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December 18, 2025  | Earlier this week we had a great discussion with Carol Massar and Tim Stenovec of Bloomberg Business Week  about the state of the credit markets as we come up on Q4 earnings. As we told Bloomberg , what people are worried about today are the risks that are not visible in the financial data “because they know that a lot of things are being fudged.” Meanwhile, prosecutors have charged top executives of the bankrupt subprime lender Tricolor with what they called a years-long, “systematic fraud” scheme . As readers of The IRA  know very well, we expect to see more examples of the type of fraud visible in the defaults by Tricolor and First Brands in the new year. And as Eric Platt  and Sujeet Indap  noted in the FT  this week ( “‘JPMorgan has crossed a line’: How Altice’s debts ensnared US banking giant” ), the large banks are increasingly being forced to chose sides in the world of private credit. " JPMorgan Chase is facing the ire of some of the world’s biggest investors over the bank’s role in a complex multibillion-dollar refinancing at Patrick Drahi’s telecoms group Altice USA that threatens them with heavy losses," they wrote. Earnings Setup: The Top Seven Banks Below we take our readers through the top-seven US depositories by assets, a list which excludes Morgan Stanley (MS)  and Goldman Sachs (GS)  because their primary business units are broker-dealers, not banks. Goldman Sachs Bank USA had about $650 billion in total assets and $400 billion in domestic deposits in Q3 2025, but the more important metric at GS is the $3.5 trillion plus in assets under management.  As with the first two quarters of the year, the standardized data release by the Federal Reserve Board and the Federal Financial Institutions Examinations Council (FFIEC) shows improving earnings and falling credit expenses, but the picture beneath the surface tells a different story.  Banks today face a variety of market and risk exposures that are masked by credit risk transfers and other techniques to obscure the total risk taken by each bank. And, of note, we've added links in our final test group file for the FFIEC profiles to each bank.

In this edition of “The Wrap,” we give you our impression of the big stories of the past week. Each week, we provide our thoughts to subscribers of The Institutional Risk Analyst in advance of our new weekly podcast collaboration with Julia La Roche .  Yesterday, we gave our Premium Service subscribers a look at the top seven banks – Bank America , Citi , JPMorgan , PNC , Truist , U.S. Bancorp and Wells Fargo . The message, quiet credit on the consumer side of the ledger, but continued pain for commercial real estate and credit. And the top four money center banks continue to climb in the US equity markets despite occasional setbacks with perennial laggard Citigroup leading the way!  Who is our favorite of the top four banks? The Fed: Kevin Hassett's comments on Federal Reserve independence may have undercut his chances for the top Fed job. President Donald Trump has observed in recent days that there are “two Kevins,” Hassett and former Fed governor Kevin Warsh, who we personally support. Read our essay about how to reform the central bank in The International Economy  magazine’s latest issue. Hassett repeatedly stated that the Federal Reserve's independence is "really, really important". He clarified that while he would listen to the President's opinion if it was "based on data," the President's view would have "no weight" in the official decision-making process of the Federal Open Market Committee (FOMC), which operates by consensus. This statement no doubt surprised President Donald Trump , who will not make a final decision on the next Fed chairman until he does. Will departing Chairman Jerome Powell remain on the Board of Governors through January 2028, as Mariner Eccles did after his break with President Harry Truman in 1951? Of note, Bill Nelson of Bank Policy Institute says that the discount rate requests from Federal Reserve Banks imply there will be a slightly more hawkish FOMC in January. He writes: “At the upcoming January meeting, Cleveland (Beth Hammack), Philadelphia (Anna Paulson), Dallas (Lorie Logan), and Minneapolis (Neel Kashkari) will become voting members.  Based on the lack of conforming discount rate requests, it seems likely that Hammack, Logan, and Kashkari would have preferred no change at the December meeting, so three out of four.  