Folks, if IndyMac’s CEO Michael Perry is right- we all need to start paying a lot more attention to what is happening with the GSEs: [Fannie, Freddie & Co.]
[Currently] it’s “difficult” to trade even AAA-rated mortgage bonds that aren’t guaranteed by government-chartered Fannie Mae and Freddie Mac, or federal agency Ginnie Mae, Perry wrote.
For this reason, HousingDoom would especially like to thank Bill Maloni for permission to reproduce yesterday’s post on his GSE blog. Bill has impressive credentials, in an earlier blog post he states:
I have worked in financial services and GSE issues for more than 35 years, since 1968: 11 years as a legislative assistant on Capitol Hill; head of congressional liaison at the Federal Home Loan Bank Board; and as a congressional liaison officer for the Federal Reserve Board and its Chairman, Paul Volcker.
In 1983, I left the Fed to go to work for Fannie Mae, as a lobbyist and later was named senior vice president of its Government and Industry Relations unit. I was hired under David Maxwell, worked Jim Johnson’s entire tenure, and for Frank Raines. After spending my final year as "adviser" to the corporation, I retired from the company in December, 2004.
I have no business connections, of any kind, with any business, trade association, or other individual or group, in the financial services or mortgage finance communities.
I, exclusively, am just an interested observer, having worked for and against many of the colliding interests in the GSE world.
We’ll start with our correspondence:
Bill also gave permission for Doom to reproduce this e-mail thread — Thanks [jm] 
To: JOHN
Subject: Re: New Blog Out, 8-2 — our door is still open
Date: Thu, 02 Aug 2007 13:26:32 -0400
From: BILL
Good and You have my permission to reprint it. (Thank you for asking.).
But, where did you go so far astray, Grasshopper??
—–Original Message—–
From: JOHN
To: BILL
Sent: Thu, 2 Aug 2007 1:02 pm
Subject: Re: New Blog Out, 8-2 — our door is still open
Hi Bill,
I disagree vehemently with much of your stuff, but …
Your 8/2 piece has a lot of important things to say. Thanks to
the popularity of a couple of our posts early in the week, we
have been running around a record 7,000 visits a day.
With your permission, I could set up and run your complete
piece on Housing Doom tomorrow. I would be delighted to
give this work additional exposure.
Cheers, John
BILL wrote:
www.malonigse.blogspot.com
Enjoy. Comments always welcome.
"Would They Take Back Their Letter, If They Could?" [1]
by Bill Maloni
A few days ago seven trade associations [2] — all representing commercial banking interests — called on the Senate Banking Committee leadership to move expeditiously on its consideration of the GSE regulatory reform bill, a version of which having already passed in the House.
The letter might be one the trades want back, since it was sent before Countrywide issued its market roiling second quarter report–suggesting payment problems in the prime mortgage market–and before this week’s American Home Mortgage funding problem.
I am sure that each of those groups—with predictable short sightedness–has its own particular form of destabilizing legislative pain and suffering that they hope the Senate will inflict on the GSEs, the sum total of which likely would leave just two smoldering holes in the ground where Fannie and Freddie headquarters once stood.
But, as the credit markets tighten, in part over the actions of some of those who signed the letter, the mortgage lender element in those trade groups might want to keep one principle in mind and it isn’t “location, location, location.”
It’s “liquidity, liquidity, liquidity!”
Fannie and Freddie were created for the sole purpose of acquiring those mortgage loans that lenders make every day and hope to sell, when holding them doesn’t make economic sense. The GSEs take the risks that the lenders don’t want and turn those loans into cash for the banks and their subs, while packaging them into securities and selling them to other investors or placing those loans in their own portfolios, because they can more easily manage the interest rate and credit risks than the average bank. If there is a real credit crunch, not just a serious slump as now is shaping up, “Who ya gonna call Mr. Lender….Ghostbusters?”
Query lenders? In a credit squeeze, which entities first will turn their backs on you, shutting their purchase windows and leave you up a proverbial tree, mortgage-loving Fannie Mae and Freddie Mac, or those risk-adverse commercial banks—some of which are your “parents?”
Be careful what, implicitly, you call for in letters, because it could come back and bite you right in your, um, back office!
The trades can hide behind the phony excuse of, “We only were urging the Senate to move on the process,” but most observers know what you are hoping.
How disingenious and naïve!
Do you really think the Congress is going to screw around and hamstring the nation’s two mortgage market GSE ramparts, when confronting the problems facing mortgage lenders and investors today?
