Moody's Talks - Inside Economics - Bonus Episode: Divergence to Convergence

Episode Date: February 23, 2024

Inside Economics welcomes back Mark Calabria, the former director of the Federal Housing Finance Agency. We discuss the current housing affordability crisis and what policymakers should do to address it, the FHFA’s response to the COVID-19 pandemic, and the risks posed by nonbank mortgage companies. The group also takes up the role of the Federal Home Loan Banks. Plenty of debate, and even some agreement.For more info on Mark CalabriaFor more info on Mark Calabria's book, Shelter from the Storm, click hereFollow Mark Zandi @MarkZandi, Cris deRitis @MiddleWayEcon, and Marisa DiNatale on LinkedIn for additional insight. Questions or Comments, please email us at [e-mail]. We would love to hear from you.  To stay informed and follow the insights of Moody's Analytics economists, visit Economic View. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Inside Economics. I'm Mark Zandi, the chief economist of Moody's Analytics, and I'm joined by my two trusty co-host, Chris DeRides and Marissa D. Natali. Hi, guys. Hi, Mark. Good morning, Mark. What's going on? The usual, or stress testing stress. Yeah, yeah, the stress tests are underway. I think we've made pretty good progress. We have a webinar this afternoon, right? We do. We've made that excellent progress. Really kudos to the team. Right. Right. Really stepped up.

Right. There's a lot to talk about in that C-Car stress test, but we'll wait for the webinar to do that. Yeah. I was in Miami last night speaking to a bunch of real estate folks and made my way back to Vira this morning. And AT&T, I have AT&T cell service. That went down. So I don't know about you guys, but if I don't have my cell working, somehow I feel naked. I mean, literally, I'm trying to have no clothes. on that I had my cell phone. Really very, very disconcerting feeling. And, of course, I was thinking it was my phone, not AT&T. And then I heard on the radio because I had the radio on that I guess the whole network is down or a big part of the network is down. Wow. Still.

Do you have a paper map in your car there? I don't. I used to religiously keep maps, but when's the last time you looked at a map? You mean a paper copy map? Like a road map? I can't remember. Well, we've got a guest, Mark Calabria. Mark, good to see you again.

Pleasure to be here, as always. Yeah, and I'm trying to remember you were on... A year ago or something like that, nine, 12 months ago, sometime. Really? That long ago. It may have been sooner. I don't look at maps. I don't look at calendars either. You're a lucky man. You're a lucky man.

man. Yeah, I'm wedded to that cell phone. But it's good to have you back on. And I think always a lot to talk about in the housing, mortgage finance space. And last go around, we didn't really have an opportunity to talk about the book you wrote in any detail. It's shelter from the storm, how a COVID mortgage meltdown was averted. Right. And you go through your leadership.

at FHFA, the regulator for Fannie Mae and Freddie Mac. And you were there under the Trump administration and when the pandemic hit and obviously a lot of turmoil. And your book is about how you dealt with that and the policy you put into place. I want to talk about that. How's the book doing? Do you know? It's, well, I mean, it's surprisingly hard to get accurate sales numbers on a regular basis

because of the different channels. But I've heard, you know, the feedback has been terrific, surprisingly in some sectors, because there are things in the book that I think are somewhat critical of parts of the mortgage sector. And yet the response has been pretty positive. And I try to make the criticism of constructive. So I've been very happy with, you know, my takeaway is not that I'll never do another book again. That's not your takeaway. It's not my takeaway.

Okay. As you know, as you know from having written book, books, it's a lot goes into it. And as you know as well, you put as much energy into the marketing as you do into the writing, it seems. Yeah, for sure. The metaphor I have in my mind with regard to book writing is running a marathon, right? Yeah. It's, you know, very, very painful while you're doing it. But once the book is done, you go, oh.

Once you cross the finish line. And, of course, like a marathon, it's not done until you cross the finish. That's true. That's true. That's true. That's very true. Well, we'll come back to the book because I want to talk first about, and I think we did this when you were on previously. Oh, and I should say, obviously, you're a Cato now, right?

Yeah, we're now in Washington. Yeah. Anything else in your remit? Do you want to bring up anything? Not necessarily. I think that's a good focus. Okay. Yeah.

And I don't know the housing market's changed all that much. It's the last time we talked pretty vexed. Although today we get the existing home sales for the month of January. I guess we haven't gotten them yet. But obviously, it just feels like the housing market is in a very weird place. It doesn't, you know. As you're sitting in Florida, I'll be curious. I really think a 2023 is kind of a year of multiple lines of divergence.

You know, single family constructions going this way, but multifamily is going this way, existing new sales, doing different crazy things. But just as much, you know, California deflating while Florida still going like gangbusters. What am I? I have a cousin who's a realtor. in the Parkland Plantation area. And I talk to him kind of regularly and certainly his still saw a lot of traffic,

you know, in South Florida for 2023. But my gut is, and I think we're already starting to see signs of this, that I think we're going to start to see a little bit of convergence back to normal trends where this may be the year where Florida starts to revert to where the rest of the country has been going.

And again, since you're there, I would be curious whether you feel like you're seeing that already. And I do think we've had a couple of years of where new homes have made an outsized percentage of sales. And I don't think we're going to get back completely to trend, but I think we're headed that direction where you're going to see more existing inventory come back onto the markets. And again, new sales will still play an outsized role, but maybe less so. So while divergence was kind of my theme for 2023, I think a little more convergence is what I think we're going to see in 2024. Yeah, Chris, what's going on in the Florida market?

I know you follow that carefully. Yeah, it does look as though we're seeing some pressure. The insurance, rising homeowner insurance seems to be having more and more of an impact. That had been a bit of a mystery. But I think now, given the higher interest rates that borrowers are realizing the total cost of ownership there is high. We are seeing some increase in month supply in those areas. I think Vero Beach actually has very high level of what supply by our calculation.

So I don't know if you're seeing that, but relative to it. Right next to me just transacted. I can't wait to see what the price was. I'm not sure what it was, but literally right next door that that home just sold. So interesting. But inventories are up. I didn't know that. Interesting.

Yeah. Across the metro. Maybe not in your... Yeah. Yeah. I'm in my street. Little... Caravelle.

There's the end of the premium that goes out of that. It's so funny, Mark. I got a great story. So I bought this home back in 2007, I think. Maybe it was early 2008. You know, it was after the first leg down in house prices, this was the financial crisis, you know, the beginning of... Oh, yeah.