By contrast, two of the four non-NY voting reserve bank presidents voted for no change at the most recent meeting.  By that count, the FOMC in January will shift hawkish by one member.”     Big Beautiful Housing Reform Meanwhile, somewhere in Washington, a search continues for good ideas to help housing and affordability, hopefully before next November. President Trump has promised a “radical reform” of the US housing market. So far the only policy proposals seem to be lower ST interest rates and pump-proming the market with more credit. But the more President Trump talks about lowering the target for Fed funds, the higher LT rates move, as shown in the chart below. Even though national average home price appreciation is slowing rapidly, the Trump White House seems to want to boost housing before the mid-term election. But most policy moves to pump housing today will only set the US housing sector up for a serious home price correction in 2027-28.  It's all in "Seeing Around Corners," our 2024 biography of Freedom Mortgage founder Stanley Middleman . The FHFA  just increased the conforming loan limit for 2026 by $26,250 (a 3.26% rise) to a baseline of $832,750 for one-unit properties, up from $806,500 in 2025, with even higher limits in high-cost areas. This increase, announced in November 2025, affects conventional mortgage borrowing power starting in 2026, allowing buyers to finance more expensive homes. If the Trump Administration was serious about addressing affordability, they would reduce  the conforming loan limit on conventional mortgages.  Ed Pinto , a fishing buddy and senior fellow and co-director of the AEI Housing Center at the American Enterprise Institute , has consistently argued against increasing the conforming loan limits. The former Fannie Mae official believes that increasing these limits expands the government's footprint in the housing market, crowds out private capital, and ultimately contributes to higher home prices and increased risk to taxpayers. Pinto contends that increasing loan limits and easing credit are not genuine solutions to the housing affordability crisis. Instead, he advocates for increasing the supply  of housing through local zoning and land-use reforms. FHFA Director Bill Pulte has been meeting with leaders in the housing sector for ideas on ways to enhance affordability, but there are few things that the federal government can do except make the situation worse by increasing already significant subsidies on residential housing for the middle class homebuyer. Crypto Coin Crime Across town at the Financial Crimes Enforcement Network , there is a growing awareness that the Genius Act passed by Congress earlier this year was actually a bonanza for criminal organizations who use stable coins to evade anti-money laundering activity.  The New York Times reported on December 7, 2025, that stable coins are being used by global criminal organizations. “These ‘cash to crypto’ swaps are an integral part of a global criminal ecosystem,” said Sal Melki , deputy director for economic crime at the National Crime Agency. The NYT is not alone in reporting the surge in criminal activity in crypto, Many other major media outlets and financial analysis firms have extensively reported on stablecoins facilitating crime, including WIRED , Reuters , Riskified , step.org , International Compliance Association. Financial firms like Chainalysis have also detailed the use of stablecoins in sanctions evasion, money laundering, and scams, with data showing their surging share in illicit transactions. “Criminals are swapping volatility for predictability: stablecoins tied to the U.S. dollar offer certainty and cross-chain speed needed to scale theft, forcing investigators to shift from post-fact subpoenas to real-time chain tracking,” notes BankInfoSecurity .  Our view is and has been from the outset that coins of all sorts are a legal, ethical and compliance nightmare. For investors who want to speculate on price movement in coins, using a registered ETF or futures contract is a far better way to participate and avoids the potentially catastrophic legal and financial risk of touching coins directly. Remember, every coin has a blockchain, a road map for FinCEN and other agencies to eventually apprehend individuals involved in elicit activities and their hapless counterparties. 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.

