarantor’s inability to pay them. But here you’re back to the “independent, and not correlated” argument the MBA is pushing. If both (or all) of your guarantors fail at the same time–as I argue they would, given their mono-line business and identical permitted activities, market and regulation–and during a crisis the government guarantees only the existing MBS, there would be no surviving guarantors to issue new ones, and the system would crater.

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          1. tim

            i appreciate your response but you are considering the effects of a mbs guaranty upon the taxpayer and the secondary housing finance system as a whole (which, i understand, is your touchstone). we can agree that MBA is concerned primarily with its members’ utility.

            viewed from that lens, what is the MBA definition of success here? in negotiations, i always try to understand the adversary’s definition of success, and sometimes exploring that leads to a shifting target.

            if you simply took the fhfa perspectives of utility regulated GSEs, recapitalized with sufficient private equity capital (and the moelis blueprint is absolutely the pathway for that) and a mbs level federal guaranty (of some sort, i agree with you that the devil is in the details but all the MBA is looking for is regulatory capital relief), why isnt that a done deal for the MBA?

            unless MBA is driven more by spite than self interest (which believe me i have seen before).

            rolg

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          2. I believe that, in addition to government-guaranteed MBS, the banks and the MBA also want secondary market credit guarantors that are weak enough that primary market originators can dominate them. New entrants, “bank-like” capital requirements that are unrelated to risk, and utility-like regulation all are a means to that end. The reason I like administrative reform similar to the Moelis plan is that–because of the warrants–it gives Treasury an incentive to reform and recapitalize Fannie and Freddie in a manner that makes them as efficient as possible, increasing the economic value of the warrants and at the same time their value to homebuyers. It may be that in order to get to an acceptable administrative solution Treasury will have to buy off the banks somehow, but I won’t be one of those suggesting how to do so–and it would come down to a negotiation between Treasury and the bank lobby in any case.

            Liked by 2 people

      2. Unfortunately the President’s own budget includes the line “The proposal would help to level the playing field for private lenders seeking to compete with the GSEs.” as one reason for doubling the GSE guarantee fee surcharge. Even though you and I recognize that utilities and competition really don’t mix, the administration seems to at least leaning in the direction of introducing competitors to the marketplace.

        Like

        1. @midas
          seems to me that increasing the g fee 10bps will also increase originating banks’ margin by 10bps when they hold their loans. that also has the effect of leveling the playing field.

          Like

  3. Tim,

    Do you think Mnuchin had a lot of say in this budget? I ask because how does one square the release of the GSEs with counting the income from G-fees as income to the government for the next 10 years? Seems like the warrant value may be losing out to crony capitalism.

    “The budget proposes increasing the guarantee fees charged by Fannie and Freddie by 0.1 percentage point, a move the administration forecasts would raise nearly $25.7 billion over a decade”

    Hope to get your thoughts and thank you.

    Like

    1. There are two issues here. The first is that until Fannie and Freddie are removed from conservatorship (or liquidated), or until the net worth sweep is declared illegal or cancelled, the budget document will show continued receipts from the sweep for the full ten years of the projection. There is nothing of any policy significance here; it’s just budgeting convention. As for the ten basis point increase in guaranty fees, unless there is some discussion about this elsewhere in the document (which I haven’t read, and don’t intend to), I would think that given the large amounts of red ink produced over the forecast horizon by the tax reform package and recent spending agreement, the budgeteers are looking for any credible assumptions they can make that will produce more revenue; every $25.7 billion they can put into their projections makes the projected deficit smaller.

      Liked by 5 people

  4. Tim, Good morning
    As per Mortgage Finance News, Wallison and others who are anti GSE are planning to make a roundtable in Washington sometime end of February to talk about administrative options to get rid of GSE which does not need legislative actions. Have you heard of this and what is your take of this option?