And my neighbor at the time comes over, you know, says, I just wanted to say hello. And we're very happy you're, you came to the neighborhood because given that you're an economist, we now all feel like this has got to be the bottom in house prices. Of course, prices fell another 25%. You know, after that. I'm not going to claim timing, but my current house I bought in 2010. And if you map it out, it's almost exactly at the bottom. Again, more luck, more luck than anything else.

And I was going to say, I sold a rental in spring of 22. So I guess that was where I thought the rental market was going afterwards. So the caveat of nobody should really try to time the real estate market. It's tough. You get occasionally lucky. It's tough. Yeah. I mean, of course, prices have risen.

And so I don't feel so bad now that I've held onto it. And now I use the home, so that's good too. But nonetheless, I go, gee whiz. But anyway, so convergence, is that possible, though, in the context of how poor housing, single-family housing affordability really is? I mean, if you look at where mortgage rates are at 7%, even no recession, we're getting income gains. And given where house prices are, I mean, they fell a bit in 22. They rose a bit in 23 and they're still extraordinarily high. Here's a factoid for you.

New home, the median price of a new home is equal to a median price of an existing home. And that rarely ever happened. Exactly. Exactly. You've seen builders start to, you know, try to target that lower end of the market. I mean, and that's their response to the lack of existing inventory. So is my realtor friends always like to say location, location, location. And, you know, when I say convergence, what I really mean is I think you're going to start to see some of the common trends. So, you know, it's more a case of, as was mentioned by Chris, you know,

Ventories building up in Florida. You know, I think at least at a minimum price appreciation is kind of slow, if not actually turn negative in parts of Florida. And you've already seen that, for instance, in lots of parts of California. You see it in places like Boise, where there was a lot of in migration during COVID. And I also kind of think that while 2022, we really, I mean, 2023, rather, you know, we saw, you know, the first couple of innings and a correction in multifamily construction. You haven't seen that in single family.

And so in a sense, I think what you've seen in terms of the markets that have been correcting, the rest of the markets that haven't really corrected. Many of them, I think, are going to start to converge in that direction. So that's what I mean, and that's not to say, I mean, as you know, one of my great frustrations I feel like I hear in the commentary is, you know, people often say, well, you know, supplies limited, therefore prices can't fall. And my response is always, let's go back to our econ 101 and remember. And if we want to be very simple about it and say, in many markets, housing supplies essentially inelastic in the short run, which of course means we've got a vertical supply curve. And what that suggests to me is changes in demand can have relatively large changes in prices, even without a movement in supply. And there has certainly been offsetting factors. We've seen, you know, record immigration numbers. for instance in the last year, that's kept up demand. There's been income growth. People are still spending down COVID savings. So demand has been strong.

But at some point, if you see a weakening in demand, even without additional supply on the market, which of course in places like Florida, we are seeing additional supply. I think you can get, you know, I think you can get price declines in some markets. But again, I really emphasize it's going to be localized. As long as the job,

job market continues, then I think the housing market will be fine. And ultimately, it's a good reminder. I'm more of the school of, you know, yeah, interest rates and underwriting matter kind of in the short run, but ultimately for the housing market, it's household growth, it's, you know, the underlying demographics, it's income growth, its job growth. And those things, in my view, tend to dominate everything else. But on the supply side, I mean, of course, there's two aspects to that. One is the interest rate lock, meaning you've got a lot of homeowners with a mortgage that has a very low rate.

They locked in prior to the run-up in rates. And, you know, I think the average coupon on an existing mortgage is 3.5%. Kind of crazy. Yeah. Yeah, the current mortgage rate is seven. So they're locked or it feels like they're locked for a while until, you know, their demographic needs to change to such a point. Life events and subject.

And the other is in the physical market, just a number of homes, single multifamily manufacturer housing that's going up relative to that demand, you know, household formation, obsolescence, and second vacation homes. It feels like the shortfall is pretty severe. And you can see it in the vacancy rates. I mean, the homeowner vacancy rates at a record low. So it feels like it's also physical. It's also supply, too, though.

I mean, there absolutely is a supply constraint. But, you know, I'll just, again, the more inelastic supply, the bigger the magnitude of price changes with anyone given change in demand. There are elements. We've been building, you know, more multifamily since we have in the 70s. And you've actually, interestingly enough, seen a rather large increase in the number of four rent properties that are being held off the market. And what a lot of people are doing is instead of selling that home in which they're three and a half, they're moving and taking a new job and renting it. And I'd be the first to say, I think you could go a number of years where you see softness in the rental market and in metro before it starts to show up in homeownership. But I do think that there's pressure. You know, when the options to rent are so much cheaper in a metro, you're trying to attract first time home buyers is pressure on that.

And again, there's a lag there. But I think we really have started to see a lot of supply on the rental market come on. on and the question is ultimately what's the lag in terms of impact in the single family market from that. So that's kind of where I'm looking at it. I can't remember whether it was you or one of my other forecaster friends and came up with the give a number, give a date, but never give both. And so this is one of those things where I never say that. It was a mark. It was a mark. You always do both. I'll do all the above, yeah, which should be applauded. But so in this case, you know, these are kind of the trends I see playing out and certainly in the multifamily.

You know, I mean, I guess, you know, what I really want to distinguish is it's certainly possible and we are in a case where I would say there was a trend structural shortage. But I think you can be in the case with a cyclical, you know, you're getting to a part in the rental market, in my opinion, where we're oversupplied in the cyclical point of view, which doesn't mean we don't mean more housing overall. ultimately. Yeah, on that, and I may have this wrong, but the narrative I have in my mind on the multifamily supply, and you're right, there's a lot of supply coming. I think there's a million multifamily units, almost on the nose. Yep. In the pipeline going to completion that got bottled up because of the pandemic supply chain issues, labor market issues, but that they've been resolved and now the supply is coming in. But that feels like that's all at the high end of the multifamily market, the kind of lifestyle rental, the big apartment towers. Sure. The, the, the, the, the,

But ultimately it filters down. You know, if you can move up from a CB property into an A property that's going to put pressure, you know, again, we'll start with one of my favorite factoids to the extent that it is a factoid, which is, you know, every new home on average results in about four moves, you know, as people move up. There is a housing ladder. We have broken it in many parts of the countries, but the concept does exist. And I would argue there is a rental quality ladder as well where, you know, you may, you know, not everybody goes immediately from their parents' basement to a luxury rental, you know. And again, you're right in that most of the construction is either assisted. So, you know, my gut is probably about 50 to 60 percent of apartment construction now is tax credit driven.

So, you know, there's a huge part of this that is subsidized. that is supposed to be readily available for median or below median income. Certainly, almost all of the unsubsidized rental is at the top end. But again, that allows someone to move up from a B property to a C property, which puts downward pressure on the B property. So I do think you're, yeah. Oh, go ahead. Go ahead, Mark. I do think you're going to start to see rents softening.

