The Foxes In The Hen House
First I would like to say how flattering it is to see virtually every housing expert gradually come around to what I have been saying for years now. We have watched as the debate has shifted from wind down and replace to the realization that ultimately the GSE model is irreplaceable. From day one I have challenged expert after expert to convince me how the GSEs could be eliminated and not one succeeded even remotely.
I predicted the failure of the Johnson-Crapo bill the day before the vote in Senate banking. I even had the exact vote tally right. I have explained in great detail the massive ideological divide that exists on this issue. Most importantly I have explained that under the current arrangement the Democrats have everything they could ever dream of under our current arrangement and they would be foolish to risk having to renegotiate with the Republicans on this now.
In a prior post I said :
“So why would President Obama and other key Democrats go along with this risky path? To understand this, you need to know what would be the Democrats dream if they could wave a wand over the issue.The more liberal wing of the Democratic party including President Obama and Senator Elizabeth Warren have always wanted the GSEs nationalized. They love the idea that the taxpayers are currently getting all of the profits. Actually, the current state of Fannie and Freddie is a Utopian state for many Democrats. They get the benefits that the GSEs provide, and taxpayers get all of the profit which is only fair they believe because it is the taxpayer backing that enables them to do what they do.”
The Democrats got a little greedy and through the third amendment effectively nationalized the GSEs currently. If successful they would literally have their utopian housing finance system or as Bethany said Nirvana. Right now they are enjoying this success as the GSEs are temporarily nationalized and many Democrats foolishly believe this state can last forever. The recent authors of “A More Promising Road to GSE Reform” 2016-03-22-A-More-Promising-Road-To-GSE-Reform (1) are keenly aware of this and structure their proposal accordingly. Their plan leads Democrats to believe that they to want to permanently lock in their utopian dream.Their ploy obviously worked rather well as I have yet to see one article or opinion that explains what they truly seek to do. When I heard Lewis Ranieri was involved I was suspicious. I understood why Parrot, Zandi,Zigas and Sperling might be promoting nationalizing Americas housing market but not Ranieri. Ranieri is often referred to as the god father of the financial crisis for he not only invented the PLMBS market that almost took out our entire financial system but actively lobbied congress to allow it to take over the market from Fannie and Freddie.Here Ranieri again is involved in the push to push Fannie and Freddie aside in favor of a primarily private secondary mortgage market. As it turns out none of them are promoting the Democrats Utopian vision but rather an objective that is much more closely aligned with the House Republicans Path Act.
The Devil Is In The Details
Hidden amongst the details is a plan that effectively hands the market over to big banks and private mortgage companies. They confuse and obfuscate the true intent of their plan by focusing heavily on the details of their proposed National Mortgage Reinsurance Corporation (NMRC) Hidden away we see the true motives:
“In normal times, we would expect lending backed by portfolio lenders and private-label securities investors to serve the majority of the nation’s mortgage needs, allowing the government-backed channel to retreat to a more conservative role. It will only take on a larger role in the market if and as the purely private lending channels dry up.”
Here is the crux of their entire plan, they envision a system where private label securities dealers take over the bulk of the market. Sound familiar? It should because this is exactly what crashed the market last time.
The next quote I cite comes from Ranieri:
“As we learned in the crisis, not all of that competition and innovation would be beneficial to consumers or the stability of the market, but surely much of it would”
Here they justify the rationale for turning the bulk of our secondary mortgage market over to private label securities dealers by assuring us that “surely much” of what they would bring to this market would benefit consumers and help “stabilize” the market. For Gods sake, they can’t be serious. I have pointed out over and over on this blog that every time private capital got their mits on this market, it was a disaster for all involved.
Trust Funds And Mandates Crushed By Hillary’s Housing Advisers
Now I want to point out one of the most insidious parts of this plan. In a section titled: “Broad access to underserved communities and small
lenders” They falsely assure us that the trust funds and mandates will be forever guarded by the new “gate keeper” but fail to point out that when the NMRC is dialed back, and private participants take over large swaths of the market the funds and mandates get crushed. When that is achieved, the private companies will not be required to abide by the mandates at all. The amount of money sent to the trust funds will trickle down to a fraction of what they would have been.
Why do they hide their true motives and the disastrous results their plan would have on the mandates and trust funds? These are the experts that Hillary Clinton and President Obama rely on to advise them on housing policy?
Gate Keeper defiled
I love how they cleverly defiled a term coined here on the blog by referring to their new system as “gate keepers”. We coined that here on the blog and in our critical white paper and video when we explained that Fannie and Freddie historically served as gate keepers to Americas mortgage finance market. In reality the authors plan would use their new corporation as a gate keeper to turn almost the entire secondary mortgage market over to the vultures of high finance. Through cleverly crafted language they lead one to believe that they are effectively nationalizing and locking in the protections Fannie and Freddie offer forever when in fact their plan does the opposite. It would be an utter disaster.
It is critical that our allies get brought up to speed on this and several other areas that have been sorely lacking since we left our activist role.
One big one is the way our government is going to use derivative losses and the GSEs shrinking capital as a way to ensure that the GSEs are killed financially.
They need to be made aware that Sperling, Parrott and Zandi are not friends but wolves in Sheeps clothing.
Hillary needs to be exposed and forced to acknowledge the truth or not get the turn out she needs for victory in 2016. Our allies must end their blind faith straight party line voting practice.They must make demands on their leaders in exchange for their votes,they must be willing to do so or they will continue to be abused and taken for fools by those they have placed blind faith in to protect them. Hillary must be made aware that if she endorses any plan like this that kills the GSEs in favor of crushing access to the mortgage market she will not get their vote period.
Q and A tonight at 8Pm
I will be hosting a brief question/answer session tonight at 8 PM in the comments section of this post. Feel free to ask questions but if your question is deleted, please do not re-ask the same one.There are a few issues we will not be commenting on. Keep the Faith!