    Liked by 1 person

    1. No, I haven’t heard of this possible roundtable, but if the anti-Fannie and Freddie crowd is beginning to talk about non-legislative alternatives for doing away with the companies it would be further evidence that even the most ardent proponents of legislative mortgage “reform” now understand, post-draft 29 of the Corker-Warner legislation, that it’s not going to happen. As to how they think they might be able to produce the result they want administratively I have no idea, but I’m sure they won’t be shy about letting us know.

      Liked by 3 people

        1. Hmm. PIMCO wants Fannie and Freddie to be nationalized (or, “folded into the government”), an explicit government guaranty on the securities they issue, a “continuation of [Fannie and Freddie’s] credit risk transfer programs,” and a gradual lowering of Fannie and Freddie’s loan limits coupled with reforms to the private-label securitization (PLS) process to help “revitalize” the PLS market. Any alignment of these recommendations with PIMCO’s interests as one of the world’s largest fixed-income securities managers is, we must assume, purely coincidental.

          Liked by 1 person

          1. Tim –

            Unless I have not had enough coffee this morning, PIMCO seems to advocate one thing but proposes a solution that is at odds with what it advocated for. Effectively, they took no position on the issue.

            Advocate: “folded into the government” and “explicit government guaranty”

            Proposed Solution: “…we believe policymakers could thoughtfully and slowly shrink the government balance sheet…”

            On the fixed-income securities manager piece, I’ll just leave this: PIMCO Buys a Stake in First Guaranty Mortgage Corp., a $4 Billion a Year Lender (https://www.insidemortgagefinance.com/imfnews/1_691/daily/pimco-buys-first-guaranty-mortgage-corporation-1000033719-1.html)

            Like

          2. The big problem with nationalization, or “fold[ing the GSEs] into the government”, is that their liabilities would count towards the national debt without being offset by their assets, amounting to an instantaneous $5T added to the debt the way it is currently calculated. This is political self-immolation when neither party will hesitate to (hypocritically) slam the other on reckless spending.

            Please correct me if I’m wrong on this, but I believe that was the rationale behind the warrants being for 79.9% of shares and not more, with 80% being the magic number for debt consolidation.

            Liked by 3 people

      1. What can admin reform do? G-fee? capital ratio? loan quality and limit? portfolio size? I guess not setting profit rate as utility which belongs to Congress.

        Like

  5. Tim,

    Good morning. Would it not make more financial sense for Mnuchin and the Trump Admin to go ahead and exercise the warrants as opposed to continuing the sweep? It seems that a now 3 year window to recognize the larger windfall would be more beneficial for Treasury than the sweep. Maybe that is what is coming?

    Like

    1. You’re getting far ahead of the story. The warrants won’t even be an issue unless and until Treasury decides it wants to preserve Fannie and Freddie in something close to their current form (a la the Moelis plan). At that point it will need to settle the outstanding lawsuits related to the net worth sweep (and the conservatorship itself)—which will end the sweep—and endorse a recapitalization plan. Then I’m sure it will work with investment bankers on a specific plan for exercising the warrants and selling the resulting common shares in a manner and at a pace that maximizes Treasury’s proceeds (and as a consequence the price of the stock held by existing shareholders).

      Liked by 3 people

        1. As I noted in my previous answer, IF Treasury decides it wants to “get [Fannie and Freddie] out of government control” and restore them as shareholder-owned companies at the center of the secondary market–in spite of the fact that it currently is winning the lawsuits that claim it can continue to keep the companies in conservatorship and take all of their profits forever–it will have to settle the lawsuits. It won’t be possible to recapitalize them if the government at the same time is claiming in court (successfully) that it can force them into conservatorship, take all of their future net income, and be immune to judicial review.

          Liked by 3 people

      1. That sounds like a favorable outcome, beneficial to all stakeholders. Afterwards, Congress could vote to re-charter the GSEs as utilities, as suggested by the Moelis plan. In that way, Fannie and Freddie would be, at least partially, free of political pressure and better able to regulate the mortgage market. I feel that many stakeholders, such as myself, would welcome such a practical outcome, but you know what they say about the devil in the details.