As opposed to your Washington politicos, is that what your business people really want? (Remember, liquidity, liquidity….!”)
How many Senators and Members do you think want to brag, “We listened to the banks and we cold cocked Fannie and Freddie, big time,” when they go home to run for re-election in 2008.
Get a grip bankers
No Major Restructuring Legislation??
I have no idea what Fannie Mae and Freddie Mac want out of this legislative session, except not to be dismembered by the Bush Administration, which still wants to gut the GSEs.
But, now that the House Banking Committee has approved, as a separate piece of legislation, Chairman Barney Frank’s bill to create a GSE funded “affordable housing fund,” the outline is there for no GSE regulatory legislation this year, because of the aforementioned mortgage market problems. Primarily, because the nation’s mortgage markets might require strong, unfettered Fannie and Freddie to bail out the lenders and keep housing afloat.
The fact that OFHEO—despite some questionable policy calls—seems to have the GSEs under appropriate lock and key, a reasonable observer might ask why Congress even has to waste its time this year working on a major regulatory restructuring bill.
Congress should consider taking Mr. Frank’s stand alone housing fund bill, adding a provision giving OFHEO 50 or more additional staffers, take the agency from under the appropriations problem, pass the legislation in both chambers, send it to the President, and go home for the year, congratulating itself for thoughtful legislating.
That makes a lot of sense.
Unlike some physicians
, I like to think that Congress—especially the committees chaired by Chris Dodd and Barney Frank–is wise enough to follow its own version of the “Hippocratic Oath” and do no legislative harm as it considers what—if anything—to do about the GSEs.
Even the House regulatory reform bill was approved while subprime was just building a head of steam. The additional prime mortgage market issues—which have arisen since —call for thoughtful statesmanship, not wild forays in legislative gamesmanship, and no debilitating GSE changes.
Dues paying members of those banking trades, when they think “credit crunch and very illiquid national mortgage markets,” should ask their DC employees to send a new Senate missive–something simple, like, “Please forget our previous letter!”
________________________
Notes and References
[1]: "Would They Take Back Their Letter, If They Could?", by Bill Maloni, Bill Maloni’s GSE Blog, August 2, 2007.© 2007 Bill Maloni. Used with permission.
[2]: America’s Community Bankers, American Bankers Association, American Financial Services Association, Consumer Bankers Association, Consumer Mortgage Coalition, Housing Policy Council of the Financial Services Roundtable, and the Mortgage Bankers Association.
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Bill -
Like you were saying …
“IndyMac CEO: Private Secondary Markets ‘Panicked and Illiquid’ “, by P. Jackson, Housing Wire, August 2, 2007.
“Do you really think the Congress is going to screw around and hamstring the nation?s two mortgage market GSE ramparts, when confronting the problems facing mortgage lenders and investors today?
As opposed to your Washington politicos, is that what your business people really want? (Remember, liquidity, liquidity?.!?)
How many Senators and Members do you think want to brag, ?We listened to the banks and we cold cocked Fannie and Freddie, big time,? when they go home to run for re-election in 2008.
Get a grip bankers”
THIS DOESN’T EVEN BEGIN TO ADDRESS THE PROBLEM. SO WHAT THIS PERSON IS SAYING IS THAT GSE’S EXIST TO PROTECT THE VALUE OF THE BONDS. IT HAS NOTHING TO DO WITH HOUSING. THERE IS NO COMMITMENT WHATSOEVER BY GSE’S TO KEEP PEOPLE HOUSED. THAT IS THE REAL PROBLEM.
ONCE THE MARKET SEES THAT GSE’S ARE JUST A SCAM FOR BOND HOLDERS, THAT’S SIMPLY GOING PUT A CLOUD OVER THE ENTIRE ECONOMY. IN SHORT, THE FEDERAL GOVERNMENT IS MONETIZING BAD POLICIES. AND IT IS BAD POLICY TO SUPPORT BONDS WHICH THEMSELVES ARE UNSUPPORTED BY ANY MEANINGFUL SOCIAL POLICY.
EVEN IN THE SHORT TERM, NO ONE IS GOING TO BE FOOLED BY THE COMMITMENT OF THE GSE’S TO BUY PAPER. THIS IS THE FEDERAL GOVERNMENT BUYING ITS OWN PAPER. IT’S [Expletive deleted- Twist's a prude]–IT’S SIMPLY A VERY BAD SIGN FOR THE AMERICAN ECONOMY, FACE IT.