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November 24, 2025  | A very safe and happy Thanksgiving holiday to all of the readers of The Institutional Risk Analyst . Our new weekly collaboration with Julia LaRoche has been a great success.  And we have a lot of mail from viewers, which we will be addressing each Friday on “ The Wrap with Chris Whalen. ”  In this issue, we ponder the increasingly difficult circumstances facing Federal Housing Finance Agency Director Bill Pulte , who reportedly is the target of a federal grand jury probe . And below we look at the latest stealth capital increase for nonbank issuers in the conventional loan market coming from the GSEs with the apparent blessing of Bill Pulte's FHFA. Readers may recall that Director Pulte publicly attacked us on X a month ago for suggesting during an interview on Bloomberg Radio with Tom Keene that he was preparing to increase net worth requirements on independent mortgage banks (IMBs).  And, as discussed below, we were right.  In fact, the staff of the GSEs began to notify issuers this past summer that IMBs would be required to subtract parent company debt from the capital of the licensed seller/servicer if the latter had provided a guaranty on the obligations of the former. Now why, you may ask, would the operating unit of an IMB issue a guaranty on the senior debt of the parent?  The use of a guaranty for parent debt of IMBs was first employed a decade ago to get a better credit rating on high-yield debt and thereby a cheaper cost of capital on the borrowing. But does the fact that the licensed seller/servicer inside of an IMB has issued a guaranty of performance on parent company debt matter to the GSEs? Nope. These guaranty provisions of many nonbank debt deals were mostly decorative and served as a means to get more support from institutional investors. Today the mortgage industry has established such a strong position in the bond market that most issuers do not even need to employ such affectations. In fact, IMBs have been using similar structures going back a decade to the first bond transactions by PennyMac (PFSI)  to finance mortgage servicing rights (MSRs)  The issuance of unsecured term debt diversified IMB capital structures away from fickle bank warehouse financing and greatly enhanced the stability of nonbank issuers and the conventional market. The fact of a performance guarantee by a licensed seller/servicer for parent company obligations has no effect on the solvency of the issuer, but the risk managers at Fannie Mae and Freddie Mac do not seem to appreciate this little nuance.  If the debt obligations of the parent company were unsatisfied, would the operating company inside an IMB make the payment and thereby reduce its net worth? Nope. But ignoring this reality, the risk managers at the GSEs decided to mimic federal bank regulators and impose onerous new capital requirements on IMBs. Even though issuing term debt has been a huge credit positive for nonbank issuers (and the GSEs as well), Fannie Mae and Freddie Mac wanted to flex their bureaucratic muscles. But here is the big question: Did FHFA Director Bill Pulte even know or understand any of this last month he went after us in front of tens of thousands of people on X? Probably not. The GSEs had indicated that “guidance” on the new capital rules for IMBs would be forthcoming in December, but once word of this unwelcome initiative reached the Trump White House, the proposal was apparently dropped. We ran financial and corporate ratings at Kroll Bond Ratings a few years back, and wrote a number of research pieces about nonbank mortgage issuers , so we have some idea about such matters. But why did the GSEs even think about making this change? Because the staffs of both of the enterprises, says one senior insider, felt that the industry was getting their way too often on using complex financing structures, transactions that the staff of the enterprises often do not fully understand.  The provisions of most bank warehouse lines, for example, are far more stringent than the terms of the bond indentures in question. But the discriminatory treatment against IMBs by the staff of the GSEs evidences a more serious pathology, one that suggests to The IRA that the enterprises will never leave federal conservatorship. Ponder the question of whether Fannie Mae and Freddie Mac should retain mortgage exposures to help force down loan coupon rates, as we discussed recently in our column in National Mortgage News . Should the GSEs Buy Mortgage Debt to Help Affordability? Hedge fund mogul Bill Ackman , founder and CEO of Pershing Square Capital Management, recently proposed a plan for releasing the GSEs from conservatorship that delays an immediate IPO, instead favoring a three-step process to fulfill goals while keeping the conservatorship in place. But the biggest obstacle to releasing the GSEs from government control is the bureaucratic mindset of the personnel who run both enterprises.   For example, a number of trade associations in Washington – including the Community Home Lenders of America and the Independent Community Bankers of America, proposed that Fannie Mae and Freddie Mac buy conventional mortgage-backed securities (MBS) to help the mortgage market. But aside from the obvious limitations to such a policy , it is unclear whether either GSE could actually acquire and manage larger portfolios.  Would it help lower mortgage interest rates if Fannie Mae and Freddie Mac started to repurchase their own mortgage-backed securities (MBS) as well as the debt guaranteed by Ginnie Mae, in order to force mortgage interest rates down? The answer is no. Whereas the Federal Reserve Board does not hedge its purchases of Treasury debt and MBS for the SOMA , the GSEs would be required to hedge their portfolios, negating any benefit from the purchases. The chart below shows the percentage change in mortgage spreads c/o FRED. Loan coupons have risen steadily since Halloween, even as Treasury yields have fallen, but can the GSEs force mortgage rates lower? Nope. For every additional dollar of MBS and/or whole loans purchased for the portfolio, the GSEs would need to sell an equivalent amount in the forward market to hedge the price risk. Sad to say, the net impact of the GSEs buying MBS on residential mortgage rates would be zero.  The bigger question, however, is whether either enterprise could actually handle such a task operationally after spending 16 years in federal conservatorship. “The GSEs have not significantly reinvested in the infrastructure it would take to sell debt and hedge the portfolios on a larger scale,” notes one senior Washington observer. “It would take time and effort to rebuild that capacity, and given the extent of change in the executive ranks at both enterprises, it would take away focus from their other day-to-day priorities.” GSEs Seek Ban on Excess Servicing Transactions While the GSEs may not have the wherewithal to hedge interest rate exposures, they certainly are able to impose new restrictions on the mortgage industry. Indeed, in the past several weeks a new capital proposal has emerged from the GSEs, say several IMBs with direct knowledge of the matter. Again, this proposal makes no sense in terms of the stability of IMBs or the credit risk to the GSEs, but such arguments do not seem to impress the officials of either enterprise. The risk managers inside of Fannie Mae and Freddie Mac have decided that the capital contributions to IMBs from large institutional investors for excess servicing strip (ESS) transactions should not be counted toward the net worth for conventional issuers. An excess servicing strip transaction is the sale of a portion of mortgage servicing fees that are above the base amount considered necessary as reasonable compensation for the servicer's work and, more important, to support loss mitigation. Some of the largest issuers in the industry use ESS transactions to finance the purchase of MSRs. This is a stable source of equity capital to IMBs that is at least as effective as long-term debt and arguably more advantageous to the GSEs in terms of reducing counterparty risk. As with the earlier capital proposal, the details of this latest capital increase on IMBs are sketchy and nothing has been made available to the public or the trades. In many cases, the IMBs effected will be forced to raise additional capital to support the calculations for minimum net worth for conventional issuers – 25bp for conventional exposures and 35bp for Ginnie Mae vs the unpaid principal balance (UPB) of the loan – even though the institutional investors who participate in ESS transactions are often fully at risk by supporting purchases of MSRs. As with the abortive proposal to require IMBs to subtract parent company debt from the net worth of the licensed entity, the proposal to disallow ESS investments in the calculation of the minimum equity of IMBs by institutional investors is a short-sighted initiative that reveals a breathtaking lack of understanding of basic finance. Not only are investors in ESS fully exposed to events of default, but the cash equity capital contributed to the IMB is fully committed and cannot be withdrawn.  Keep in mind that when an institutional investor "participates" in an MSR strategy via an ESS transaction, they have no enforceable claim on the servicing asset. In most cases, the equity capital provided to the IMBs by large institutional investors who participate in ESS trades is actually in first loss position, providing both the GSEs and the equity holders of the IMBs with considerable protection. But such considerations seem to be unimportant in Washington, where housing policy and the financial realities of the residential mortgage market exist on different planets.  Does the Trump White House understand that the professional staff of the GSEs are preparing to roll out yet another capital increase for the residential housing market in 2025? Does Director Pulte understand that the changes being advanced by the respective staffs of the GSEs are being made in his name and with his apparent blessing? We suspect that the answer is no. In the past couple of months, Bill Pulte has advanced a number of ideas to help consumers with affordability, but this proposal to effectively ban ESS trades will increase the cost of mortgage credit to consumers. The proposal could also destabilize several large issuers in the process. It’s fine to talk about helping the housing market, but these latest changes being proposed by the GSEs for nonbank mortgage lenders are decidedly counter-productive and could increase the cost of mortgage credit to consumers. Happy Thanksgiving.     The Institutional Risk Analyst (ISSN 2692-1812) is published by Whalen Global Advisors LLC and is provided for general informational purposes only and is not intended for trading purposes or financial advice. By making use of The Institutional Risk Analyst web site and content, the recipient thereof acknowledges and agrees to our copyright and the matters set forth below in this disclaimer. Whalen Global Advisors LLC makes no representation or warranty (express or implied) regarding the adequacy, accuracy or completeness of any information in The Institutional Risk Analyst. Information contained herein is obtained from public and private sources deemed reliable. Any analysis or statements contained in The Institutional Risk Analyst are preliminary and are not intended to be complete, and such information is qualified in its entirety. Any opinions or estimates contained in The Institutional Risk Analyst represent the judgment of Whalen Global Advisors LLC at this time, and is subject to change without notice. The Institutional Risk Analyst is not an offer to sell, or a solicitation of an offer to buy, any securities or instruments named or described herein. The Institutional Risk Analyst is not intended to provide, and must not be relied on for, accounting, legal, regulatory, tax, business, financial or related advice or investment recommendations. Whalen Global Advisors LLC is not acting as fiduciary or advisor with respect to the information contained herein. You must consult with your own advisors as to the legal, regulatory, tax, business, financial, investment and other aspects of the subjects addressed in The Institutional Risk Analyst. Interested parties are advised to contact Whalen Global Advisors LLC for more information.