Again, location, location, location. This is going to differ by market. And so I think this is something you're going to start to see and have seen in a number of markets already. And that's going to make homeownership less attractive at the margin for a number of households. So the housing affordability, let's call it many wood crisis, which goes in part to the shortage of homes, both on the single family and a rental side, has caught policymakers' attention. And there's a piece of tax legislation kind of finding its way through the legislative process. This is child tax credit. This is R&D tax credit. And in that legislation is juicing up LI-Tech, low-income housing tax credit. You just alluded to it.

Yeah, you know, and this is a great point. I'll say up front, I'm not a huge LI-Tech fan. I know that that leads me as an outlier. I know it's much beloved, especially in Washington. And, you know, first of all, it's presented, and I understand the reason it's presented this way is a supply subsidy. But if you really think about it, you know, and again, I think often you and I might arrive sometimes at different observations because of the difference of being a micro versus a macro economist. Top down versus bottom up. And so, you know, I really think about like, okay, you're injecting the subsidy into a supply chain. you know, what's the relatively fixed factor of production? And in this case, it's develop a land.

It's not the equity. So ultimately, if you think about what really is going to filter through in terms of if you increase the tax credit, it's going to allow developers to bid, you know, higher prices for the developer land. So it'll be great. If you own a developer land in places of California, an expansion of tax credit will be very good for you. you will capture most of those subsidies.

You also have a process where in many places, the tax credit process results in properties that are no cheaper to do than unsubsidized. And that's, you know, you have the labor rules that are involved. You have a number of different other requirements. You know, these properties tend to have four to eight total subsidies. It's rarely just a tax credit. And each one requires an application in a set of lawyers. it's just not a terribly efficient delivery vehicle for subsidy in my view.

And again, one of the reasons it's popular because, as I mentioned, everybody kind of gets a piece. Labor gets a piece. Lawyers get a piece. The Wall Street syndicators get a piece. The developer gets a piece. So on one hand, it's a perfectly structured political program. It's just not a program, in my opinion, that actually on net ads, you know, and as we talked about in the luxury end, it does end up, you know, have been a number of academic peer-reviewed studies, good journals.

You get about 50%, 60% displacement where the tax credit property comes online, and then a lower quality property leaves the stock. So it does, I mean, probably the most important thing, if you wanted to be a big advocate for the program is it definitely upgrades the quality of assisted housing. So that's probably the most immediate effect is a quality. impact rather than a quantity impact. And so again, you know, I guess I put it to this one, it's not even necessarily a matter of spending. If you had, let's just say it's a couple of billion, I think you'd make a bigger impact spending the exact same amount of dollars on vouchers than you would on tax credit.

And I understand given the supply constraints. The other thing that I, you know, by my knock on the tax credit program, so here's a factory that may surprise you, but not given here in Florida, over 50% of renters live in properties of under five units. And the median tax credit property size is about 40 units. So, you know, if much of the pressure we're seeing in affordability is not simply New York City, but all, also suburban areas or rural areas. I mean, again, not saying there are no tax credit developments in rural America, but there are very few compared to it. So you're leaving out a very large segment of renters.

And I would also kind of say it's a cyclical point. This is really the point in the cycle where you want to add more subsidy to multifamily development. I mean, again, part of this is separating out the trends from the cyclical component. and multifamily. And I'll also say as an aside, and this is more my experience in government, I really don't like spending through the tax code, partly because you've kind of hardwired it

and you've said it, you made it much difficult to change. And at the end of the day, our country's needs change from year to year. Who am I to say that next year, the marginal dollars shouldn't go to education or healthcare? So why, you know, when you lock it into the, tax could you reduce flexibility? And I like to have flexibility to address the ever-changing

needs of our country. Whoa, there's a lot to unpack there. That's a whole other like podcast. Holy cow. But Chris, any reaction to what Mark said? Any piece of that you want to tackle? I'm sympathetic to much of you. There are a lot of academic studies. I recall, They were early 2000s when I was reading them, but I'm assuming they're still valid. That showed that there's a large substitution effect with Litech that you just are substituting a lot of private investment for the subsidized product. So, you know, I think there's certainly something. I don't know you were a Cato kind of guy, Chris. Just what the study say.

Just realist. I'm not against. I'm not perhaps as I. against providing subsidy. I just don't know that this program is as effective as it's made out to be. Well, I make a political economy argument that is, look, no policy is perfect. All policy has unintended consequences, issues, whatever, things that mitigate the effectiveness of the policy.

But in the current context, tell me what we should, what better solutions? do we have to address what I consider to be a crisis with regard to affordable rental. You know, people, that's part of the reason why homelessness is such a problem as it is today. The cost of renting is just out of bounds for many American households. We need more supply. Yeah, sure, there's going to be some substitution. And yeah, you're right. It may cause land prices to rise in certain parts of the country.

But LITECH is coast to coast. It's not just California. It's not just, you know, of Florida. It's rural Texas. It's, you know, all over the country that we need the housing. And to your point about tax subsidies, most tax subsidies, including the one that's in this piece of tax legislation that we're debating now, expire. And you get a debate.

You come right back to it. Right now we're back talking about R&D tax credits. We're back talking about child tax credits. And there's no guarantee that it's going to be passed. And in fact, these things have been delayed to pass it. So this is a, you know, a very good way of reevalue. you know, what kind of policies you need? So, yeah, I mean, there are elements of the tax code that require as I permanent.

There are some that come up pretty regularly and generally that's driven by scoring issues and what Congress needs to do at the moment. But first, let's, you know, I am a glass half-full guy. And so let me start out with, you know, I've really been heartened by much of the conversations in many states and localities about dealing with restrictions on supply. because ultimately it's extremely hard for Washington to fix this problem because supply constraints. And so what's being done in Montana, you know, what's being discussed, what's been done in Minneapolis, what's being discussed in California and some of the changes that have been made.

And so as Chris Ray may remember, I mean, 25 years ago, it was only a bunch of economists talking among themselves about, you know, zoning and supply restrictions. And now this is a mainstreamed conversation. and you're not just a mainstreamed conversation that has entered general consciousness, but has actually resulted in legislative changes in a number of localities. And if you don't fix that, I mean, I do worry that a lot of Washington responses, you know, you have a hammer and therefore everything looks like a nail. And much of Washington's housing policy infrastructure was created during the Great Depression

to deal with perceived demand its effect. efficiency. And that's, and again, if you have policies that you think are there to manage aggregate demand in an environmental fixed supply, you get inflation. And so I am optimistic in that we've really seen these conversations and policy changes at the local level. Unfortunately, there's been backlash. I mean, you see places like Austin that are moving in the wrong direction because Texas has been such a magnet for in migration. But you also see, you know, again, some who's been following these issues for 25 years, the conversation in Washington has much more a land use component and part of the discussion than it did 10, 20 years ago. I think that's a positive.