December 15, 2025  | Earlier in the year, we added some shares of Flagstar Bank (FLG) to our portfolio after spending much of the previous year watching slow but steady the progress of this $90 billion asset bank located in Hicksville, NY. In fact, FLG is currently the only bank common we own after taking profits in American Express (AXP) in July. Our friend Jim Cramer is not quite right. Banks are not cheap presently, but sometimes they become cheap. Wait for it. Source: Google The predecessor of New York Community Bank, FLG is now led by former OCC chief Joe Otting  and a group of new directors and managers comprised largely of managers from Flagstar. Suffice to say that had NYCB not merged with Detroit-based Flagstar in December 2022, the old NYCB probably would have failed along with Silicon Valley Bank, First Republic Bank and Signature Bank in Q1 2023. The problem then and now is multifamily real estate, the new subprime asset class for many banks owing to the inability of tenants to pay escalating rents. Inflation is the enemy of all but is particularly the nemesis of commercial landlords, who face shrinking net operating income (NOI) due to growing political angst over rising rent costs. NOI as we discussed many times in The IRA , is what determines the value of commercial property. In our earlier comment (“ Will Flagstar Survive ZoMa and Rebound? We Like the Leverage… ”), we noted that salon Marxist Zohran Mamdani  has promised to freeze rents in NYC rent stabilized apartments, an act of convenient theft against landlords who have no control over inflation. But truth to tell, New York mayors have mostly rhetorical powers. The actual authority to make such changes lies with the governor in Albany.  Since the FOMC has now seemingly decided that 3% inflation is acceptable, rents can only go higher. As a result, FLG and other New York banks are watching to see if the Republicans can knock out the unpopular Democrat incumbent Kathy Hochul  in an anticipated race with U.S. Representative Elise Stefanik . But regardless of who wins next year, we think that FLG is ahead of the game in terms of reducing exposure to toxic NYC multifamily assets vs other lenders in that politically impaired market. Truth is, low income families cannot afford to live in New York City without massive public subsidies. One of the reasons why we like the leverage in FLG is that CFO Lee Smith , who ran a national mortgage business for Flagstar, is growing capital and net interest margin as interest rates fall. Many of the bank’s multifamily loans have reset provisions that will either see the margin on these assets grow or the borrowers go elsewhere for mortgage finance. As a result, the bank has provided guidance to the Street (see chart below from Q3 earnings) showing NIM growing along with CET1 capital over the next year.  The average NIM for community banks in Q3 2025 was 3.7%, the FDIC reports, so FLG has plenty of room on the upside to improve beyond current guidance. One of our early concerns with NYCB going back to 2024 was the relatively low yield on loans and leases, but Smith and the team at FLG are working aggressively to change that dynamic. Net interest margin at FLG is projected to modestly move higher in 4Q’25 and beyond driven by a number of factors: Funding costs expected to decline further in 4Q’25 and 2026 Yield on multi-family loans resetting higher 300 to 350 bps New asset growth in higher yielding assets outside NYC market, and Further reduction in non-accrual loans in legacy portfolio We don’t minimize the challenges facing FLG and other NYC lenders, but we are encouraged by several factors. First, the near-failure of NYCB and the rescue led by Joe Otting and former Treasury Secretary Steven Mnuchin  allowed the bank to clean house more than a year ago, eliminating the legacy board and many of the managers who ignored the alarming deterioration of the once prime value of New York City multifamily assets.    At first, we (and many others) thought that a mere $1 billion in new capital was too little downpayment to fix the bank's problems, the former Flagstar team has already made radical changes to the bank’s troubled loan portfolio and also sold the residential mortgage servicing business to Mr. Cooper (now Rocket Companies (RKT )) and the #2 ranked wholesale warehouse lending business to JPMorgan (JPM) , two trades which may look very astute in coming years.  Let’s face it, board director Steve Mnuchin  is not known for his great love of residential mortgage risk, so while some observers (ourselves included) were disappointed to see Flagstar shed the top-ten national residential loan and securitization business, the timing was very astute and allowed the bank to monetize both assets at top dollar. With a growing number of multifamily property owners facing default in 2026 , regardless of what ZoMa does or does not do in terms of a rent freeze, lightening up on credit exposures for all residential assets – single family and subprime multifamily assets in NYC – seems like a good idea for banks. Indeed, Flagstar Financial, could be "attractive" acquisition target, CEO Joseph Otting said earlier this year at an industry conference. We agree. Multifamily: The New Subprime    FLG is not the only bank around the US to recognize the growing political exposure of multifamily assets. We don’t think future political changes in Albany or other blue states are going to alter the negative trend in terms of credit outlook for multifamily assets in major cities like New York. The huge disparity between the average performance of the $650 billion in bank-owned multifamily assets and the $3.6 trillion in prime bank first and second lien residential single-family loans tells investors all they need to know about such properties.  