        Like

    1. No, it’s hooey. And it shows that both sides of the reform debate are capable of coming up with, and pushing, nonsense. That’s why people need to do their own independent research and analysis of these issues, so that they’re less likely to be enticed into believing something that conforms with their priors, but isn’t true.

      Liked by 1 person

      1. I totally agree with you on this point, but may I point out that the Inspector General did find over $500 billion in “accounting errors” on HUD’s balance sheets. I don’t know exactly what the “accounting errors” were, but I do believe there needs to be more accountability, honesty and openness in evaluating all players in the mortgage market.

        Like

        1. Accounting errors are different from fraud. And the author of an article that has a section titled “Mnuchin Confirms GSE Sweep Money Used to Fund Obamacare” doesn’t check their facts carefully. Yes, there are many points the author makes that are valid, but because of its mix of fact and fiction the article overall is unreliable.

          Liked by 1 person

        2. Brian, you might be referring to the numbers found here.

          https://www.usatoday.com/story/news/politics/2017/04/19/fact-check-ben-carson-didnt-find-hud-accounting-errors/100647342/

          The $500B number is the sum of the absolute values of the errors, not the sum of the errors themselves. The actual errors sum to only around $3M. That means there is no “missing” $500B floating around somewhere.

          The Valuewalk article is a mishmash of facts, errors, and wishful thinking. Example: claiming that FHFA had sued the list of banks for a total of $250B, settled for (a lot) less, and then saying that the balance of the money is still “owed” to shareholders is complete nonsense. The whole point of settling the cases is that there is no more liability going forward.

          Like

  6. Tim , good morning, how long do you think that we will be waiting for Mr Corker?
    Are you aware of any time limit agreed with Treasury , or with FHFA or any other stakeholder?

    Like

    1. Adding to Eric’s question, Watt’s term expires in Jan 2019, and Philips hinted that he wouldn’t pursue administrative action this year. What are your thoughts on the possibility of a new conservator replacing Watt pushing TBTF’s agenda? Is your “most likely scenario” based on the assumption that admin action will happen before then?

      Like

    2. No, I’m not aware of any discussions as to what has to happen for Corker-Warner 2.0 to be declared “officially dead.” But I strongly suspect that having draft 29 become public–allowing everyone to see how far from anything remotely ready to be acted upon the C-W effort currently is–coupled with what everyone knows are the great difficulties for this Congress in getting anything passed at all (let alone something as controversial as a “why-not-give-it-a-try” total remake of a $10 trillion financial market at the heart of the U.S. economy), the air should start coming out of the legislative mortgage reform balloon pretty quickly. But it’s still going to be up to Mnuchin to decide when to initiate administrative reform discussions, and I have no basis for predicting that.

      On the issue of Watt’s successor next year, I know that some people are saying that a change in the director of FHFA could make a difference in the reform outcome, but I think that’s overstated, particularly as it relates to the TBTF banks. What they want requires legislation, and if they can’t get legislation (as I believe they won’t), that greatly limits the scope of their influence. And I also don’t believe the new FHFA director will drive administrative reform, no matter what his or her views are on Fannie and Freddie. Mnuchin has very clearly staked out mortgage reform as his territory, and Treasury (not FHFA) also is the entity that stands to gain financially from converting the Fannie and Freddie warrants to common stock, then selling it.

      Liked by 3 people

      1. Hi Tim,

        It seems to me that administrative reform in 2018 is the most probable outcome, though I could be wrong! What are your thoughts on Hensarling’s and Corker’s suggestion to Democratic lawmakers that administrative reform and recaplitalization means risking affordable housing mandates? I find that hard to believe.

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        1. I hadn’t heard that Hensarling and Corker were telling Democrats that administrative reform “means risking affordable housing mandates,” but if that’s what the two are saying they’re using the term “affordable housing” in a specific and limited sense.