So you got to deal with that issue. As I mentioned, like, you know, for instance, one of the more successful programs. So again, this is not a Cato everything bad. It's more a, you know, what's least bad, if you will or what's most impactful. I actually think the way the home program works at HUD is the right model because it allows you to do development. It allows you to do vouchers. It allows you to pay security deposits. It really has a tremendous amount of flexibility. And, you know, as you know, a significant amount of the tax credit program does go for rehab, which is useful for some markets. And it really is just, you know, I come from the place of, this is all the location driven and many markets do have supply constraints.

Not everyone do. Many markets, they won't support the density that's normally required, you know, the rural Texas, as you mentioned. So I would rather, you know, again, even if you spent the exact same amount of money, I'd rather see go through the home program because I think that gives more flexibility. Yeah, I hear you. But the political dynamics. Yeah, on the demand side, I, particularly in the current,

context with the supply in my view supply curve is using your language very inelastic for lots of reasons that are hard to address but we got a housing problem right now but i don't i agree we shouldn't layer on top of this inelastic supply curve juice to demand that would be you know that's all that does and this is one reason you know i mean i have been you know critical of some of the other you know we have I've seen record construction in, you know, manufacturing many around chips and other facilities, but that competes directly with the labor you're going to need to build housing and other infrastructure. And so we, you know, we have to make choices about whether this is the right time to build what. And, you know, of course, you know, you lost a lot of construction labor during the

2008 crisis. I like to think I'm doing my part. My nephew is working on his journeyman's plumbing and is out there. We need a lot more of them. And I think that needs to be part of the conversation. I guess I should preface with, I know at least you and I and maybe, you know, the other two as well. But I just want to kind of weird a guy with the PhD say, you know, we need more people not going to college and more people going to vocational school. But we do. We do. We do. And those are important parts of the economy, you know. So that's kind of, you know, but the overall, I agree that I think we have a housing affordability crisis in most of America, and it's just really how do you address it?

Yeah, I want to move the conversation forward a little bit and get to the FHFA when you're running the show there. Before they do that, just one quick question, and this may be outside your remit. Absolutely. Have you thought about what's going on with the inflation, the growth and the cost of housing services. You know, there's, if you look at last month's inflation report, CPI report, there was a large increase, outsized increase in owners' equivalent rent. That's the cost of home ownership. So I've long been of the view that the Fed should respond more quickly. I mean, because the housing

generally enters, enters with a lag. And the Fed is almost always responding to a housing. And you remember, we had these debates about should the Fed. Now, every 15 years we debate whether the Fed should care about asset prices. And I can remember the Greenspan response was always, well, if this is a real concern and eventually show up in CPI and spending. But the problem is that lag ends up, in my opinion, meaning that the Fed kind of responds to housing at the wrong time. And so I would have had the Fed respond quicker. To be frank about it, you know, the Fed should have stopped by an MBS by the fall of 2020. We were through the disruptions in the MBS market that happened in the spring of 2020,

which I talk about in my book. And by the time you get to August, September, to me, there really just wasn't a strong justification for the Fed continuing to juice the mortgage market. That's my view. That obviously was not the view of the Fed. I expressed that view to the Fed. And so I think, again, we would be in a better spot today if the, the Fed. Fed had a more real-time ability to react to housing rather than with the lag that they're

currently stuck with. The tension I have is, you know, there are people who seem to say, you know, whose position seems to be that the Fed should never react to housing. Like, you know, ignore it on the front end when it's inflating, but oh, it's a lag now, so ignore it now. Well, okay, then just say you think that the Fed should always ignore housing. To me, housing, you know, consumption out of housing wealth, these are important. transmission vehicles. In fact, I would go as far to say, I think housing is the most important transmission mechanism for monetary policy. And it's the one we need to take most seriously. Yeah, no, I would agree with that. Okay, let's turn back into history. And when you were

FHFA director, again, the regulator for Fannie and Freddie and the federal home loan banks. And we're going to talk about the federal home loan bank system as well, because that's come under some criticism. them. And roll the history books back to the teeth of the pandemic, obviously a lot of turmoil at the time. And you took a kind of unpopular position on all this. Maybe you can just just break that out. And the book starts January 2020, but the thinking behind the book really goes back to, you know, I was staff on Senate Banking Committee in 2000. aid. I had oversight for the mortgage programs. And it really, I believe the book is largely, you know, nonpartisan. I mean, I was at the time very critical of both the Bush and Obama response. And, you know, for those who remember the programs like HAMP and HARP, I mean,

to me, they weren't really, they weren't transparent. I didn't think they were fair to borrowers, lenders are the taxpayer. You know, and so I spent a lot of time in the 2000s thinking about, boy, that stuff didn't work well. If by chance I'm in the position of being responsible for this stuff, what would I do differently? And hence, we did it differently. And I do think that the response to what could have been a housing crisis in 2020 was because we made different policy choices than what was made post-200A. And so let's take a couple of pieces. First, it was how did we deal with borrowers. And very much on the front end, I had these what I call the paper chase kind of scars of post 2008 where you remember, you know, borrowers would have to file and the paperwork will get lost

and maybe somebody wrote something wrong to lender, whatever. And it just took forever to get people in programs. And so I immediately looked at this and said, it's a pandemic. We can't set up a system where it takes five to six months to get somebody in. And we also, you know, And it's a real tragedy that this isn't really being fixed. But our unemployment insurance system in America is kind of a mess. Even if you get unemployment and which only about half of workers tend to, you know, it still takes you maybe two, three, four months to get it. So part of our thinking was, you know, how do we build a bridge?

You know, how do we help people immediately deal with a liquidity shock so that maybe three months later when they get their unemployment check, they can start paying their mortgage and get out. So in some sense, and there's still debates today whether 2008 was a liquidity versus solvency event. I think we had somewhat the benefit in 2020 that it was very going to be clearly for some households a liquidity event. And this was, you know, how do we get you to the other side, whether it's the other side of the pandemic, whether it's you're getting your unemployment insurance.