November 21, 2025  | In this issue of The Institutional Risk Analyst , we review events over the past week and preview some of the developments we expect in coming days and weeks.  Each Friday we share our thoughts on the top issues of the week with our readers in advance of our new weekly collaboration with Julia La Roche , “The Wrap with Chris Whalen,” which will be released on YouTube, Spotify and Apple Podcasts over the weekend. This week the markets found a floor of sorts as the rout in tech stocks slowed. Strong results for Nvidia (NVDA)  helped to calm the equity jitters after investors lost trillions in market value in a broad market selloff. Much of the equity market gains for November were lost, but as of yesterday the S&P was still up 13% for the year and the KBWB is likewise up double digits from the lows in April. We talked about the market’s swoon earlier this week: “ AI Implodes! Private Credit Collapses! And a Trillion Dollar TGA Looms. ”

November 19, 2025  | In this issue of The Institutional Risk Analyst , we focus on our finance company surveillance group in the wake of the recent market weakness. All of the names in the group are down from the October peak for the major indices, in some cases by mid-double digits. Is this a buying opportunity or a signal to move to the sidelines and watch? We think the latter. The larger context behind the retreat of financials is more profound. H ow does the accelerating implosion of the latest global marketing con known as "AI" or artificial intelligence figure into the broader equity market selloff? If you have not yet heard Yann LeCun , the former head of AI research for Meta Platforms (META) , dismiss the current efforts to build real AI by focusing on large language models (LLMS), please watch the clip below. H/T to Alex Kantrowitz : Basically what Yann LeCun is saying is that the hundreds of billions in capital raised to pursue the idea of AI by staring up our collective ani has been wasted on useless infrastructure, data centers and programmers. LeCun rejects models that are focused on analysis of LLMS rather than the real world, but you won't hear that from anybody at META, Nvidia (NVDA), IBM (IBM) , Alphabet (GOOG), Oracle (ORCL) or Microsoft (MSFT) . ORCL's expenditures on AI may eventually bankrupt the leading software company. Most public companies are so invested in the false gospel of AI that they dare not even hint at the truth, namely that the vast majority of AI projects will never be profitable or even relevant. As LeCun notes, consumers will benefit from more robust search tools, but the AI that emerges in the next decade will be too feeble and too fallible to be deployed by business. Recall the costly fiasco of the early AI charade called "Watson" from IBM. But as long-time followers of Big Blue know, sales and execution are two different things. We've called AI an electronic parrot, but that is unkind to psittacines, which do indeed have remarkable real world intelligence and reasoning capacity. How, we wonder, would the markets react to NVDA earnings later today if most investors watched the LeCun video clip above? And what would happen to all of the finance company stocks below, many of which have goosed their stock prices by referring disingenuously to AI in their investor presentations? We have been anticipating a correction in many sectors for some while and have trimmed our portfolio accordingly, but the weakness in the nonbank finance group is pronounced and includes both names with crypto and credit private exposures, and some other stocks that may surprise our readers. But perhaps the biggest threat to our finance company surveillance group is the growing awareness that AI is a complete bust. We spoke about this insight on Monday with Carol Massar and Tim Stenovic on Bloomberg BusinessWeek .

November 17, 2025  | When Bitcoin was first introduced in 2009, the token and the accompanying blockchain technology was heralded as a new means of exchange and proliferated without much encouragement. Bitcoin was billed as a replacement for depreciating fiat currencies and the financial system that facilitates the legal tender monopoly of most governments. But instead of becoming a stable means of exchange and thus an alternative to an ever depreciating fiat dollar, Bitcoin instead mutated into a vastly profitable speculative vehicle. That profitability caught the attention of Wall Street, but now the bloom is off the proverbial rose. The chart below shows the Bitcoin futures vs gold futures YTD.   The first Bitcoin exchange traded fund in the U.S., the ProShares Bitcoin Strategy ETF (BITO) , was introduced on October 19, 2021. This was a futures-based ETF, meaning it tracked Bitcoin's price through Bitcoin futures contracts traded on the Chicago Mercantile Exchange, not by holding actual Bitcoin. This derivative allowed more investors to play the Bitcoin market and made the market appear larger, but it also tied the crypto token indirectly to the fortunes of the fiat world and particularly to the US financial markets now dominated by mechanical investment strategies. ETFs are the doomsday machines of the financial world, exaggerating both the increases and declines in price of the underlying assets. ETFs can magnify market volatility, particularly leveraged and single-stock ETFs such as those that are focused on Bitcoin. This fact seems to have an outsized impact on the cash price of Bitcoin. There really is no underlying, visible forward “market” in the tokens that is connected to the cash market for Bitcoin.  Like all ETFs, when more cash flows in, the more creation units – not Bitcoin – the ETF buys. When a spot Bitcoin ETF buys, it is responding to increased demand for its shares, which creates a premium over the price of the underlying Bitcoin. This process is managed by an Authorized Participant (AP) who buys ETF shares on the open market, then delivers them to the ETF provider in exchange for cash. The provider then uses this cash to purchase actual Bitcoin, which is added to the fund's custody, and new ETF shares are created to match the new holdings.   Unlike stocks and bonds that feature a deep forward market for long and short positions for the basis, which tend to dampen price movements in the cash, the trading in Bitcoin is mostly in spot cash and, importantly, is not linked to other markets for cash and perpetual futures (“perps”) that pretend to be part of the Bitcoin world.  When a large seller (aka a “whale”) sells a large block of Bitcoin, the market lacks immediate visibility on the sale and thus the ability to absorb the information about the trade. The fact of ETFs trading Bitcoin, indirectly, appear to make this weakness even more pronounced. Back in January, Chen, Xu and Yong (2025) published an article in the International Review of Financial Analysis  that made some important observations about the impact of futures and ETFs on Bitcoin. “We find that the BITO introduction significantly changes the investor structure in Bitcoin futures, with ETF asset managers being the major long-side participants against the short-side hedge funds. Furthermore, market participants become more concentrated and the market liquidity improves in the Bitcoin futures after the BITO introduction.” But what liquidity exactly? The fact of Bitcoin ETFs and futures does nothing to address the structural inefficiency of Bitcoin itself. Unlike other securities and currencies, the connection between Bitcoin cash trading and the derivatives is indirect and lagged, sometimes by hours or even days. The efficiency of the futures and other derivatives is arguably far greater than trading on-chain in cash Bitcoin. But the fact of ETFs referencing Bitcoin guarantees that the price of the tokens will be very volatile, both up and down, especially given the inefficiency of the cash market for the tokens.  Michael Green: The Bitcoin Bear Case Michael Green, Chief Strategist and Portfolio Manager at Simplify Asset Management, spoke about the flaws in Bitcoin in an excellent interview carried by Insightful Investor in January of this year : “So remember what Bitcoin was. Bitcoin was a peer-to-peer payment mechanism. That's what the white paper introduced. And again, the blockchain is actually just an output from that. It's just the ledger of activity that occurs on the Bitcoin blockchain. Now, it's totally failed as that. It is not a peer-to-peer payment system. It does not work in that context. The speed of transactions are far too low. The costs of transactions are far too high. And in search of a solution set for it, we've now moved to a quote-unquote store of value, digital gold.” Green notes that if Bitcoin did not work as a payment system, that should be a warning sign, especially now that it has morphed into a speculative asset. But the promoters of Bitcoin then spawned a new narrative, a messianic religion based upon the idea that Bitcoin can help you avoid the eventual collapse of legal tender fiat currencies. But when Wall Street began trading futures and ETFs indirectly based upon Bitcoin, they tied the fate of the tokens to the fiat world.  