          When I was at Fannie, we used “affordable housing” to refer to the loans we purchased or guaranteed that had been made to people with low and moderate incomes who fell into one of several categories of “underserved borrower.” By the end of my tenure at Fannie, in 2004, over half of the total business we did satisfied affordable housing goals set for us by our program regulator, HUD.

          But that’s not the type of affordable housing Hensarling and Corker (and the big banks) are referring to. Both Corker-Warner bills (1.0 and 2.0) as well as Hensarling’s PATH Act include a provision requiring credit guarantors to contribute an amount equal to a certain percentage of their outstanding credit guarantees–typically between 5 and 10 basis points–to an “affordable housing fund,’ whose proceeds would be used to subsidize certain types of affordable housing programs. Guarantors, of course, would have to add this affordable housing fee to the guaranty fees they charge, so other homebuyers would end up bearing it. (Banks are big fans of this approach to affordable housing, because they don’t have to pay for it; the fee only gets charged when a loan is sold into the secondary market, making it in effect a tax on secondary market financing, from which primary market originators are exempt.) Fannie and Freddie currently have a similar fee–created by the 2008 Housing and Economic Recovery Act–but it’s set at a fixed 4.2 basis points. Corker and Hensarling are telling Democrats, apparently, that if they want more than 4.2 basis points per year going into an affordable housing fund they’ll have to pass legislation to get it.

          That’s true. But Corker and Hensarling are silent about the OTHER, much larger, aspect of affordable housing–the cost and availability of mortgages made to people with low and moderate incomes. The key to these is capital, and Corker and Hensarling both would require credit guarantors to hold large fixed, “bank-like,” amounts of capital, which would unnecessarily push up guaranty fees for millions of affordable housing borrowers. When you take into account both definitions of affordable housing, homebuyers would be much better off passing on legislative reform and pushing for administrative reform that includes a true risk-based capital standard, which would keep guaranty fees as low as possible while still providing a very high level of taxpayer protection.

          Liked by 3 people

          1. Tim, thank you. Your ability to answer our questions here with easy to comprehend answers never ceases to amaze me. Thanks again your tutelage in Housing Finance and Reform 101 and beyond. You’d make a great high level educator.

            Like

          2. tim

            there is also this below, fnma making equity investment in a housing fund financing homeowners who have trouble obtaining credit. i suppose there are housing tax credits involved too. this is a (relatively) small amount, but it chafes to hear a hypocritical criticism that a MBA structured housing guarantor system would out do GSEs in providing credit for low income housing.

            http://www.housingfinance.com/news/fannie-mae-announces-100-million-lihtc-fund_o

            rolg

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          3. This might be missing the point. The way I have interpreted the threats against affordable housing is that Hensarling and Corker are trying to scare Democrats into voting for their version of housing finance reform in 2018. The threat is that if no legislation can be passed and Watt’s term ends, Trump will appoint a far-right-leaning FHFA director who will unilaterally gut the affordable housing provisions currently in place. Therefore the Democrats should just take the little that Corker v29 offers so that the new FHFA director can’t undermine it.

            If enough Democrats understand and repeat Tim’s second sentence of the last paragraph: “But Corker and Hensarling are silent about the OTHER, much larger, aspect of affordable housing–the cost and availability of mortgages made to people with low and moderate incomes.” then those two will be forced to either stop their scare tactics or actually make meaningful provisions for affordable housing.

            It does beg the question: if a new FHFA director really was bent on destroying the GSEs and/or affordable housing mechanisms, how much damage could he or she do alone?

            Like

          4. That’s exactly what Hensarling and Corker (and the MBA) are saying: “If you don’t pass our (awful) legislation this year, then next year a new FHFA director could do something even worse.”