The other thing I think that was crucial. Just to make that clear to the listener, liquidity versus solvency, you're making the point that their incomes are disrupted because they can't go to work. But it's not like their home value is underwater. You know, their mortgages are worth more than their housing value, which is what was the big difference between the pandemic and the financial crisis. Yeah. Are you also think during the financial crisis where, you know, you're a carpenter whose career is, you know, suddenly not worth what it was because we're not building housing in the same way. So there could be human capital that has appreciated, if you will. So there's a number of reasons where this was clearly different.

And so we structured it differently. Now, there was a decision, you know, and this is actually something I called kind of the Casey Mulligan effect after Casey Mulligan at the University of Chicago. And Casey came out with a wonderful, if not extremely dense, difficult book to read his redistributed. It's just redistribution recession on 2010. where his argument was, particularly the mortgage programs, had very high rates of implied marginal tax rates. So Harpenham, which were the primary Bush Obama mortgage programs, they were designed so that you got 31 cents of mortgage relief for every dollar of earnings. And of course, the flip side of that is for every additional dollar you earn, you lose 31 cents.

And so Casey went through and added all the other things like benefit loss, tax loss. And there was actually a significant amount of the population that faced marginal tax rates in terms of lost benefits in excess of 100. So it's like, you know, we sometimes have these public debates about people being lazy when, no, I mean, if you're losing a significant amount of additional earnings, that's a huge work distance out of. So the relevancy here is, A, to be able to facilitate getting people in quickly, we weren't going to means test.

And I'm generally a proponent of means testing. But we said, okay, we're not going to means test, and we're also not going to set eligibility based on earnings. We're going to set it on time. Now, admittedly, part of this was when we still thought, you know, 15 days to flatten the curve type world. Yeah. Of course, it turned a little longer than that. And so it really was, you know, we're just going to get you in. We're going to take your word.

The initial design, I'll remind folks that what we set up was about three weeks before the CARES Act. And the CARES Act made some minor changes, some of which ended up being. important, but the original design was we'd get people in and three months later, we would check on them. Have you gotten your unemployment check? Have you gone back to work? Of course, CARES Act got rid of the comeback and check. So we really were trying to design something that was incentive compatible that got people in in a way. We're easy to get in, but tough. Like, we expect you to pay everything back. We also created carrots to get people out. So for instance, normally pre-pandemic, if you are in a Fannie Freddie forbearance or any type of mitigation,

you have to make 12 on-time monthly payments to be able to eligible refinance. So what we did was first we said, if you have been in forbearance program but you paid the whole time, which was about a fifth of the program, a lot of people just took it as an option. We said, you know, once you exit the program, you can immediately be eligible to refinance. And then for those who missed a payment, we reduced that 12 months to three. So obviously given those record low rates in the second half of 2020, this was a really big carrot. You know, when a lot of people took that, I will say one of the really surprising things to me, the rather large percent of people who were literally sending us a check for three, four months missed mortgage payment.

So a lot of people got out of that. And I'm proud to say that by the time I left, I think only over 90 percent of the people who had entered Fannie, Freddie Forebairns, an accident. But let's pivot this to the more controversial because there was some, because we were providing an option. No one, no one, I mean, that seems all very reasonable. Exactly. Exactly. Okay. That's the setup for the controversy. Got it. Got it. Thank you. I appreciate the recognition of that being reasonable. And I do think you reasonable. We disagree on many things, but you, you are very reasoned in our, I find our disagreement's very reasoned. At least your argument's very reason. Thank you. Thank you. And I, and I think I largely understand, you know, most of the

time where we disagree, which again, that's a, that's a compliment because it means you're being transparent generally about your assumptions and your model. And so when in a forbearance, obviously the borrower is not paying. So under our existing mortgage programs, the investor still, well, first of all, the investor still wants to get paid and generally does get paid. So the responsibility of the mortgage servicer, and for those, not for me, you're, you know, the mortgage servicer is basically the one who collects your check and sends it to the investor. Or, you know, if there's a foreclosure or some sort of mitigation, the servicer is the one who touches the borrower, if you will.

So the servicers were still obligated to transfer the investment, the payments to the investors of the MBS mortgage bexed, even though the borrower wasn't paying. Now, I do want to emphasize because I think this was a point of misunderstanding at a minimum. The contracts that Fannie and Freddie Havis servicers are very explicit that this is supposed to be provided even in times of extreme distress. So it is we are paying you to do this even when stuff gets bad. That's part of the contract. And so a number of people do servicing.

And in fact, servicers often have the choice of whether Fianney and Freddie take over that responsibility. So the servicer can choose to pick contract A or contract B. Contract A essentially says, okay, either servicer, I'm going to make less money now because I'm going to share a little bit with Fianney and Freddie, and they will take over the servicing obligation in the event the event the bar doesn't pay. And then contract B, which is more lucrative on the front end, the servicer takes that risk. And again, servicers knowingly make this choice. And so because a lot of the servicers were non-banks with very thin balance sheets, there was a real concern by a number of them that they would become under distress by having to make these payments on behalf of borrowers.

There was a movement to have the Federal Reserve create a 13-3 facility to provide short-term liquidity. There were calls to have Fannie and Freddie provide short-term liquidity. And none of that ultimately happened. Now, there were different wrinkles. A, we weren't able to do it for Fianney and Freddie because Fianne and Freddie themselves barely survived COVID. I mean, I think this is something that's underappreciated.

They really came within a hair's breadth of failing because of the cost of the forbearance, the cost of- Failing in the sense that- The capital they had at the time. Would have been, and they didn't have much capital at the time because they had only begun to build. You had only started building capital.

So we made considerable progress in that in April 2019. And Mark, on that one, though, I mean, at the end of the day, they're under government conservatorship. It's not like they would. It does not mean, you can become insolvent and you can have losses. I mean, there's no way they would have stopped functioning, though, right?

I mean. Perhaps not, but there is a, way that you could have potentially seen creditors take losses, you could have vented a receivership. I mean, that there are, it's not something I think one should take lightly, but is importantly, FHFA has no statutory responsibility toward non-bag servicers. Don't regulate them. And so if you think about, you know, you kind of have a waterfall of responsibilities. And your primary one at FHA is the safety and soundness of the companies you sacrifice. So I would go as far to say, if you put Fannie and Freddie at greater risk in order to benefit non-bank services,

you would have been derelict in your duty under the statute. So for me, it really just wasn't an option because we didn't have the money to do it, which to me, I think, is a compelling reason why the company's ultimately deemed to be fixed. So I'll remind you that the FHMA director actually has zero, say, under whether the Fed creates a 13-3 facility for anybody. Sure. And so I think some of the reason that there was some pressure put on me was that Mnuchin was regularly consulting me and what we were seeing, as was the Fed. Treasury Secretary under President Trump at the time. Yeah. And so we were regularly having conversations with the Fed, you know, Brainerd at first, who's currently NSE director, but was the

governor at the Fed who was in charge really in the mortgage issues at the time. I've been on the phone pretty regularly with brainer. We gave them regular updates. This is what we're seeing. She made very clear to me that they had a facility at the Fed setup and ready to go from organ servicers. And they simply needed the Treasury Secretary to give the sign off. Now, of course, you have to keep in mind as well that, you know, Mnuchin had come out of, you know, he had worked in MBS training at Goldman. He had run a bank, you know, bought in the Indy MacNet. You know, so he had a considerable amount of experience on the mortgage market and considered himself rightly so to be well informed.