Having ETFs trading Bitcoin, Green notes, “actually just reinforces that it's a speculative asset rather than a currency.” Could Bitcoin ever become a currency? Green outlines the problem: “[I]f Bitcoin were to be declared a reserve asset by a variety of governments of notable size, and they accepted it in exchange for and mandated the acceptance of it in exchange for canceling debt, then it would become a quote-unquote currency. That's really the only mechanism for it because debt contracts are legal contracts. And in order to become a currency, you have to cancel that legal contract. The only framework where that can occur is through state sponsorship.” But, of course, Bitcoin was supposed to be "money" separate from government, right? More important, governments around the world are not adopting Bitcoin. Even in countries such as tiny El Salvador, which adopted Bitcoin as legal tender, the usage of the tokens is minimal. Instead, gold has surpassed the fiat dollar as the leading reserve asset in the world. The major nations of the world are running away from fiat dollars and derivatives such as crypto tokens in favor of gold as the reserve asset of choice. Gold is not money, Green notes, but it does provide a credible backing for fiat money issued by nation states. And no matter how hard the promoters of Bitcoin try to enlarge the pool of speculators, the price increases have been minimal over the past five years compared to the first decade of Bitcoin’s existence.  Again, Green: “The parts that contribute to the future [of Bitcoin] are the points that I would highlight. Are we seeing a dramatic increase in the use of Bitcoin for transactions? No. Are we seeing dramatic improvements in the ability of Bitcoin to be accepted as a currency to cancel debt contracts? No. Are we seeing governments of size and significance accept Bitcoin in lieu of their currency for tax payments? No. So what has actually happened other than the speculative fervor around it and people's desire to sell you something?” Crypto Margin Calls Loom   The key negative that Green and other observers point to, and which we have highlighted in past missives in The IRA , is the use of Bitcoin and other tokens as collateral for dollar debt and equity raises. Unlike legal tender dollars, Bitcoin and other tokens are essentially illiquid assets that must be sold for fiat dollars in order to satisfy debt. Many holders of crypto assets that have used debt to buy tokens now face the prospect of forced liquidations into a highly inefficient market that is being driven lower by more efficient ETFs and futures. Cash redemptions just make ETFs sell harder and faster. Over the last five years, for example, MicroStrategy (MSTR)  reportedly has borrowed $7.27 billion via convertible debt securities and doubled its share count to purchase Bitcoin. MicroStrategy stated in Q3 2025 that the average purchase price of its Bitcoin was reportedly $66,384.56 USD with a total cost of $33.139 billion USD . What happens if Bitcoin falls below the average cost for MicroStrategy, which has likely increased since then? Will investors lend the company more fiat dollars to buy more crypto tokens? Keep in mind that with a forced sale in a liquidating market, the Bitcoin trove of MSTR might be worth a fraction of the average valuation referenced above. Just think about the discount applied to all of the ETFs, perps and SPACs that have been issued to support the price of Bitcoin and other worthless tokens. A poll we conducted on Halloween via X illustrates the range of haircuts. Imagine if we posted this poll today? Below is an interview we did with CNBC  about using crypto currencies as collateral on residential mortgages. The interview is entitled " Could Crypto-Backed Mortgages Put the US Housing Market at Risk? " While there are some fringe firms willing to use crypto holdings as part of the wealth calculation for a loan underwriter, none of the mainstream lenders we contacted were willing to even look at crypto as proof of wealth. After last week’s debacle, we suspect that lenders will rapidly retreat from the crypto world.  Even as Bitcoin sinks under the weight of its own contradictions, we see the consultants and touts promoting "stable coins," an inane concept that was sufficiently popular to pass both houses of Congress. The embrace of crypto in the Trump Administration is a comparable act of idiocy to the Sherman Silver Purchase Act in 1890, which required the U.S. Treasury to purchase 4.5 million ounces of silver per month and almost bankrupted the nation. The Act was repealed in 1893 and led to the US embracing the gold standard in 1900. President Donald Trump signed the GENIUS Act into law on July 18, 2025. The act, officially named the Guiding and Establishing National Innovation for U.S. Stablecoins Act, establishes a federal regulatory framework for payment stablecoins. The photo below shows President Trump and the Republican leadership celebrating the great achievement. If you follow the fascinating discussion with Michael Green that we cite above, a stable coin that is not legal tender for all debts public and private is no more likely to be successful than Bitcoin, either as a universally accepted exchange medium or a speculative whimsy. Some issuers of coins have realized the obvious truth that coins need to have an explicit yield, which of course makes the coin a security regulated by the SEC. Were crypto tokens properly considered to be securities, then the promoters of this moveable fraud could not make the outrageous claims that we see on social media every day. And as we noted on the first edition of " The Wrap " this Friday, the impact of sponsorship by the Trump Administration on stable coin stocks is waning fast. Again, the fascinating thing about crypto tokens is that they are clearly not correlated to gold but instead seem to be a function of the ebb and flow of the equity markets. Crypto enthusiasts ought to remember that wonderful scene in the 2024 Ali Abassi film " The Apprentice , " when Fred Trump bought chips at one of the Trump casinos to support his son's sinking fortunes. The domestic punters and foreign nationals who buy stable coins from the Trump clan are essentially making a campaign contribution. It is useful to recall that companies associated with Donald Trump's casinos filed for Chapter 11 bankruptcy multiple times . We traded the Trump casino bonds at Bear, Stearns & Co prior to the first default, proof positive that the games created on Wall Street may acquire new names and narratives, but the underlying reality never changes.   The Institutional Risk Analyst (ISSN 2692-1812) is published by Whalen Global Advisors LLC and is provided for general informational purposes only and is not intended for trading purposes or financial advice. By making use of The Institutional Risk Analyst web site and content, the recipient thereof acknowledges and agrees to our copyright and the matters set forth below in this disclaimer. Whalen Global Advisors LLC makes no representation or warranty (express or implied) regarding the adequacy, accuracy or completeness of any information in The Institutional Risk Analyst. Information contained herein is obtained from public and private sources deemed reliable. Any analysis or statements contained in The Institutional Risk Analyst are preliminary and are not intended to be complete, and such information is qualified in its entirety. Any opinions or estimates contained in The Institutional Risk Analyst represent the judgment of Whalen Global Advisors LLC at this time, and is subject to change without notice. The Institutional Risk Analyst is not an offer to sell, or a solicitation of an offer to buy, any securities or instruments named or described herein. The Institutional Risk Analyst is not intended to provide, and must not be relied on for, accounting, legal, regulatory, tax, business, financial or related advice or investment recommendations. Whalen Global Advisors LLC is not acting as fiduciary or advisor with respect to the information contained herein. You must consult with your own advisors as to the legal, regulatory, tax, business, financial, investment and other aspects of the subjects addressed in The Institutional Risk Analyst. Interested parties are advised to contact Whalen Global Advisors LLC for more information.