            There are two problems with this tactic, however. First, it doesn’t change the fact that in its current state Corker-Warner 2.0 IS an awful bill. And second, in my view it overstates the likely ability of a new FHFA director to act in ways that are not consistent with what Secretary Mnuchin believes should be done with Fannie and Freddie.

            Even though according to the HERA statute FHFA is an independent agency not subject to the control of any other agency, from the day HERA was passed–and even before the conservatorship– the FHFA director has done whatever the Secretary of the Treasury has asked him to do, and nothing to which the Secretary has objected. I don’t see that degree of subordination or deference changing much when a new FHFA director is appointed. Mnuchin has made it clear that he sees Treasury as the lead agency in housing finance policy, and I can’t see a new FHFA director taking any major actions that run contrary to Mnuchin’s wishes. A logical extension of this view is that Mnuchin likely will have a strong say in who is appointed FHFA director next January, since he will want someone with whom he can work smoothly, and who he believes will not challenge him on policy issues. (A second logical extension of this view, though, is that if we get to next January without any moves toward administrative reform, and President Trump appoints a known “Fannie hater” as FHFA director, it will be a strong indication that Mnuchin intends to try to keep Treasury’s foot on Fannie and Freddie’s air hoses for as long as he can….)

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          5. Hi Tim, do you agree with Karen Shaw Petrou that the mortgage “market isn’t functioning properly” and therefore there is powerful economic incentive to resolve the conservatorship? If so, why doesn’t Mnuchin or Watt make a stronger case on this particular point, that each day in conservatorship further weakens the economy, and wouldn’t it be an easy case for Mnuchin to make that resolving the conservatorship along the lines of Watt’s proposed utility solution is not just a reasonable way forward but necessary? And finally, is there any connection, do you think, between the extended conservatorship and the stunning gap between home construction and household formation rates?

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          6. I haven’t followed the recent trends in either home construction or household formation rates, so don’t have any comment on that. And I agree with Ms. Shaw Petrou’s observations that the mortgage market isn’t functioning properly and that for this reason there is a powerful economic incentive to resolve the conservatorships; the problem is that the “powers that be” haven’t been able to agree on how to do this, so here we sit.

            Like

          1. tim

            the biggest problem with this hensarling/corker/mba threat tactic is that it shows you have an empty hand by making an empty threat. what did buffett say about the guy who walks into a card game and cant tell immediately who the patsy is…?

            rolg

            Liked by 1 person

  7. http://www.scotsmanguide.com/News/2018/02/GSE-reform-bill-could-be-Congress–last-chance/

    “I read an interesting blog this morning that was filled with misinformation”.

    wonder what blog that could be. I notice he doesn’t go on to dispute any of it. These people, smartly, put out information in a vacuum where no one can commentate or critique it openly, like an open debate, because they’d have no factual basis to fall back on in their argument when pressed.

    Like

    1. The Stevens piece you linked gives his arguments for why he thinks the goals draft 29 is trying to achieve are good ones. I don’t agree with much of what he says, but that’s really not the point. We’ve heard these arguments before, and here as in prior pieces Stevens says nothing about how you implement the new ideas in the legislation he’s advocating. “God is in the detail,” and as I noted in this post, draft 29 leaves virtually all of that detail to be figured out by somebody else at some later time. Why? What are they waiting for?

      Until somebody lays out their ideas for precisely HOW you get 5 or 6 de novo credit guarantors chartered, capitalized and up running to the point that FHFA can “certify that a competitive market exists” (which is essential to evaluating whether there is any realistic chance of raising capital for these entities), HOW they are to be capitalized (if you don’t know what their required capital is, you can’t possibly claim your new system will be effective at providing affordable housing for borrowers with family incomes at or below their area median), and HOW you navigate the legal minefield of running Fannie and Freddie through receivership before liquidating them, all of this is just lofty talk. The Moelis plan is a real plan, with concrete steps to achieve the recapitalization and release from conservatorship of Fannie and Freddie. In contrast, draft 29 is just an aspiration (or, dare I say it, a “half-as…piration”).