So needless to say, however, I think Minutian stance was more, well, we're not going to do this, but I don't see the reason to tell anybody we're not going to do this. And I think this is where he and I parted on that where I felt it was, you know, I'm more from the school that markets perform better, particularly in periods of stress if policymakers provide more certainty rather than less. You know, and also as I kind of call it, and I recognize, I'm very much in the minority to try to take this lesson away from Lehman. But my Lehman Brothers lesson is that if you lead an institution to believe it will be rescued,

it will not take the appropriate actions to avoid that. You know, for instance, we know Lehman had at least three different offers to be bought. And every time the response was, we won't take less per share than what Bear got. And the relevancy here, for instance, is there were two rather large mortgage, non-bank mortgage servicers who had private equity parents. And I'm actually rather pro-private equity. So this isn't a knock on private equity. But the private equity parents had in 2019 pulled literally billions out of these platforms. And that's fine. Investors get to take their money out. But when these private equity investors essentially came to Washington and said, we'd like you to create a

liquidity facility to take care of our platforms, our response was, we think you should put some of your money back in. And below and behold, they did. And that's. and those platforms have value today. And I think they only really did because basically I had relayed the Fannie and Freddie to these private equity investors. If your platforms fail, we can and we'll transfer the servicing to somebody else. And therefore, the value of your platform is gone. So again, you know, this is capitalism. You take the upside.

You take the downside. And they were willing to do it. I mean, it might be an unusual case that I suspect they were sitting around the table off and saying, you know what? I think that Collabia is crazy enough to do it. So we better put money back in. And it may not work. Other people might not have that kind of stuff. Like the same crazy credentials that you need. Yeah. Well, you know, there's a, you know, I encourage you. There's a 20-some year old paper by Rogoff called, you know, the case for a conservative central banker. And it's really about,

like, how do you establish a credible reputation to be tough? Yeah. And I think that's often lacking in Washington, because you are, in a sense, trying to solve a prisoner's dilemma game with the predators. So it's interesting. You're saying under statute, your interpretation of the statute, the GFC could not compel the GSEs to step in and provide liquidity support to the non-banks. That really was on the Fed. On the Fed. And they needed. Congress and or Congress. And they needed buy-in from the Treasury to do it. And they were just kind of sort of waiting.

And the real disagreement that you had with the Treasury Secretary was over just how to articulate this to the marketplace. You know, I see. Yeah. Yeah. So they needed Treasury to sign off. He was not inclined to sign off. You know, again, to me, I understand the dynamic. I mean, we all have decisions in our own.

life where we feel saying nothing is the path of least resistance. And that was his approach there. But again, I felt that I was willing to take public criticism. You know, I mean, there were, I mean, I, you know, one of the fun parts of the book was going back and rereading all the kind and generous things that were said about me in the press at the time. You know, I mean, the financial times is claiming I'm going to cause a meltdown in the entire economy because we do this. And part of the reason to relay that is, you know, I very much understand. what it's like with your policymaker and 95% of the phone calls you get are throw money at this problem. Right.

You get very little, you know, you get very little input from the other side of like, well, maybe we should. And again, I do emphasize our approach is very data driven. So at the time in March 2020, there were 346 non-bank mortgage servicers that Fannie and Freddie did this business with. I had their income statements. I had their balance sheets. We immediately jumped on the phone. It's a concentrated industry. We jumped on the phone with the 30 largest.

We said, look, I've got your financials. What has changed? And so it really was, we're going to take a data-driven approach to this. We're going to see where the stress is. Every morning during at least the first six months of the pandemic, I received a service or watch list. And we were in constant conversation with those who we thought. We also, during these calls, we're regularly updating.

had a running sort of tally of what we thought servicer transfer capacity was. We would call people and say, if we need the transfer of some servicing for someone else, how much can you take? And, you know, we were kind of comparing these circles of, you know, supply and demand, if you will, and trying to manage that in a way. Certainly, that was more work than just creating a liquidity facility and rescuing people. I do think there was a degree of, I mean, A, I think the industry, felt that everybody else was getting a rescue and therefore why were they being excluded.

And to the credit, you know, one CEO in the mortgage industry said to me on a phone call, he was like, Mark, we were just hoping you would be a voice for the industry. And I said to him, you know, I'm an arm's length independent regulator. You have lobbyists. You pay. That's their job. And, you know, I'm guessing at the end of the day, though, just to push back and not even a pushback, just an observation, that there was so much support provided to the economy that

ultimately supported the housing market, you know, all the checks that were cut, all the other support, you don't have to pay your credit card bill. If I could preempt to where I think you're going with this, because I know you and I had very different, had very different public estimates of forbearance. Right. And this actually ended up being a lucky coincidence. So I had hired Lynn Fisher, who I think you know, and she crew, and we had stood up our, you know, I'll say as a shocker, when I walked into FHFA, there was no housing market, housing price forecast function. They completely relied on whatever Fannie and Freddie told them. And again, you know, the primary risk to Fannie Freddie and the federal bank is fundamentally macroeconomic and housing market. They did none of that. There was no separate research division. So we set that up. We opened the doors to our new research division, you know, January 1 on 2020. And where I'm going with this is we went and back forecast. Like, you know, what do we think forbearances will get up to based on unemployment? And it's, we forget. I mean, I know there's a narrative. And I'll be frank, I strongly disagree with this narrative that somehow we didn't do much or do anything. post-2008. My view is we spent a lot. We spent it poorly. We created lots of misincentives. We expanded unemployment insurance. So the point being is that, you know, the argument of

we got our estimates right by luck because a lot of assistance was provided, the response for me is that those estimates were based on the assumption of lots of assistance being provided because they were historic backcast on periods in which lots of assistance was provided. I do recognize we did provide more assistance this time around. A lot more. I mean, like orders of magnitude more, like 25% of GDP more. I mean, that's a lot more. So I would say it's certainly a tough empirical question.