November 14, 2025  | In this issue of The Institutional Risk Analyst , we provide some thoughts on the past week in a new product for subscribers to our Premium Service . Each Friday we’ll be sharing our thoughts on the top issues of the week with our readers in advance of our new weekly collaboration with Julia La Roche , “The Wrap with Chris Whalen ,” which will be released on YouTube , Spotify and Apple Podcasts over the weekend. The financial markets continue to back up, this even after several equity indices hit all-time-highs earlier this week. As we said in our last conversation with Julia, sometimes we just run out of buyers whether we speak of stocks, gold or crypto tokens. Mortgage rates have risen back to 6.25% after going down into the 5s at the end of October. Source: Inside Mortgage Finance

November 10, 2025 | In this edition of The Institutional Risk Analyst , we return to the world of residential mortgage finance as Q4 2025 grinds to an end. The FOMC has cut mortgage rates twice in 2025, yet the rate on 30-year fixed rate mortgages remains about 6%. More important, the Treasury yield curve is backing up even as markets debate the likelihood of the next cut in the target for the market formerly known as "federal funds." Mortgage lenders periodically front-run market rates and push loan coupons lower, but this only exacerbates an environment where many lenders are losing money on every loan they sell. Volumes were up in October, as shown in the chart below from SIFMA, but profitability remains elusive in a market where pricing discipline has been abandoned in favor of capturing volumes. Home price appreciation has turned negative in many markets around the country, although the Mortgage Bankers Association is still projecting that prices will rise by 1% in 2025 but decline in 2026. The tricky thing about average prices is that the inferior assets in the cohort tend to turn first, but the more attractive assets may continue to appreciate into next year. Fannie Mae issued a forecast with a 2.8% annual increase in home prices for 2025 and a 1.1% increase in 2026.  The major homebuilders have been aggressively buying down loan coupons in an effort to clear completed inventory, but lower interest rates are really the only solution when it comes to clearing the backlog of new homes in many southern markets. But how low are interest rates likely to go given the growing unease in the global credit markets? Of note, as of late 2025, approximately 3% of U.S. mortgaged homes are considered "underwater" (meaning the homeowner owes more on the mortgage than the home is worth). As home prices correct, this number will rise significantly, leaving many conventional lenders facing the prospect of repurchase demands from the GSEs. But as we discuss below, many nonbank financial institutions (NBFIs) are underwater on the value of assets vs debt, particularly firms that have been raising debt and equity to support the sagging market for crypto tokens and derivatives. Michelle Bowman , vice chair for supervision at the Federal Reserve, shared concerns about declines in housing activity paired with higher inventories of homes for sale and falling housing prices, Inside Mortgage Finance  reported in September. “I am concerned that, in the current environment, declines in house prices could accelerate, posing downside risks to housing valuations, construction and inflation,” she said. How about a sudden further drop in prices for stocks and/or crypto tokens, which seem to be correlated? We agree with Bowman’s concerns about the potential for rapid declines in home prices and also worry that default rates will rise very quickly in the next year because of the accumulated number of delinquent households that have been hidden by forbearance since COVID. Notice that loanDepot (LDI) is still leading the pack for our Mortgage Surveillance Group, followed by Fannie Mae and Freddie Mac. Mortgage Surveillance Group Source: Yahoo Finance We expect the shares of the GSEs to lose ground in the near term given last week’s announcement by Federal Housing Finance Agency Director Bill Pulte that the GSEs will not be released from conservatorship. After pumping the two stocks for months with the prospect of release from conservatorship, Pulte said Friday that the GSEs would stay under federal control for now, reinforcing their conservatorship status while exploring a limited public offering option. The mortgage entities “will likely stay in conservatorship,” Pulte said at the housing conference ResiDay in New York City . "There will be very little to no interruption. If anything, it may actually make things safer and sounder.” It seems pretty clear that the earlier statements made by Pulte were false. Last month, Inside Mortgage Finance  reported, Pulte had to backtrack on comments he made on a podcast in which he said, “I’d be very bullish on these companies, frankly.” Making knowingly false claims about a public stock offering is a serious violation of federal securities laws, primarily the Securities Act of 1933 and the Securities Exchange Act of 1934. This activity falls under the umbrella of securities fraud and can lead to severe civil and criminal penalties, including substantial fines and imprisonment. It's unlikely that anybody in the Trump White House really cares if Bill Pulte or his staff make false statements about the penny stocks of Fannie Mae and Freddie Mac. But it is worth noting that there are just three years remaining in Trump II. The shareholders of the GSEs are already attacking Pulte on social media for his apparent duplicity. Are loanDepot & United Wholesale Mortgage UnderWater?

November 7, 2025  | We received several questions from subscribers to our Premium Service about the decision by Bank of America (BAC)  to hold the first investor day since 2011.  We view BAC as among the worst managed public companies in the US, a combination of size and indifference that truly defies comparison. But ultimately bank regulators and investors, large and small, are to blame for tolerating this continued exercise in mediocrity. The fact that CEO Brian Moynihan  continues to characterize the poor performance of the bank’s $900 billion bond portfolio as a “misstep” instead of management negligence tells you all that you need to know, especially when you compare BAC’s balance sheet management with peers such as JPMorgan (JPM) and Citigroup (C) . We wrote about the visible insolvency of BAC in May of 2023 (" Calculate the WAC of Bank of America "). When the officer of a bank fails to manage the institution properly, it is generally referred to using terms such as negligence, mismanagement, or breach of fiduciary duty. “Unsafe or unsound practices” is a regulatory term used by agencies like the Federal Reserve Board, Office of the Comptroller of the Currency (OCC) and the FDIC to describe practices, or lack thereof, that deviate from sound governance and risk management principles and have the potential to adversely affect the bank's condition. Silicon Valley Bank failed in 2023 because of such malfeasance, but BAC survived. After the COVID shutdown in 2020-2021 and related action by the Federal Reserve Board, BAC came dangerously close to tipping over.  The $3.4 trillion bank experienced a significant outflow of deposits, forcing BAC to replace these liabilities with high cost brokered funds and other borrowings. This event drove up the cost of the bank’s funding to the highest level of large banks other that Citigroup, which safely employs high cost funding to support its subprime consumer and credit card business. The chart below shows interest expense vs average assets for the top-seven depositories. Source: FFIEC “Moynihan and the bank are under a lot of pressure,” notes a former BAC banker, who spoke to The IRA  earlier this week. Warren Buffett's Berkshire Hathaway (BRK) has been consistently selling Bank of America stock since at least July 2024, reducing its stake by approximately 41% from its peak. Of note, in the 300-plus pages of presentations for the BAC Investor Day , the bank barely talks about its financial performance vs its large bank peers. “Moynihan is trying to demonstrate that the business can grow. Hedge funds and other investors in the stock want price appreciation not just dividend," the banker notes. "The decision to host the investor day was made long ago. JPM does it every year. JPM CEO Jamie Dimon has taken away the excuses of big banks that they can’t grow.” Rumors that Moynihan is on his way out are false, in our view, because BAC’s board of directors is entirely behind the incumbent. Brian Moynihan succeeded Ken Lewis as CEO of Bank of America on January 1, 2010, when essentially nobody else wanted the job. A decade of restructuring and litigation followed culminating 2014, when BAC resolved federal and state claims against Bank of America, its affiliates, and Countrywide Financial for their mortgage-backed securities activities leading up to the 2008 financial crisis. More recently, the fact that BAC has refused to follow the example of other large banks, including PNC Financial (PNC), Truist Financial (TFC) and KeyCorp (KEY)  to restructure their bond portfolios and thereby boost earnings, speaks volumes about the torpor inside the BAC board of directors. Even a modest program to sell COVID era assets and reinvest at higher yields would help asset and equity returns dramatically.   As we suggested to the FOMC in our last post (“ Should the FOMC End Fed Funds Targeting? Issue CMOs? ”), BAC could restructure their low coupon Treasury and MBS into collateralized mortgage obligations (CMOs), sell half or more of the principal amount into an eager bond market, and retain the longer duration pieces to benefit from falling interest rates and rising prepayments. Reinvesting the proceeds of the sale of CMOs could help BAC dramatically boost earnings and the stability of the bank, but Moynihan and his board apparently won’t take the heat of a balance sheet restructure.    By doing nothing, Moynihan and his CSUITE team are waiting for a Fed rescue. But how long do we wait? As we can see on Page 8 of Bank America’s excellent financial supplement, the average yield on BAC’s $933 billion in investment securities is sub-3%. The cost to the bank of total interest bearing liabilities is 3.4%. Do the math. Now you know why Warren Buffett is selling Bank of America stock and Brian Moynihan just had his first investor day in almost 15 years. Hello. The yield on total earning assets for BAC is 4.64% or on net 1.2% above the cost of earning assets.  The net yield on interest earning assets at JPM is 2.5% or more than 2x BAC. If we exclude capital markets and focus on the bank, the net yield on interest earning assets for JPM is 3.73%. The fact that Brian Moynihan has taken no steps to address this disparity in asset returns is why BAC trades on a $373 billion market cap or 1.3x book and JPM is close to $850 billion or 2.5x book value.  As the chart below illustrates, BAC's asset returns have been below the results of the top-seven banks and Peer Group 1. Source: FFIEC Aside from the poor yields on the BAC bond portfolio, which is one third of total assets, the yield on the loan book averages just 5.6% vs 6.7% for JPM. The $235 billion residential loan portfolio has an average yield of 3.5% as of Q3 2025. Again, the bank is at a striking disadvantage because of the high funding costs. The inability of BAC's commercial bankers to achieve higher prices for loans retained in portfolio, however, is another significant disadvantage. Keep in mind that BAC already has cut overhead expenses to the bone, yet the bank's efficiency ratio is 65%, a full 12 points above JPM's industry leading 52%. The purple line at the bottom of the chart showing operating efficiency (the cost of revenue) is JPM. Source: FFIEC The value destruction at BAC under CEO Brian Moynihan is one of the great sagas on Wall Street, yet analysts, equity managers and the financial media refuse to hold management accountable. Since the Great Financial Crisis, when the bank acquired its biggest warehouse customer, Countrywide Financial, and then promptly shut down the largest residential loan business in the US, Moynihan has mismanaged the bank by avoiding "risk" and also revenue. The real question is why Warren Buffett and BRK ever wanted to own the stock in the first place. We've been a business customer of BAC and Merrill Lynch for more than three decades and own some of the preferreds, but we'd never own the BAC common stock as long as Moynihan is driving. Until Moynihan exits and the board of BAC is turned over, we don't see much hope for restoring value creation for shareholders at America's second largest bank. Next week, we'll be featuring a discussion with the CEO of one of the most interesting junior miners in Canada for subscribers to our Premium Service. The Institutional Risk Analyst (ISSN 2692-1812) is published by Whalen Global Advisors LLC and is provided for general informational purposes only and is not intended for trading purposes or financial advice. By making use of The Institutional Risk Analyst web site and content, the recipient thereof acknowledges and agrees to our copyright and the matters set forth below in this disclaimer. Whalen Global Advisors LLC makes no representation or warranty (express or implied) regarding the adequacy, accuracy or completeness of any information in The Institutional Risk Analyst. Information contained herein is obtained from public and private sources deemed reliable. Any analysis or statements contained in The Institutional Risk Analyst are preliminary and are not intended to be complete, and such information is qualified in its entirety. Any opinions or estimates contained in The Institutional Risk Analyst represent the judgment of Whalen Global Advisors LLC at this time, and is subject to change without notice. The Institutional Risk Analyst is not an offer to sell, or a solicitation of an offer to buy, any securities or instruments named or described herein. The Institutional Risk Analyst is not intended to provide, and must not be relied on for, accounting, legal, regulatory, tax, business, financial or related advice or investment recommendations. Whalen Global Advisors LLC is not acting as fiduciary or advisor with respect to the information contained herein. You must consult with your own advisors as to the legal, regulatory, tax, business, financial, investment and other aspects of the subjects addressed in The Institutional Risk Analyst. Interested parties are advised to contact Whalen Global Advisors LLC for more information.