      Liked by 10 people

      1. tim

        i have one simple word for MBA, the committee staff that took 29 drafts to accomplish nothing, and Corker: PRECEDENT.

        show us a precedent for the type of massive restructuring of a financing market by legislative fiat. show us a banking firm that would accept a mandate to advise on this legislative pipe dream. no serious investment banking firm would touch this mandate. it is not executable.

        the moelis blueprint is done by a serious investment banking firm and, as it makes explicit in the blueprint, it DOES rely on a precedent: AIG. moelis would accept the mandate set forth in its blueprint, as would every other investment banking firm on wall street.

        rolg

        Liked by 6 people

  8. This article reminds me not of beating a dead horse with a stick rather of whipping the lead horse around a track that has no finish line. A newcomer to this saga might not think this article was referring to two Fortune 20 companies. Ironic how the supposed instigators of a financial crisis have self corrected themselves to sustainability and record profitability, all without the vaunted help of Congress. If the companies are far from broke then what exactly is Corker-Warner 2.0 trying to fix?

    Liked by 2 people

    1. @paul

      instead of “fixing” GSEs by calling for a total revision of the secondary housing finance market and encountering all of the execution risk that this entails, congress could simply cause GSEs to reduce their mortgage loan portfolios and have GSEs become focused mbs guarantors rather than mortgage credit arbs.

      DOH! FHFA has already done that!

      rolg

      Liked by 3 people

  9. tim

    great job as always.

    i suppose there is one additional factor to add why this corker draft will be unsuccessful: banker spite. spite at having been sued by fhfa (using an adept private law firm) and DOJ for wholesale financial fraud and misrepresentation in connection with the financial crisis, and from having to pay tens of billions of dollars in settlements and penalties.

    just another reason why corker wont get his legislative way is that banker spite masquerading as policy reform wont fly.

    rolg

    Liked by 4 people

    1. I would think the long game of getting the mortgage market into the truly more expensive private sector aka the TBTF banks as described above, is a bigger driver here.

      The great thing that these corporations have going for them is that they never ever die. Unlike people who do, so their malfeasance in all things is eventually forgotten and the same mistakes are made again.

      Further, it makes even more clear that the REAL reason they’re all trying to sweep the GSEs under the rug thru a receivership conveniently sweeps under the rug the Bush, Obama and now Trump administration’s handling of this issue. Currently, they’re feeding all that money they make directly to the government because the court system refuses to rule on the merits of any of the cases because they’re also in on the take… which really lends itself to bigger issues, and for me, confirms the WHY a Trump could even get elected. People know the game is so rigged against them and for these ageless corporations they’re yearning to blow it all up and start over again. I keep saying this will end badly because it will. The biggest game changer is the fact that we can talk about this subject so easily. The transparency of the Internet will continue to take down these liars and there will, hopefully, be a peaceful transition to a more transparent world, which is possible since everyone is now constantly watched by our friends at the NSA!

      So yes I guess banker spite but no not really.

      Liked by 1 person

  10. Thank you for the post, it describes the current situation and motivation of the players nicely.

    We might not even be able to call this bill Corker-Warner 2.0. From an Inside Mortgage Finance newsletter:

    https://www.insidemortgagefinance.com/issues/imfpubs_imf/2018_5/news/Sen-Corkers-GSE-Reform-Is-Complicated-Has-Yet-to-Attract-Democratic-Support-1000044641-1.html

    “However, the measure lacks the backing of Sen. Mark Warner, D-VA, who five years ago co-authored a GSE reform measure that eventually went nowhere.”

    and

    “When asked whether Warner approves of Corker’s draft, a spokeswoman was noncommittal, saying: ‘To get his support, any proposal would have to have strong affordability provisions, including enhanced assistance for first-time homebuyers.'”

    Perhaps Corker v1.29?

    Like

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