You know, I think it's probably fair to say, you know, like, you know, our internal numbers, I mean, we really, so, you know, first I'll phrase it this way. You know, I was asked a third week of March 2020 by Diane Olegs, how bad do you think this is going to get? And I said, you know, by middle of May, I think Fianney and Freddie. C&BC, by the way, that's the housing person on CNBC. And even though, and I'm sure you've experienced this, my econ team was probably having heartburned. They were probably saying himself, don't give an answer.

But I gave a date and a number. And I said, you know, I think by middle of May, we're probably going to peak around 6% for the Fianney and Freddie book. And of course, FHA and other parts were much worse. And the Fannie Freddie book did actually peak middle of May at about 6.7. So not far off. But that was our median estimate. And we really looked at this and said, you know, our 90% confidence interval is maybe 15% tops.

And so for us, you know, we were prepared to act if it got worse. We really weren't seeing things that would suggest that it would get to 30, 40. But, you know, again, we were clear the whole time. If it gets worse, you know, we will change the stance. But from, you know, we did a lot of data analysis on this. I do want to emphasize, I think there's a sense of people just thinking, you know, Marks and, you know, collaborates and audiologue is pulling, you know, just pulling numbers out of hats. No, there was a, there was a lot of analysis put into this.

We looked at the range of outcomes. We looked at historical experience. You know, and I would say at the end of the day, I think the programs that we, enacted, you know, if you kind of try to figure out a way to split, split this, I'd probably say maybe 40 or 50% was driven by the extraordinary assistance given relative to other prices. And that, you know, the rest of it was within historical norms. Well, I highly recommend the book. I really enjoyed it. I think you actually took a couple of my quotes.

I thought it. As I recall. I hope you fair, feel it was fairly appreciated. I mean, obviously a lot to debate there. But let's, because we're running out of time, I promise we keep this to an hour. And let's roll, we took kind of like a historical perspective. Let's like look forward now. And there's two things I want to quickly bring up. One is around going back to the non-bank mortgage industry, the folks that, you know,

you had a lot of pressure to bail out. There's still the dominant force in the mortgage finance space. there are 80, 85% of the loans made by Fannie and Freddie and FHA. I want to get your a quick sense of the risks there. I mean, there's a lot of concern, still concern. As you said, they have pretty thin balance sheets, as you said, very little capital. Is that something that we should be worried about, you know, going forward?

Is that we should be worried about? And I'll say, from what I saw, counterparty risk management, you know, via the Fannie and Freddie Lent. I mean, a lot of these non-banks are, you know, bundle of contracts relying on outside vendors and subservicers. And it's not, I mean, I'm not knocking on them. It's not something that should give you a tremendous amount of comfort. But that said, you know, I will say, I think we've got the abilities to deal with, like, I mean, we were lucky that we didn't have a number of them fail. And as I mentioned in the book, we dealt with DITEC failed in the fall of 2019.

we had just come through dealing with a large service or failure. So in Phine and Freddie have dealt with service or failure in the past. So this wasn't something that was untried. The question was, would it be en masse? And we never, that's the difference is looking at the balance sheets. They were maybe at half a dozen riding the line. And again, right in the line, you know, there was never any evidence that you would have dozens go down.

And that's a different animal. And so I think that's the question. I think, A, the system can handle the failure of one, two, three large non-bank services. Can the system handle the failure of 20? And that's a separate set of questions. And of course, there have been counterparty standards that have been put in place. I know you and others have suggested perhaps giving them access to the federal home loan banks. What are the starting points that I come from is that, and again, I'm not anti-non-bank.

I think it's been often misinterpreted by the industry. We had started a working group among regulators in late 2019 that unfortunately the pandemic kind of swamped, where basically mortgage bank reform working group. Because you can't just fix this from the Fannie and Freddie side. There are a myriad of reasons that depositories have left the mortgage business. Of course, though, it's important to you mind. Depositories do as much servicing as the non-banks. And of course, they're not facing liquidity pressures either because they have access to federal

home loan bank advances in the discount window. And of course, as COVID started going, they had record inflows of deposits. And my approach is rather than throwing our hands up and saying, well, we'll never going to get depositories back in the mortgage market in a big way, I think we really need to address the problems that have driven depositories out of the mortgage market. I don't think that's a healthy. So rather than just expand the safety net, I'd rather look at issues that are... To produce their share, get the banks back in lending. Yeah, and again, it's not...

Because at the end of the day, we actually haven't driven the banks out because, as you recall, almost all of these non-banks function with warehouse lines of credits for these very same depositories. Yeah, exactly. So, you know, we've created this complexity. Now, I do want to, you know, for the listeners, give a plug. You know, you and Jim and a couple of your colleagues, Jim Parent, have written two, you know, wonderful papers on the federal loan banks.

system that there's much I agree with. The part I disagree with expanding the footprint, but I want to emphasize a couple of points because I think... In that case, just to make it clear, under certain conditions, right? I mean, big conditions, yeah. Absolutely. So there's a couple, and these papers are both published by the Urban Institute and people can find them on the website there. A, one of the critically important points that you make in that paper that I fully agree with is that the purpose of the federal homeland bank system is to be a provider of liquidity in a stressed environment. And a point I'm making the book is that's exactly what they did in March 2020.

You saw advances increased by 30% before the Fed or the Treasury did anything. So it's a much quicker advanced network. The federal home banks worked as they were supposed to work in COVID, and they did it correctly. And coming from me, that should mean a lot because I'm not one to applaud. It means an awful lot. Yeah. Even Chris doesn't agree with that. So that's great.

The part of the debate, I think that that's missed here is somehow the debate has raised these questions about, well, you know, why are they doing is lender of last resort? And I'm like, the federal home loan bank system was created to be a lender of last resort. Of course, to thrifts who could not access the federal reserve system. And that's no longer the case. So on one hand, the original purpose of the federal home of the bank system is no longer with us. but the statutory design and during my tenure I repeatedly said to the bank says like

your primary existence is because you're going to supposed to provide liquidity in times of stress don't do anything to screw that up that's repeatedly what they heard from me and so I am puzzled by the conversation that's moved toward well you know they're not supposed to be

lenders of last resort I think this is primary being driven by the Fed but yeah the statutory history the statutory language all says actually that's why they were created. I'm like, we are so in agreement here. Oh,

that is so cool. The other thing that I think that I really love that you guys did, because I've said this repeatedly, so it was nice to see some math here. You know, people have, you know, pointed to Sovergate and SVB. And, you know,

and it's a case of, well, I can say survivorship bias, but perhaps it's non-survivorship bias. That's really, people aren't asking the question of, What about the depositories that don't fail because they got advances? And I really like the fact that, and I've said that repeatedly to people, I like the fact that you guys put that in, you put some numerics behind it.