November 5, 2025  | Should the Federal Open Market Committee stop targeting the short-term funds market as a policy tool? The Federal Reserve began setting explicit targets for the federal funds rate in the 1970s. Before this, the Fed monitored the rate going back to the 1960s and used open-market operations to influence the supply of reserves to keep the rate in a desired range, but the 1970s marked the beginning of explicit targets.  In effect the Fed nationalized the short-term funds market fifty years ago, in part because changing the targets was simple from a policy perspective and easy for the inane political class in Washington to understand. After 2008 when short-term interest rates reached zero, however, the FOMC under Chairman Ben Bernanke  initiated “quantitative easing," Orwellian newspeak for massive purchases of securities and thereby embraced a policy of providing excessive reserves to the short-term markets. Bernanke’s policy shift was essential, but like most central bankers, he did too much (See: “ Should the Federal Reserve Pay Interest on Bank Reserves? ”).  Bill Nelson at Bank Policy Institute described the history in an October 8, 2025 missive: “Prior to 2008, reserve balances (deposits of banks at Federal Reserve Banks) did not earn interest, so banks sought to minimize their balances, maintaining just the amount needed for clearing needs and to satisfy reserve requirements.  By adjusting its balance sheet, the Fed provided the banking system the amount of reserves balances banks demanded in aggregate, although each bank ended up at the end of the day with a bit more or less than it wanted. Most activity in the fed funds market consisted of banks with extra reserve balances at the end of the day lending to those that were short of reserves. Now, banks earn interest on reserve balances they keep at the Fed, and the Fed’s massive balance sheet has flooded reserves far beyond what banks need, pushing the fed funds rate below the amount banks earn on reserves. Banks now have no incentive to lend extra reserves into the fed funds market, so these end-of-day transactions have nearly ceased.” Nelson notes that some FOMC participants recommended that the Fed address the potential imminent demise of the fed funds market by switching to targeting the rate for forward Treasury and MBS repurchase agreements (see Logan and Schulhofer-Wohl ).  “Doing so would make it even more difficult for the Fed to return to its pre-GFC light market footprint,” he notes. FRB Dallas President Lori Logan is not an advocate for a large Federal Reserve balance sheet; instead, she supports shrinking it gradually, but targeting the vast, $5 trillion plus market for repurchase agreements seems inconsistent with that position. The context behind the discussion of targeting the dying fed funds market is the massive federal budget deficit. The size of the Treasury General Account (TGA) is such that the flows of cash now dominate the money markets. Wolf Street has been documenting the dysfunction in the Fed-dominated money markets with several excellent posts last week : “[Overnight Reverse Repurchase  Agreements] spiked to $52 billion today. A week ago, it was essentially zero. Spiking ON RRP balances at the end of the month and at the end of the quarter have been normal, and this spike was rather small, compared to the prior spikes. This $52 billion of ON RRPs counterbalanced the $50 billion drawn on the SRF facility today, and the net liquidity added by the Fed – so SRF balance minus ON RRP balance – was less than zero. In other words, the ON RRP facility effectively withdrew $52 billion in liquidity from the repo market, while banks borrowed $50 billion from the Fed via the SRF to supply liquidity to the market.”  Nelson notes that some FOMC participants have recommended that the Fed address the potential imminent demise of the fed funds market by switching to targeting the repo rate (see Logan and Schulhofer-Wohl ). “Staff in 2018 did not think it was feasible to target the repo rate unless the Fed were operating a massive-reserves regime. Thus, a decision to switch to a repo target would be yet another instance where the Fed addressed a problem of its own making by concluding that the best solution is even more Fed.” "The repo rate is a bit abstract but it is a better mechanical target for the policy rate," notes former FRBNY economist Robert Brusca , who we interviewed last June (" Interview: Robert Brusca on the Federal Open Market Committee "). "As for targeting GDP?? What does it matter what they target if they do not hit it and are not committed to hitting it? The Fed cannot switch targets until it can hit this one, at least without massively losing credibility. A Cleveland Fed survey already has the business community thinking that the REAL target for inflation is 2.5%" Brusca penned a comment on Substack , " Has the Fed Abused Its Independence, " which looks at many of these issues and the history of the Fed's dismal track record of federal funds targeting. Our view is that private financial markets do not need more of the Fed’s heavy hand, but the size of the federal debt and the TGA deposited at the Fed means that the Fed’s balance sheet must grow in proportion to the debt. The growing federal debt is inflationary by definition. Fed officials don’t discuss an explicit link between the balance sheet and the size of the public debt, but we wonder if there is an "assumed" implicit ratio between the size of the central bank’s balance sheet and the TGA. Fed Vice Chairman Michelle Bowman observed in a September 2025 speech  that “[it] is not the Fed’s role to replace or arbitrage private-market activities.”  She continued: “Over the longer run, my preference is to maintain the smallest balance sheet possible with reserve balances at a level closer to scarce than ample. First, a smaller balance sheet would minimize the Fed's footprint in money markets and in Treasury markets. Of course, in order to efficiently implement monetary policy, it is necessary to have some footprint in these markets. Second, holding less-than-ample reserves would return us to a place where we are actively managing our balance sheet, identifying instead of masking signals of market stress. In my view, actively managing our balance sheet would give a more timely indication of stress and market functioning issues, as allowing a modest amount of volatility in money markets can enhance our understanding of market clearing points.” So if targeting the repo market is a bad idea, what is the alternative? David Beckworth at the Mercatus Center at George Mason University has long argued that the FOMC needs to move from targeting fed funds to using nominal gross domestic product (GDP) as a policy target. In 2019 he published “ Facts, Fears, and Functionality of NGDP Level Targeting .” More recently, David published a policy brief on NGDP Targeting is for the Fed’s framework review . During the most recent FOMC press conference, Fed Chairman Jerome Powell lamented the conflicts and contradictions in the Fed’s current mandate: "I would say, again, we have a situation where the risks are to the upside for inflation, and to the downside for employment. We have one tool. We can't do both of those -- address both of those at once." Beckworth writes: “During the previous framework review in 2019–20, the Fed’s main monetary policy body—the FOMC—adopted the flexible average inflation targeting (FAIT) framework. FAIT aimed to address zero lower bound (ZLB) challenges by creating an asymmetric approach to the dual mandate: It would implement makeup policy on misses below the inflation target, and it would respond to shortfalls from maximum employment. These asymmetries, while well- intended, created an inflationary bias that caused FAIT to fail the “stress test” of the 2021–22 inflation surge. This failure caused the Fed to effectively abandon FAIT in early 2022 and become a single-mandate central bank focused on price stability. These developments indicate that the FAIT approach to the dual mandate is too narrowly focused and stands in need of an upgrade during the current framework review.” Given the size of the federal deficit and the massive amounts of cash that the Fed maintains for the Treasury in the TGA, does the FOMC have any choice but to move away from targeting fed funds? Chairman Powell recently announced that the Fed will stop shrinking the system open market account (SOMA) in December (a/ka/a “QT,” but continued to allow MBS to run off, essentially “operation twist” in reverse (h/t Wolf).  The Fed’s decision to end QT seems all according to plan, several observers told The IRA . The Fed pursued QT until markets showed signs of tightness. Now follows a period where currency growth shrinks reserves slowly until they are as low as they can achieve while still operating a floor system for interest rates with a buffer.  Should the Fed Issue Collateralized Mortgage Obligations? As Chairman Powell said in the latest FOMC presser, the SOMA reinvestment plan is intended to get their duration down to that of the Treasury debt outstanding by allowing long duration MBS to be replaced by short-duration T-bills. Could the Fed have continued to shrink the SOMA further as Bowman and others have urged?  Some observers say that temporary open market operations would allow the Fed to go further with QT, but money market volatility last week suggests that the limit has been reached. As we’ve noted previously in The IRA , the Fed could and should sell the remaining $2 trillion in MBS into CMOs and move the badly needed duration back into the private markets. (See: " QT & Powell's Liquidity Trap "). CMOs allow issuers to transform long duration securities into tranches with short, medium and longer durations. The duration of the Fed's agency MBS portfolio is approximately 7.22 years, based on a 2024 analysis of its largest 30-year holdings. This figure represents the weighted average time until the portfolio's cash flows are paid out, and it is sensitive to changes in interest rates. For comparison, the average maturity of its entire balance sheet is around 107 months (or 8.9 years). The Fed could sell "AAA" CMO short tranches to insurers and banks, and the longer "AA" tranches to other investors. The SOMA would retain the long-duration tails and sell them to life insurers when rates bottom. The massive leverage in the CMO tails could offset much of the losses to the Fed incurred to date. After all, this is what banks and other large mortgage investors do.  