In Bookstores Now: "The Mortgage Wars"

Source: Bill Maloni's Blog

Former Fannie CFO Tim Howard’s Book

The Mortgage Wars: Inside Fannie Mae, Big-Money Politics, and the Collapse of the American Dream

Many months ago, I was fortunate to review early drafts of “The Mortgage Wars,” a book by my friend and former Fannie Mae colleague Tim Howard, coming out later next month.

Publisher McGraw-Hill has been touting it on Amazon and the book is accelerating up the pre-sale list of books in that genre.

Tim started writing this book long before federal judge Richard Leon, a year ago, threw out “securities fraud” charges against Fannie Mae CEO Frank Raines, Fannie Comptroller Leanne Spencer, and Howard, which were brought by some shareholders who relied on a totally bogus and politically motivated Bush Administration finding that top Fannie officials misapplied new mortgage backed securities accounting rules. Quite the opposite as history showed.

Judge Leon Clears the Decks and the Air
The Leon decisions overtook Tim’s drafting and provided him with a very satisfactory result to the material he penned and story he began to tell, long before the legal victory was certain and unsealed.

Of course, coming eight years after the 2004 charges and lawsuit were lodged, the three principals couldn’t avoid the career setbacks, loss of prestige, diminished respect, and dislocation in their professional and personal lives.

“Lies have traveled around the world while the truth wakes up and brushes its teeth in the morning.”

And, as I’ve written before, the Bush Administration’s ideological decision to force out this top talent allowed new, less reliable execs to take command. (Heavy specifics of that are in Tim’s book, too.)

From 2005 until stopped, the “newbies” deviated heavily from Fannie’s historic conservative approach to mission, gorged and acquired  billions of dollars of worthless Alt A mortgages and Wall Street private label securities (PLS)—seeking yield and market share -- which brought down Fannie (and Freddie, too, which played its own version of that strategy).

Serious followers of this matter will enjoy reading Tim's authentic details, which have never before appeared in public. If they pay close attention, they will realize how exacting was the detailed and serious financial services work and analysis conducted at Fannie by the pre-2005 management.

Tim’s Turn
Last week, I asked Tim to describe the final draft sent to McGraw Hill.

One of the most bizarre aspects of the current debate on mortgage finance reform is that the consensus objective for reform-- getting rid of the GSEs and providing a greater role for the private sector-- was the goal of the anti-Fannie Mae cabal in the late 1990s and early 2000s, and pursuing it is what led to the 2008 mortgage crisis!  Why would anyone want to do the same thing again?   We shouldn't, but the major proponents of today’s ideas for mortgage reform are the large banks and their supporters, and they're the ones who control the narrative about what happened during the crisis.  The story they tell about the crisis is completely wrong, but before my book there has been no fact-based alternative view for anyone to consider instead.  That's what "The Mortgage Wars" will offer. It makes clear how and why the crisis evolved-- using actual events and developments in the correct sequence in which they occurred-- and it's told from the perspective of an insider who lived through the events he's relating.

As I've noted before, the mortgage crisis was the result of a fight between the supporters and the opponents of the GSEs over who would control the largest credit market in the world.  Fannie and Freddie always had been controversial, but the controversy got serious in the late 1990s, when two decades of banking deregulation produced giant financial services companies (mostly banks) with national ambitions who viewed Fannie and Freddie's dominant position in the mortgage market as a threat to those ambitions.  They came to Washington to try to convince policymakers and regulators to replace a mortgage finance system based on the GSE with one based on private-market mechanisms and incentives, with very little government involvement or regulation.  Fannie Mae fought back, and what I call "the mortgage wars" began.  The banks and their supporters succeeded in getting control of the mortgage standard-setting process in 2004-- when private label mortgage-backed securities accounted for over half of all new MBS issues for the first time ever-- and that got the bubble going.  Fannie Mae was pulled into it after OFHEO used allegations of accounting fraud-- subsequently shown by Federal District court judge Leon to have been completely invented-- to oust Fannie Mae's top leadership and force the company to change its risk management organization and practices.  But even with that, five years after crisis ended it is clear that Fannie Mae's mortgages performed twice as well as the banks' and four times better than those put into private-label securities.

The GSE-based system was the best and safest in the country's history.  The bank-based private-market system that replaced it in the mid-2000s-- with the support and assistance of the Treasury, the Fed and the Bush administration-- led to a catastrophic failure that ended up killing everybody, including the GSEs.  Anyone with an accurate understanding of what happened during the mortgage crisis, and why it happened, would be highly unlikely to ever again fall for the siren song of basing an $11 trillion market essential to the country's economic health on free-market principles with no government oversight or regulation.


Many books have been written about the financial crisis and its causes, but none of them has been written by one of the key figures intimately involved in the drama. At last, one of those top insiders tells the complete story of the mortgage wars that almost destroyed the global economy.

In this no-holds-barred account, Timothy Howard exposes the perfect storm of money, power, ideology, and politics that led to the crisis. Howard was the CFO of Fannie Mae until 2004. At its peak, Fannie Mae was responsible for more than one out of every four home loans in the United States. But by the mid-2000s, what seemed to be the most successful mortgage finance system in the world completely broke down. What happened?

Howard takes you behind the scenes to show the dramatic struggles between the corporations and the politicians that led to the meltdown. In The Mortgage Wars, you'll learn:

  • How Fannie Mae was born and evolved into the largest mortgage lender in the world
  • How Fannie Mae survived the fi nancial turmoil that killed the thrift industry
  • How the subprime market grew, with very little oversight, and eventually exploded
  • How political and fi nancial jockeying sparked the mortgage wars
  • What we must do to prevent a similar financial crisis from ever happening again

At long last, this inside account tells the unvarnished truth about some of the most controversial subjects of our time, including the disturbing new norm of unsafe and unsound business practices in the finance world and the huge problems that arise when politicians try to pick winners in the global markets.

The Mortgage Wars tells the real story for the first time, showing how an $11 trillion dollar industry really fights its battles, for better or worse. Timothy Howard also shares his insights on how to keep the mortgage fi nance system safe, offering invaluable, prescriptive advice for all of us as we move forward into an uncertain future.

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