Beyond the $650 trillion in bank owned apartment loans, t here are trillions more in inferior multifamily assets owned by HUD, the GSEs and commercial mortgage backed securities (CMBS) investors.  The fact that HUD, Fannie Mae and Freddie Mac are reported to be buyers of multifamily loans in markets like New York makes us wonder. When will the taxpayer will be forced to restructure loans inside major blue cities like New York, Chicago and other markets where socialist candidates hold positions of authority? Source: FDIC/WGA LLC The rate of net loss or loss given default (LDG) on relatively prime bank-owned multifamily loans immediately normalized to 100% of the loan amount before President Joe Biden had even declared the COVID emergency to be over. Nobody in Washington thought to help commercial landlords who had to finance federal and state loan and rent moratoria by concerned socialists like ZoMa and NY Governor Kathy Hochul .  But to be fair, it was President Donald Trump who declared the federal crisis in 2020 that allowed loan forbearance. Team Trump worried not at all about how the residential and multifamily markets would finance hundreds of billions of dollars annually in loan and rent forbearance. Only the fact of massive purchases of Treasury debt and mortgage securities by the Federal Reserve Board in 2020-2021 generated the cash float needed to finance residential loan forbearance, but many commercial property owners took a total loss.  The 50% increase in home prices since 2020 represents the cost of COVID loan forbearance, which resulted in a massive flow of purchase and refinance loan volumes. Had the Fed not dropped the hammer on interest rates in March 2020 and enabled an explosion in lending volumes, one out of every five residential mortgages might have defaulted and gone to foreclosure. The impact on housing and the US financial system would have looked like the mid-1920s, as we described in our previous comment. The financial cost of the individual and business shock of this wave of such a large surge in loan defaults would have pushed the US into a 1930s style debt deflation, with banks and nonbank lenders failing and the US forced to backstop the guarantee on trillions in government insured MBS. The GSEs, likewise, would have been forced to absorb the cost of two years of conventional loan forbearance, an event that might have pushed one or both GSEs into default.  Across nearly all capital sources, multifamily delinquency rates have been rising throughout 2024 and 2025 due to factors such as higher operating costs (insurance, taxes), elevated interest rates, and increased supply of new apartments in some markets, which has led to higher vacancy rates and rent concessions. Lower interest rates will help in terms of refinancing for stronger properties, but forbearance remains the rule for many urban multifamily properties.  Source: FDIC/WGA LLC While the allocation of 1-4 family loans on the balance sheets of US banks has fallen dramatically, the portion allocated to multifamily assets has ranged between 3-5% of total loans going back half a century. Today the trend is definitely headed lower. The assets owned by banks tend to be the better quality loans, while the inferior borrowers go to the CMBS market or HUD and the GSEs in descending order of quality.  Yet given the demographic changes in the US economy over the past five decades, multifamily assets ought to be a larger share of total bank loans. "Delinquency rates for apartment commercial mortgage-backed securities fell 14 basis points to 6.98% in November, after topping 7% in October for the first time since December 2015, according to a report from data firm Trepp," reports Multifamily Dive . "After rising 23 bps in October, the Trepp CMBS delinquency rate for commercial real estate fell 20 basis points to 7.26% in November. It has only fallen three months this year. The delinquent balance rose $5.8 billion to $603.9 billion." These figures are a concern, but looking at the unusually low FDIC figures for other real estate owned (REO), we think it is safe to conclude that reported delinquency rates for many multifamily assets in blue, politically exposed markets are understated due to forbearance from lenders. And most lenders no longer report when a loan is subject to forbearance. But the growth in income earned but not collected suggests that some of the other metrics are understated. Source: FDIC “The delinquency rate for commercial mortgages increased in the second quarter of 2025 across most major capital sources,” said Reggie Booker , MBA’s Associate Vice President of Commercial Real Estate Research . “The largest increase was among CMBS loans, driven by rising delinquencies in both multifamily and office properties. Delinquency trends continue to reflect differences in property type, loan structure, geography, and borrower profile.”   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.