As we wrote in 2023 regarding the massive mark-to-market losses inside US banks and the SOMA: "Federal Reserve Board Chairman Jerome Powell needs to lead a process to help banks and the GSEs extend maturities and timelines for loss realization. We need to do this before banks are forced to explain to investors later this year why they are reporting gigantic losses on assets they once intended to hold to maturity. And after we get the process started, the Fed itself should engage the GSEs to help slowly sell the SOMA MBS and return this duration to private hands. The GSEs need the business. Once the Fed sells its MBS portfolio, it will once again have control over the size of its balance sheet." We noted in our column in National Mortgage News (" Reviving GSE MBS purchases would repeat the Fed's mistake ") that a coalition of real estate and banking groups, including the Community Home Lenders of America and the Independent Community Bankers of America, wants Fannie Mae and Freddie Mac to buy conventional mortgage-backed securities to help the mortgage market. The GSEs would need to buy a lot of MBS to impact mortgage rates and, unlike the Fed, Fannie Mae and Freddie Mac must hedge their portfolios, muting any real impact of such purchases. Thirty-Year FRM Minus 10-Year Treasury Yield But restructuring the Fed's massive portfolio into CMOs would allow the central bank to exit its disastrous speculation in mortgage securities with minimal impact on the mortgage markets. The Street is starving for quality duration at the present time. If the central bank could somehow stop thinking that it controls the fixed income market and perhaps begin to use the market to help achieve policy goals, the FOMC could recover some credibility.   The Institutional Risk Analyst (ISSN 2692-1812) is published by Whalen Global Advisors LLC and is provided for general informational purposes only and is not intended for trading purposes or financial advice. By making use of The Institutional Risk Analyst web site and content, the recipient thereof acknowledges and agrees to our copyright and the matters set forth below in this disclaimer. Whalen Global Advisors LLC makes no representation or warranty (express or implied) regarding the adequacy, accuracy or completeness of any information in The Institutional Risk Analyst. Information contained herein is obtained from public and private sources deemed reliable. Any analysis or statements contained in The Institutional Risk Analyst are preliminary and are not intended to be complete, and such information is qualified in its entirety. Any opinions or estimates contained in The Institutional Risk Analyst represent the judgment of Whalen Global Advisors LLC at this time, and is subject to change without notice. The Institutional Risk Analyst is not an offer to sell, or a solicitation of an offer to buy, any securities or instruments named or described herein. The Institutional Risk Analyst is not intended to provide, and must not be relied on for, accounting, legal, regulatory, tax, business, financial or related advice or investment recommendations. Whalen Global Advisors LLC is not acting as fiduciary or advisor with respect to the information contained herein. You must consult with your own advisors as to the legal, regulatory, tax, business, financial, investment and other aspects of the subjects addressed in The Institutional Risk Analyst. Interested parties are advised to contact Whalen Global Advisors LLC for more information.

November 3, 2025 | Whalen Global Advisors has released the WGA Bank Top 50 for Q4 2025.  The top 10 banks in our test group are shown below: The WGA Top 50 Bank list represents the best performers among more than 100 banks over $10 billion in total assets. WGA scores the entire population of large publicly traded bank holding companies in Peer Group 1 and unitary banks each quarter using a proprietary model where size is only one factor in the analysis. Most bank ETFs, for example, select portfolio members solely based upon market capitalization. Thus relatively small stocks such as SoFi Technologies, Inc. (SOFI) or American Express Company (AXP) are absent from most passive portfolios even though they are among the top market performers in our test group. The WGA approach ensures that the top scoring banks have the highest rank on the WGA Bank Top 50 list regardless of size. In Q4 2025, we made some changes to our methodology to increase the weight of market performance and decrease the weight of fundamental factors that tend to be relatively stable over multiple periods. We focus heavily on fundamental factors in our updates of the money center, consumer lender and asset gather categories. All of the 100 constituents of the WGA Bank Top 50 are available to subscribers to The IRA Premium Service. Forbearance, Fraud Mask Growing Credit Contagion There has been a great deal of movement among the top 100 banks tracked by the WGA Top Bank model. Two small banks dropped out of Peer Group 1 due to M&A in Q3 2025, but more that 70 banks have been acquired so far this year . For example, Synchrony Financial (SYF) ranked 1st in Q3 2025, but fell to 21st in Q4 2025 due to market performance. AXP ranked 12th in Q3 2025, but jumped to 1st in the latest test results. A number of institutions, including Zions Bancorporation (ZION) and Western Alliance (WAL),  fell significantly in this quarter’s rankings due to concerns about credit losses arising from alleged fraud involving collateral backing loans. Defaults on commercial and multifamily real estate continue to rise, adding to pressure on financial stocks. WAL ranked 19th in Q3 2025, but fell to 73rd in Q4 2025. ZION ranked 33rd in Q3 2025, but fell to 69th out of 100 banks in Q4 2025. Likewise JPMorgan (JPM) and other large banks have given ground in recent weeks because of concerns about undisclosed credit losses hidden in portfolios. Indeed, more than half of the bank stocks in our test group have fallen in market value since the end of the third quarter, reflecting growing concerns about credit market contagion. As we have predicted for some time now, credit concerns have finally surged into the foreground as events of default such as Tricolor and First Brands have underscored concerns about credit and related acts of fraud involving collateral. The concern is no longer merely about cockroaches in the world of credit, to paraphrase JPMorgan CEO Jamie Dimon . Now the appearance of wharf rats in the world of corporate defaults suggests that the scope of fraud in the financial markets is far larger than most observers appreciate. Francesca Veronesi and Kat Hidalgo of Bloomberg News confirmed last week that growing numbers of private equity portfolio companies are in default, but have merely begun payment in kind (PIK) via equity distributions to avoid actual recognition of default. "Private credit firms are in the business of lending, not owning," they write. "But as more borrowers start to struggle with their liabilities, lenders are swapping their debt positions for equity stakes to try and stem losses." When lenders become equity holders involuntarily, that usually suggests fraud in the extension of credit previously contracted. Press reports suggest that mortgage fraud attempts and losses are increasing, and multiple specific instances of significant fraud have occurred, impacting banks and nonbank lenders. Meanwhile, Blackstone (BX) has reportedly been hit with a $500 million fraud involving bogus accounts receivable issued by a little known telecom-services companies called Broadband Telecom and Bridgevoice, the Wall Street Journal reports. As we note in a recent article published by The Daily Reckoning , “ T he Bezzel: Is it 1925 All Over Again? , ” that tales of woe regarding the Fed-fueled credit boom in commercial real estate and private credit will continue to grow in number in 2026.  When it comes to fraud, cockroaches are an inconvenience, but wharf rats carry the plague and are an existential threat. We expect that US banks will be revealing more surprises in the weeks and months ahead, but PIK and forbearance by banks continues to obscure the full reality of the problems in credit. Just as wharf rats are associated with the bubonic plague because they are the primary carriers of the fleas that transmit the bacteria, involuntary credit forbearance by banks and investors is rotting the foundations of the global financial markets. Subscribers to The IRA Premium Service may download the full 100 bank test group by logging into the website and navigating to the page for the WGA Top Bank 50 . Recent Articles in The IRA Will Flagstar Survive ZoMa and Rebound? We Like the Leverage Gold, Fiat Dollars & Crypto Interview: Andrew Jarmolkiewicz on Gold and the Junior Miners The Institutional Risk Analyst (ISSN 2692-1812) is published by Whalen Global Advisors LLC and is provided for general informational purposes only and is not intended for trading purposes or financial advice. By making use of The Institutional Risk Analyst web site and content, the recipient thereof acknowledges and agrees to our copyright and the matters set forth below in this disclaimer. Whalen Global Advisors LLC makes no representation or warranty (express or implied) regarding the adequacy, accuracy or completeness of any information in The Institutional Risk Analyst. Information contained herein is obtained from public and private sources deemed reliable. Any analysis or statements contained in The Institutional Risk Analyst are preliminary and are not intended to be complete, and such information is qualified in its entirety. Any opinions or estimates contained in The Institutional Risk Analyst represent the judgment of Whalen Global Advisors LLC at this time, and is subject to change without notice. The Institutional Risk Analyst is not an offer to sell, or a solicitation of an offer to buy, any securities or instruments named or described herein. The Institutional Risk Analyst is not intended to provide, and must not be relied on for, accounting, legal, regulatory, tax, business, financial or related advice or investment recommendations. Whalen Global Advisors LLC is not acting as fiduciary or advisor with respect to the information contained herein. You must consult with your own advisors as to the legal, regulatory, tax, business, financial, investment and other aspects of the subjects addressed in The Institutional Risk Analyst. Interested parties are advised to contact Whalen Global Advisors LLC for more information.

