SEP 13, 2013

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What We're Hearing

GSE Reform Requires Compromise

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WE’RE HEARING the housing and mortgage industry can pat themselves on the back for their lobbying effort to block the PATH Act.

It appears they convinced enough moderate House Republicans that the housing finance reform bill—known as the Protect American Taxpayers and Homeowners Act—would hurt the housing market and severely restrict the availably of mortgage credit.

Since no Democrat is going to vote for the PATH Act that House Financial Services Committee chairman Jeb Hensarling, R-Texas, pushed through his committee, GOP leaders have decided to put the bill on the shelf, in a back room and close the door.

But there is still hope on the Senate side that a bipartisan GSE reform bill could be approved by the banking committee before yearend.

A bill crafted by Sens. Bob Corker, R-Tenn., and Mark Warner, D-Va., has strong bipartisan support in the Senate.

It winds down Fannie Mae and Freddie Mac over five years, just like the Hensarling bill. But the Senate bill takes another crucial step and provides government backing for the private secondary market that is supposed to replace the Fannie and Freddie MBS market.

Senate Banking Committee chairman Tim Johnson, D-S.D., and the ranking Republican Mike Crapo (Idaho) are expected to put their stamp on the Corker-Warner bill, but keep the basic features.

If the Johnson-Crapo bill clears the Senate early next year, the fate of Fannie and Freddie will be in the hands of House Republicans, according to Ed Mills, a policy analyst at FBR Capital Markets.

“The only way to get GSE reform is to compromise,” Mills said. “If you are not going to compromise, you keep what you hate in place.” In other words, Fannie and Freddie will still be around after the Tea Party fades away.

“If you do nothing, you get your worst-case scenario, which is the status quo,” Mills said in interview.

The analyst still puts the chances of GSE reform at less than 50%.

Mills knows that passing GSE reform will get harder and harder the longer Congress drags its feet.

Currently, Treasury is collecting billions of dollars of dividends from Fannie and Freddie as part of their bailout agreements. Meanwhile, the Congressional Budget Office continues to count the GSEs as a loss in terms of budget scoring.

But that could change later next year if CBO starts to count the dividend payments in the budget base line.

Once that happens, legislators will have to come up with an offset for those dividend payments if they try to wind down and liquidate Fannie and Freddie. That would put the onus on GSE reformers to come up with provisions to raise taxes or cut spending.

Warner warned about this budget scoring issue in a speech recently. The “ability and need for reform” could slip away “if we wait a year,” the senator said, and Fannie and Freddie are more profitable.

BLOG OF THE WEEK: Check out Ted Cornwell’s blog, where we see that the 30-year mortgage may already have had its 15 minutes of fame. Ted quotes Toni Moss, CEO of AmeriCatalyst, to the effect that “an increasingly “neo-feudal” society, in which people change jobs and move more frequently with significantly less income security than in the past, may threaten the traditional, 30-year, fixed-rate mortgage. The shrinking of the middle class threatens the traditional U.S. mortgage industry,” So, is the mortgage industry obsolete? We agree with point No. 2 on the shrinking of the middle class. But point No. 1, where people move around more, well hmmn, wouldn’t they need more mortgages if they did that?

OH, THOSE CRAZY VINERS: Our posters at mortgagegrapevine.com have been mulling many issues over the past week. Relatively few of them, though, are about the mortgage business. If you click here you will see some of the things on their collective mind: skin cancer, President Obama, teen-aged girls with low-cut pants, 9/11, and Syria, including one suggestion that many would agree with, that we should send the entire Congress over to Syria. The real question is, would we let them back in the country again?

MOST READ/MOST EMAILED: Why does the most-read content on our website sound so familiar? Oh yes, it is about the blog of the week, featured above. So, is there any chance the mortgage industry will become obsolete? The answer is a clear no. We’d like to think that the stupid things mortgage lenders sometimes do, like IO pick-a-pay adjustable mortgages, will become obsolete, but neg-am loans figured prominently in the 1980s S&L crash. So, we may see another neg-am bust in about 15 years, if that trend continues! The most emailed content this week was Brian’s piece on the Federal Home Loan Banks’ prospects for more secondary market activity.

WE’VE GOT BARRY: Legendary mortgage sales trainer Barry Habib thinks that the July jobs report portends bad things for the bond market. Click here to check out his latest video. Lots of people paid lots of attention to Barry’s pronouncements back in the day, and his track record is pretty good.

Mark Fogarty is editorial director of the SourceMedia Mortgage Group and has been commenting on the mortgage market since 1984. Brian Collins is the group’s senior editor and D.C. bureau chief. He has worked the mortgage beat since 1988.

Comments (2)
Hi Mark and Brian, thank you for the interest in my interview with Ted. The quotes were accurate but in your short synopsis, missing the narrative in which they were given. Nonetheless, I had to laugh at your last line, "We agree with point No. 2 on the shrinking of the middle class. But point No. 1, where people move around more, well hmmn, wouldn't they need more mortgages if they did that?" No, they would rent.
Posted by Toni Moss | Saturday, September 14 2013 at 4:09PM ET
Hi Mark and Brian, thank you for the interest in my interview with Ted. The quotes were accurate but in your short synopsis, missing the narrative in which they were given. Nonetheless, I had to laugh at your last line, "We agree with point No. 2 on the shrinking of the middle class. But point No. 1, where people move around more, well hmmn, wouldn't they need more mortgages if they did that?" No, they would rent.
Posted by Toni Moss | Monday, September 16 2013 at 12:22AM ET
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