Guggenheim Securities held a by-invitation only event last week in New York for big investors titled “Fannie & Freddie: Is There Value Worth Saving?” but members of Investors Unite – that is, the retail investors – were shut out.
All except one, who spoke to HousingWire on the condition of anonymity.
The keynote speakers were Sen. John Corker’s (of Corker-Warner fame, or infamy, depending on your perspective) housing policy advisor, Michael Bright. He’s the former Countrywide executive who authored Corker-Warner.
Bright made his case with a 90-page PowerPoint.
Speaking for the other side – he was teleconferenced in and his account can be read on his blog – was Bill Maloni, the former Fannie Mae lobbyist.
Alex Forschner, a New York-based Investors Unite member who was refused admittance, said that this kind of cold shoulder for individual investors is par for the course.
“I was refused admittance even though it was supposedly open to Fannie and Freddie investors,” Forschner said. “This marks another in a long string of discussions from which ordinary Fannie/Freddie investors have been denied admittance. Not only does this type of exclusion encourage group think, but it is a step in the wrong direction for GSE reform.”
Investors Unite opposes any of the GSE reform measures that do not protect the rights of shareholders.
In 2008, a conservatorship agreement required that Fannie and Freddie Mac pay the U.S. Treasury a 10% dividend payment to repay the loan that was made. To date, the GSEs have repaid $204 billion dollars to the Treasury, tens of billions in excess of what was originally loaned, but the government refuses to exit its conservatorship.
Since January of 2013, the government has been confiscating 100% of Fannie and Freddie dividends.
Investors Unite believes that replacing Fannie and Freddie with a new, gargantuan federal entity, the Federal Mortgage Insurance Corporation, which would explicitly back mortgages, would add $5 trillion to the taxpayer’s balance sheet and give more control of the mortgage market to the big banks.
“As an individual investor, I represent hundreds of thousands of others throughout our country who have received zero-dividend payments on our investments due to the government’s enactment of a total sweep of profits from the GSEs,” Forschner said. “While the Senate has debated GSE reform crafted by Mr. Bright himself, the legislation clearly ignores investor rights and violates the rule of law. It is clear that this legislation was crafted without the small investor in mind. Keeping us out of these discussions will only perpetuate this problem.”
Forschner couldn’t get in, but another Investors Unite member did.
“Ultimately they don’t see that Fannie and Freddie have worked well up until 2004, and over the last six years,” the investor tells HousingWire. “Why reinvent the wheel – you can work with the regulations and G-fees to bring back in private capital.”
Our source reports largely what Maloni wrote on his blog, but points out that basically, no one -- not on either side of the discussion at Guggenheim -- really seemed to care one whit about whether retail investors were protected. Or paid.
They seemed to reflect the let them eat cake mentality of FHFA Director Mel Watt, who said in May, “I don’t lay awake at night worrying about what’s fair to the shareholders.
HousingWire's source says that while Maloni made no real mention of shareholder rights, he did at least defend the position held by Investors Unite that the GSEs should be preserved.
“I argued that virtually all the legitimate issues people had with F&F have been solved via regulation or easily could be going forward. Most people who still opposed the two, largely, were swayed by a false narrative,” Maloni said. “The case I made for Fannie Mae and Freddie Mac was simple.
“They successfully produced voluminous amounts of mortgage financing, for a variety of income groups, and worked well before the post 2005 PLS debacles. Since being put into ‘conservatorship,’ they still are spectacularly successful—buttressing the nation’s mortgage market – when their regulation was tightened up post-2008,” Maloni said. “ I suggested, with some regulatory relief and little legislative head knocking, they could be revived and permitted to play a principal role in the mortgage market before any of the various F&F alternatives could be operational.
“Fannie and Freddie have been tightly regulated for the past 6 years and—assuming that regulation stays in place—there is little chance of a repeat of the subprime debacle for reasons everyone knows (the primary one being F&F cannot touch low quality mortgage loans),” Maloni said. “With QM mortgages now the rule, F&F as principals in a mortgage finance system offering common products, common prices, competition among primary lenders, efficient operations, and with their own money at stake, would be far better at regulating their customers (most of which are banks or bank affiliates) against consumer and systemic abuse than any federal agency.”
Ultimately, Maloni said he is resigned to the belief shared by so many that no GSE reform is coming before the next president is sworn in.
“Again, I believe that only a new president with both congressional chambers controlled by his (or her) party will set the stage for any omnibus mortgage reform legislative proposal with the soonest that can occur is 2017,” Maloni said. “This Administration could move via regulation to make it easier for F&F to produce for the country.”
Guggenheim is free to invite whomever they please, but it seems troubling that so little regard is given to the rights of the very shareholders -- retail though they be -- whose investments went into building and maintaining Fannie and Freddie.
Or don't they count?