October 29, 2025  | A number of readers of The Institutional Risk Analyst  have asked us about Flagstar Bank, National Association (FLG) , the NYC bank f/k/a New York Community Bank. FLG beat earnings estimates in Q3 2025 and continues to make progress toward resolving some of its most problematic credit exposures. It is no small irony that the inflation that is crushing New York consumers and landlords alike may also help the bank shed multifamily exposures. There is a growing crowd of greater fools forming who just must acquire New York City commercial real estate.  As of the end of the third quarter of 2025, lenders had initiated foreclosures on more than 60 commercial properties in New York City. This does not represent nearly all commercial real estate defaults, however, which can include missed payments and renegotiated or modified loans. Since lenders are avoiding taking over residential multifamily properties in New York via foreclosure, the actual number of multifamily defaults is likely much higher. Flagstar's stock price cratered in Q1 2024 after revelations about weak internal controls and credit exposures to rent regulated multifamily commercial properties. Moody's downgraded the bank's credit rating to "junk status" in February 2024, citing high risks and a large quarterly loss. In the beginning of Q4 2025, the bank merged with its former parent company, Flagstar Financial, and the unitary national bank is now the survivor. The big question is what is going to happen to FLG and other New York area banks in the event that the far-left New York State representative Zohran Mamdani  (ZoMa) is elected mayor next week. Regional banks including privately held Apple Bank , Valley National Bancorp (VLY) , Flushing Financial Corporation (FFIC) as well as money centers such as JPMorgan (JPM) and Citigroup (C) have exposure to both rent-stabilized properties and buildings that are at least partially regulated. We wrote about the prospects for lenders in the event of a win by ZoMa earlier this year (“ Zohran Mamdani's NYC Bank Dead Pool ”). The investors and lenders in New York multifamily assets are clearly not advantaged by a ZoMa win.  That said, we think that ZoMa’s campaign has a lot in common with his clueless democrat/socialist antecedent, Bill de Blasio , which was more about winning office than doing anything of substance, good or bad.  Is the impending ZoMa administration in NY City Hall any worse than the devastation caused by the 2019 Housing Stability & Tenant Protection Act of 2019 ? How does the prospect of a ZoMa regime impact lenders and developers?  We think that the panicked crowd of New York landlords have greatly exaggerated the impact of ZoMa vs the 2019 legislation. ZoMa is a slick salesman but has even less substance that the disastrous Mayor Bill de Blasio.  The big issue confronting ZoMa and all NYC officials is inflation. “According to Zillow, the average rent for all bedrooms and all property types in New York is $3,595, compared to the national average of $2,000,” Newsweek  reports. “While rents have increased in recent years, wages in the city have not kept up.”  And clearly rents have not kept up with operating costs for multifamily buildings. As we have noted on more than one occasion, there is no way to make New York City affordable for anyone but the ultrarich.  Can Lee Smith Save Flagstar? FLG CFO Lee Smith noted in the Q2 2025 earnings call that the crowd of investors looking at multifamily assets is growing and includes the GSEs, Fannie Mae and Freddie Mac. This strange fascination with loss leading commercial real estate may help FLG dispose of its multifamily exposures.  Every time an investor in NYC multifamily takes a total loss, another recent arrival jumps into the fray and buys the asset. We believe that FLG can use the irresistible appeal of NYC property to a certain class of optimistic commercial investors to slowly shed the bank’s multifamily book.   The steady erosion of purchasing power for consumers nationally was the major impetus behind the 2019 legislation in New York. But does this mean that lenders like Flagstar Bank are doomed? Not necessarily. While the financial results for FLG earlier this year were pretty grim, the bank is slowly digging its way out of a hole and has posted guidance that suggests that the $90 billion asset lender will start to grow assets and earnings in 2026. The most recent guidance from FLG is shown below. CFO Smith noted in the Q3 2025 conference call that the bank is lowering funding costs and increasing asset returns, even as it looks to shed multifamily assets.  We’ve know Lee Smith for more than a decade and have enormous respect for his talents as a mortgage banker and a manager. Smith: “[W]hat I would say is in terms of the balance sheet, youʼll have noticed that it only declined $500 million in Q3, despite us paying off another $2 billion of brokered deposits. We think at the end of this year, Q4 will probably be the low point. The balance sheet will be, and this is total assets, $90 to $91 billion. We expect the balance sheet to start to grow as we move through 2026. I think that kind of level sets everything first and foremost. We do expect to see continued NIM expansion as we move forward, and we have multiple levers to do that, as you know. I mentioned in my prepared remarks, as the multifamily loans continue to pay off or as they continue to hit their reset dates, they have a weighted average coupon that is less than 3.7%. If they stay with Flagstar, our sort of pricing reset is five-year flub plus 300 bp or prime plus 275 bp, and weʼre staying sort of firm to that. We get a benefit if they reset and stay with Flagstar. If they pay off, then weʼre taking those proceeds and investing them into the C&I growth, or we use need to pay down high-cost either brokered deposits or we can pay down flub advances. Thatʼs sort of one area. We continue to show excellent growth on the C&I side. What we didnʼt mention is of the new loan originations in the third quarter, the average spread to SOFR on all of those was 242 basis points.” One of the big concerns we’ve had with FLG is that the yield on the loan book is low, a full point below the 6.1% gross yield for Peer Group 1 in Q2 2025. The yield on the FLG Treasury portfolio is also below peer, but the MBS book is well above peer and the other securities line has a 7% yield.  As FLG gradually reprices its loan and securities book, there is enormous potential for expanding the asset returns of the bank and gradually generating some operating leverage.  The chart below shows the FLG price as of yesterday's close. Is FLG out of the woods?  Not yet, but we like the progress that the bank is making under the leadership of Lee Smith and we are taking a speculative position in the stock for our bank portfolio. The road ahead is likely to be bumpy, but FLG has a head start over other lenders with NYC multifamily exposures. We like the leverage. Just remember that this stock carries a lot of headline risk, but the numbers are going in the right direction. Source: Yahoo Finance Most of the banks that we follow in the WGA Top 50 Banks  are pretty expensive, even with the recent market volatility.  Invesco KBW Bank ETF (KBWB)  is up 93% over five years while FLG is down 50%. At 0.64x book, FLG is off of the extreme lows of 2024 and we like the upside in the stock as we move into 2026.  Buckle up. The Institutional Risk Analyst (ISSN 2692-1812) is published by Whalen Global Advisors LLC and is provided for general informational purposes only and is not intended for trading purposes or financial advice. By making use of The Institutional Risk Analyst web site and content, the recipient thereof acknowledges and agrees to our copyright and the matters set forth below in this disclaimer. Whalen Global Advisors LLC makes no representation or warranty (express or implied) regarding the adequacy, accuracy or completeness of any information in The Institutional Risk Analyst. Information contained herein is obtained from public and private sources deemed reliable. Any analysis or statements contained in The Institutional Risk Analyst are preliminary and are not intended to be complete, and such information is qualified in its entirety. Any opinions or estimates contained in The Institutional Risk Analyst represent the judgment of Whalen Global Advisors LLC at this time, and is subject to change without notice. The Institutional Risk Analyst is not an offer to sell, or a solicitation of an offer to buy, any securities or instruments named or described herein. The Institutional Risk Analyst is not intended to provide, and must not be relied on for, accounting, legal, regulatory, tax, business, financial or related advice or investment recommendations. Whalen Global Advisors LLC is not acting as fiduciary or advisor with respect to the information contained herein. You must consult with your own advisors as to the legal, regulatory, tax, business, financial, investment and other aspects of the subjects addressed in The Institutional Risk Analyst. Interested parties are advised to contact Whalen Global Advisors LLC for more information.