December 12, 2025  | In this special edition of “The Wrap,” we give you our flow-of consciousness impression of the past week. Each week, we give our thoughts to Premium Service subscribers in advance of our new weekly collaboration with Julia La Roche . “The Wrap with Chris Whalen" is released on YouTube , Spotify and Apple Podcasts over the weekend. And we get warmed up for Julia by speaking on The Business Briefing with Janet Alvarez on SiriusXM Radio Channel 132 at 9:00 AM on alternating Fridays.

December 11, 2025  | At the Goldman Sachs financial services conference this week, the JPMorgan (JPM) consumer banking chief made a surprise earnings pre-release that startled the audience and not in a good way. Marianne Lake stated that the bank expects its 2026 expenses to reach approximately $105 billion, a figure that surpasses Wall Street analysts' estimates (and JPM guidance) of around $101 billion. Somehow between the end of Q3 and today, JPM's estimate of expenses grew by $4 billion. How's that for effective systems and controls?   The surprise pre-release of Q4 results led to a significant drop in JPMorgan's stock price and took down the entire sector along with it. But is this the only negative surprise likely to come from JPM? We think not. CNBC’s Jim Cramer said on X yesterday that investors should buy JPM on the dip, but we disagree. In fact, the markets seem to know something about JPM. Maybe this explains why Citigroup (C) has outperformed the House of Morgan all year. Source: Yahoo Finance (12/10/25) Below we discuss why we think that JPM and other large banks may have some additional negative surprises in store for shareholders in coming months, in part due to the growing carnage in private equity and credit. The US has not seen a credit led recession in over a decade and the rot is getting monumental. The deteriorating metrics in corporate debt, and private equity and credit, suggest that a correction long overdue is now arriving. And we also provide some ideas for our Premium Service readers about mortgage stocks that will benefit in a falling interest rate environment in 2026 and beyond. First Brands, Tricolor and Private Credit Major banks and financial firms like Jefferies Financial Group (JEF) , UBS Group AG (UBS) , Bank of America (BAC) , Goldman Sachs (GS) , and a slew of private credit funds including Marathon Asset Management, Monroe Capital, Evolution Credit Partners, and Onset Financial provided significant financing to the now-bankrupt First Brands Group. This private credit came primarily through complex debt structures, inventory financing, and off-balance sheet lending. JPMorgan and Fifth Third Bank (FITB) were major lenders and facilitators for another fraudulent borrower, Tricolor, a subprime auto lender that went bankrupt in September 2025. JPM and FITB were the enablers for Tricolor, providing crucial short-term "warehouse" financing and helping package Tricolor's risky auto loans into asset-backed securities for investors. And what do First Brands and Tricolor have in common? Private credit. Wells Fargo (WFC) leads US banks in direct private credit lending volume, followed by Bank of America (BAC) , PNC Financial (PNC) , Citigroup, and JPM, with banks increasingly partnering with non-bank credit shops, like Citi's deal with Apollo (APO) . We’ve noted the hyperbolic growth of bank lending to non-depository financial institutions (NDFIs), but now the prospect of rising credit defaults may start to weigh upon the equity market valuations of JPM and other major banks. The two charts below shows total loans to NDFIs as of Q3 2025 at $1.3 trillion and also all unused bank lines. The category "all other unused loan commitments" in the second chart (purple line) is over $4 trillion and includes undrawn lines to NDFIs. For every dollar of credit already drawn by NDFIs in that $1.3 trillion figure, there is another $1 or more that borrowers can draw just prior to filing bankruptcy. This is what they call "Exposure at Default" under Basel III. And many NDFI loans by banks are non-recourse, but most NDFIs have no net assets in any event. Source: FDIC Source: FDIC “Banks have adopted new strategies in reaction to the shifting market environment, with a focus on growing loans to non-depository financial institutions (NDFIs), which reached $1.2 trillion as of late June for domestically chartered US banks,” Moody’s wrote in October . “About $300 billion of these loans are to private credit providers, helping fuel the expansion of the sector.”  