You put a logit regression behind it. But to parse that out that I think is important where I would take the reform. I don't know if you notice Chris is smiling over here. I don't know. So I mean, I enjoyed the, I haven't run a logit in quite a way and over a decade. Yeah, yeah. I like the way the paper was done, partly because it did confirm my priors, which is always helpful. And so there are two, you know, a couple elements of the paper that I thought were also important to me.

A, the, the, that what really matters for banks is the increase in liquidity in terms of stress because that reduced the chance of failure. But on the other hand, banks that relied on federal home loan bank advances. Essentially, it's day-to-day liquidity management had higher chances of failure. Again, reinforces my point that the banks, I mean, in fact, all the GSEs, Fannie Freddie the federal banks really are created to be countercyclical. And the problem with them is over time, they've become more pro-cyclical. So the conversation really should be, how do we get these entities to be more counter-cyclical?

And then the other point I think is important that I take away from that paper is that the liquidity for a stress environment is really important for the small institutions and not as much for the big institutions. I'm aware of the debates about, you know, wells and chase, you know, pay the overhead. But to me, I think it's a reasonable part of the conversation of how concentrated the advances are among the wells and chases, whether that's really an appropriate outcome for the system. So I would quite frankly probably throw anybody over $10 billion, I would probably throw out of the membership. It was up to me. Again, it's up to Congress and really have it focus on small institutions. And then I don't want to open up a whole debate, but just as a reminder,

you know, the implied guarantee is not something that Congress ever intended or gave to the banks. It's something that market expectations have created. And I worry that part of the conversation about the federal home of the banks takes this view of, here's this subsidy, how do we distribute it more equitably with the fact is that was never a subsidy that was intended. Of course, the tax relief and other things are intended and provide subsidies. And so rather than increasing the affordable housing contribution, honestly, I would get rid of it all together and I would subject the banks of the corporate tax code and they pay into the general fiscal like everybody else. Because I'm not really a fan of earmarked off budget spending. But fundamentally, my worry is

that the conversation takes the implied guarantee as something to be spent. And quite frankly, if you think about it, the value of the implied guarantee is a function of the probability of failure because the implied guarantee only has value to debt holders if there's a failure. And so to some extent, the larger the implied guarantee is, by almost definition, the worst job the regulator must be doing. Because your job as the regulator is to try to minimize the outcome of failure. So I was a little disappointed that the conversation doesn't really focus on, you know, how do you reduce the probability of distress in the system, which therefore reduces the implied guarantee?

And lastly, I want to say, since I know we're going to have run time. As you recall, I worked on the statute that created FHFA. Congress very clearly intended both Refereyne and Freddie and the federal home banks to minimize, if not try to reduce the implied guarantee. And I feel like the debate's gone the wrong direction on that. But I really do recommend those two papers, I think, are very well done and raise important questions, even if there's some areas I disagree with. I think they raise some core questions that I don't see being raised necessarily by others in the debate. Well, I want to thank you.

I want to say two things. One, thank you for that. That was very kind of you. I came prepared to have a big debate about the better home loan bank so that you completely took me off guard. I didn't know what your views on that were, but I was expecting that you had a different perspective, but that's good good. I mean, maybe to confirm your priors, if we didn't have the federal home loan banks today, I wouldn't create them. But we do.

Okay. So how do I deal with the current mess? And that's fair. That's fair. I mean, I have this kind of metaphor in my mind that the liquidity system in the financial system is basically this complex rubriced. of plumbing, you know, pipes going everywhere. And if you try to pull the pipes out at this point, you're just going to create a real mess. That's why to me, I think you trim the system, like, you know, Wells and Chase are going to be fine if you could come out of the system.

You know, and I do think while my, you know, first best preferences, you know, I guess I put this, you know, as a reminder, a third of banks have disappeared since Dodd-Frank. Of course, some of its merger and there were trends in declining. And it gets back to the earlier part of our conversation. One of the real problems in the housing sector today is the difficulty of getting acquisition development construction lending. And I'm not knocking on the big guys, but this is primarily a function of community banks, regional banks. And I really worry that the consolidation and the disappearance of many community institutions in America has reduced the availability of construction development landing. And so to me, the rationale for the system,

it's really a second best argument, if you will, you're trying to use liquidity provision of the system to offset what I think have been policy changes that have made it much more difficult for community banks to survive. But you can trim the system by eventually getting rid of the big guys and being focused on community institutions. Yes, that would probably push some consolidation among the federal home loan banks so that they could cover the overhead better. But there's really not, I mean, you know, this question came up, I think on my first day from some of the bank presidents. Well, what do you think about consolidation?

I'm like, you know, I got, I get 10 other problems that are bigger to deal with. I got 1,000 to one leverage Fannie Freddie. Guys want to merge. I will be your partner and help facilitate it. If one of you fails, there's certainly going to be a merger. But at the end of the day, I raised that to say. say, you know, 11's certainly not the right number. I mean, the system is too fragmented for efficiency. You know, I think it's a really hard political battle for the regulator.

Because obviously, whatever city loses, you're going to hear from their senator. So it's not an efficient system the way the geographic layout is today. I think that's right for reform, but I also think it might not be worth the political trouble you have to go through. we didn't even get into the fact that half of my conversations by, you know, minutes with the board's management were about their executive compensation. And so there are problematic practices at the bank. There are safety and sound as concerns. But the point about, you know, these are functionally supposed to be providers of liquidity to community institutions in times of stress is at 100% right. And that's really where most of the debate should be.

Well, we have the fall, given that all the what you just said, we have the fodder for the next time we have you on the podcast, because there are a few things I'd like to take you up on. But we need to call it a podcast. I will say we were really deep into the weeds here. So some of the listeners probably may have had some difficulty following along, particularly on the federal homeland banks. But I would say you might want to go back and listen to the podcast we did with Teresa Baysmore. Teresa is the president of, I think president's the right word. Or of course, the listeners can read the papers you've done. Yeah, exactly. They're very accessible. And, of course, they can read my book. So it's all out. There you go.

All there. All there for you. And, of course, if you have questions, you can fire away too. Listener, you know, all ears. We'd love to have the questions. Mark, I want to thank you really, very informative. And as I said, you really lay out a, you know, very cogent, reasonable case. And I really appreciate your clarity and transparency.

And with that, we are going to call this a podcast, dear listener, talk to you next week. Take care now.