October 27, 2025  | The upsurge in the price of gold during 2025 has surpassed the rate of increase for stocks and crypto tokens, begging the question as to whether the world is headed back to the future in terms of money. Yet for most investors and nations, gold remains at the apex of value in terms of monetary assets, with fiat currencies next in line and crypto still occupying the periphery in terms of mediums of exchange. Jack Dorsey , the founder of Block (XYZ) , has frequently stated his belief that Bitcoin's ultimate success depends on it becoming "everyday money" for peer-to-peer transactions, rather than just a speculative store of value. He sees Bitcoin as the future "native currency of the internet," an open standard that can provide financial access and fast transactions for everyone. He argues that if Bitcoin isn't used for everyday payments, it will become increasingly irrelevant.  Dorsey also said that "Bitcoin is not crypto" on the social media f/k/a as Twitter in mid-October 2025, arguing that Bitcoin is fundamentally different from other cryptocurrencies. Yet like most other crypto tokens, there is no visible market for bitcoin, one of the reasons that the dollar price of the leading token is so volatile. Traditional markets have longs and shorts which provide stability and information to investors, but bitcoin is opaque and more akin to buying a painting or other collectible in an art gallery. Even as Americans dabble with crypto, the rest of the world is running back to gold, marking an end of a century-long effort to marginalize gold. In the progressive mythology of the New Deal, President Franklin Roosevelt ordered the confiscation of gold in 1933 to combat the Great Depression, this by gaining more control over the money supply and ending the alleged constraints of the gold standard. The government confiscated privately held gold “to prevent bank runs, stabilize the financial system, and allow the Federal Reserve to expand the money supply to stimulate the economy.”  As we noted in “ Inflated: Money, Debt and the American Dream, ” none of the claims in the textbooks (which were mostly written by progressive authors) are true. In fact, the Federal Reserve Board was never constrained by the gold standard in terms of providing liquidity to banks. Rather, the members of the Fed in the run-up to the Great Crash of 1929 were afraid to lend to insolvent institutions for fear of ending up as a creditor in a state receivership. Only the fact of a federal receiver with the creation of the FDIC in June 1933 changed this important dynamic. Of note, in 1930 the Federal Reserve Board included as ex-officio members Secretary of the Treasury A.W. Mellon and Comptroller of the Currency J.W. Pole , along with appointed members Eugene Meyer , Charles S. Hamlin , Adolph C. Miller , and George R. James . Meyer was the Governor of the Board. There was as yet no Fed Board of Governors in Washington. FDR seized gold for political reasons and thereby made the banking crisis of 1933 far worse.  Roosevelt used the crisis to attack the political monopoly of the Republican Party and enshrine the Democrats in power for the next half century. President Herbert Hoover noted that FDR's gold seizures were an attempt to collectivize the nation through "emergencies" and propaganda, and that the New Deal did not solve the Great Depression. In 1933, Congress passed a joint resolution that nullified the "gold clauses" in all private contracts. These clauses had allowed creditors to demand payment in gold, but the resolution made all public and private debts payable in fiat paper currency. Today eleven states have declared U.S.-minted gold and silver coins as legal tender within those states, but it does not yet mean contracts can be written in gold or that all gold ownership is recognized as legal tender. For the next 75 years, the US and the world benefited from the fiat dollar, fueling a remarkable period of growth following WWII and the Bretton Woods Agreement. By basing the post-war world on the dollar and  gold, the Allies sought to avoid competitive currency devaluations between nations and thereby sidestep the sharp swings in growth and reserve balances that had characterized the pre-WWII period. By pretending that the fiat dollar was equal to gold, the nations of the world created a vast ecosystem of trade and financing that fostered the prosperity we all take for granted today. For a time, at least, the fiat paper dollar was the greatest invention in modern history, but it carried with it a cost – inflation – that is now destroying the prosperity achieved in earlier decades.   As American politicians used debt rather than taxes to finance the wants and needs of the post-WWII generation known as “baby boomers,” the fiction of equating the paper dollar with gold became more and more tenuous. In August 1971, President Richard Nixon abandoned the gold standard. The dollar was no longer convertible into gold for foreign governments in the London gold pool, cementing the U.S. dollar as a full fiat currency and providing fuel for the expansion of the progressive state. In 1978, Congress passed the Humphrey-Hawkins Act, formally the Full Employment and Balanced Growth Act. Displaying the hubris of the time, Humphrey Hawkins set federal economic policy goals to reduce unemployment, control inflation, and achieve a balanced budget and trade surplus. It amended the post-WWII Employment Act of 1946 to require the government to actively pursue maximum employment and price stability, two obviously conflicting goals, neither of which has been achieved.  “Currencies untethered from precious metals—which are inherently limited in supply—paved the way for free-spending governments to indulge in redistributive policies,” notes Suzanne Schneider in  The New York Review of Books . “This much, at least, was consistent with the writings of Hayek’s teacher, Ludwig von Mises , who valued gold for “its ability to act as a brake on the tendency of democratic states to spend beyond their means.” The explosion of COVID in 2020 and the subsequent inflation caused by the policy errors of the FOMC sharply increased inflation, most notably with a 50% increase in home prices in just five years. The re-election of President Donald Trump in 2024 and his embrace of crypto tokens in order to fuel the Republican landslide that year further muddied the waters in terms of money and inflation. The resurgence of gold in 2025 as it surpassed dollars as the primary reserve asset in the world essentially signals the end of the hegemony of the fiat dollar. What lies ahead? The use of nonconvertible fiat currencies seems likely to continue, but other nations have already decided that gold is a superior reserve asset to the fiat dollar. In the US, for now, some citizens will try to convince the skeptical majority that crypto tokens are a valid replacement for depreciating fiat dollars, but gold seems to have already won that argument around the globe. Americans are the only people foolish enough to think that crypto, an inferior derivative of fiat paper dollars, is the ideal means of exchange. As James Rickards  told The IRA  in September of last year (“ Jim Rickards: The Treasury Should Buy Gold ”):  “The Treasury buying gold would restore confidence in the dollar and perhaps make people believe again that the currency has real value. The price of gold in dollars would clearly go up, but buying gold would be a statement to the world that we are not just going to go down the print-the-dollar rabbit hole.  This does not mean that we are going back to a gold standard, but it does say that we are going to honor our obligations. But to make it to 2076, we need to think really hard about whether we have lost the thread about what money really is for America.”  The Institutional Risk Analyst (ISSN 2692-1812) is published by Whalen Global Advisors LLC and is provided for general informational purposes only and is not intended for trading purposes or financial advice. By making use of The Institutional Risk Analyst web site and content, the recipient thereof acknowledges and agrees to our copyright and the matters set forth below in this disclaimer. Whalen Global Advisors LLC makes no representation or warranty (express or implied) regarding the adequacy, accuracy or completeness of any information in The Institutional Risk Analyst. Information contained herein is obtained from public and private sources deemed reliable. Any analysis or statements contained in The Institutional Risk Analyst are preliminary and are not intended to be complete, and such information is qualified in its entirety. Any opinions or estimates contained in The Institutional Risk Analyst represent the judgment of Whalen Global Advisors LLC at this time, and is subject to change without notice. The Institutional Risk Analyst is not an offer to sell, or a solicitation of an offer to buy, any securities or instruments named or described herein. The Institutional Risk Analyst is not intended to provide, and must not be relied on for, accounting, legal, regulatory, tax, business, financial or related advice or investment recommendations. Whalen Global Advisors LLC is not acting as fiduciary or advisor with respect to the information contained herein. You must consult with your own advisors as to the legal, regulatory, tax, business, financial, investment and other aspects of the subjects addressed in The Institutional Risk Analyst. Interested parties are advised to contact Whalen Global Advisors LLC for more information.

October 23, 2025  | In this issue of The Institutional Risk Analyst , we dive back into the world of banking and mortgage finance after another crazy week in the financial markets. We’ve got a couple of questions from our Premium Service subscribers that we want to address first. And don't forget to check out our post for The Daily Reckoning : " The Bezzel: Is it 1925 All Over Again? " One reader asked about First-Citizens Bank & Trust Company, the wholly owned banking subsidiary of First Citizens BancShares (FCNCA) , buying 138 branches in the Midwest, Great Plains and West regions of the U.S. from BMO Bank N.A., the US unit of Bank of Montreal (BMO) . The good people at BMO have been taking a kicking in commercial real estate since last year, yet another example of why we think the Canadian government should prohibit its banks from operating in the US. We cannot think of a single example of a Canadian bank building value in the US market going back half a century. The credit losses for BMO's $300 billion asset US unit have been above the peer average going back years. To us this transaction is a win/win. BMO needs to reduce its risk exposure in the US, but FCNCA is going to manage these assets far better than BMO.  FCNCA is one of our favorite regionals and ranked 30th in the WGA Top 50 Banks in Q3 2025 . The $230 billion asset Raleigh, NC, based bank acquired acquired all customer deposits and loans of Silicon Valley Bank (SVB) from the Federal Deposit Insurance Corporation in March 2023. We’ll be updating the Top 50 Bank rankings in two weeks. The chart below shows the Top 50 Banks sorted by market cap with the better performing banks starting with SoFi Technology (SOFI) on the left. Source: Yahoo Finance Another reader asked regarding our earlier comment (" The Powell FOMC & the Housing Trap ") : “It seems like the natural conclusion from your argument is that the mortgage origination channels (especially refi) will be the big winners over the next two years. Something along the lines of Blend / Better / Rocket. Do you think that's correct?”