But we think that the total exposure to private credit by the largest US banks is far larger than most analysts appreciate. The Next Shoe to Drop: Private Equity Banks now actively offer non-recourse financing for private credit loans, notes our colleague Nom de Plumber . “Private Equity-affiliated insurers typically own the loans, but have posted them as collateral, in exchange for unencumbered cash, almost like buying stock on thin margin. As critical distinction, if the private credit loans go bad, these insurers can relinquish them and keep that cash, since the banks have waived recourse.”

December 8, 2025  | In this issue of The Institutional Risk Analyst , we feature some reader questions and look at several nonbank financials that may benefit as interest rates fall. Importantly, mortgage spreads (the difference between loan coupons and benchmark Treasury yields) are falling, a significant bull market signal for interest rate sensitive stocks that benefit from higher loan volumes. In our next comment, we'll drill down on several names that will benefit from a falling interest rate environment. Secondary mortgage spreads have tightened in 2025 due to strong investor demand from money managers and REITs, reduced interest rate volatility  (and lower hedging costs), increased liquidity from Fed actions, and a flight to quality favoring lower-coupon MBS, all signaling improved confidence and technical support in the agency mortgage-backed securities (MBS) market despite broader market flux. But US banks are not increasing exposures to 1-4s. Source: FDIC As we noted in our new working paper on nonbank mortgage issuers, “ Back to the Future in Nonbank Finance: Excess Servicing Strip Transactions 2.0 , ” banks remain reluctant to increase exposure to mortgage assets going back to before the great financial crisis in 2008. Why? Facing the American consumer is toxic. Source: FDIC Speaking of primary-secondary mortgage spreads, last week during our quarterly call for subscribers to our Premium Service , a reader named Geoff asked about Annaly Capital Management (NLY) , a LT holding in our portfolio: “You went over two key points related to NLY that piqued my interest. Namely how Hassett might not follow thru on his stated rate policy and what, if any, impact banks re-entering the mortgage market might have on mortgage rates and the servicing rights business pursued by NLY. The rate discussion is interesting because there has been a lot of interest in the steepener trade. NLY is in a particularly nice situation due to the limited credit risk and higher MBS yields vs say the 10 yr swap which is more or less scratch on short term funding costs at present. You brought to mind two risks to this trade. One, short term rates aren’t a shoe in to go lower, and two, could bank re-entrance lower mortgage rates, thereby compressing spreads via lower MBS coupons over and above any impact by lower rates in general. NLY's MSR business, however, is something I don’t really understand. It seems like this section of the business is really there to balance the spread business. I read your paper in the link at the end of today’s note and am trying to put the pieces together. Seems like NLY might struggle to compete with the banks in this business going forward as the cost of funds is likely lower for banks. I also wondered about the impact on volumes for originating companies like RKT, LC, PFSI, etc. as it seemed the banks are only interested in providing capital, not originating? Do any of these concerns reduce your inclination to hold any or all of your NLY shares in the portfolio? We’ve owned NLY on and off for many years and have a lot of respect for their management team. Our basis in the stock is well-below par, so we are quite comfortable owning the position, which we hold primarily for income rather than alpha. The fact that NLY acquires mortgage servicing rights or MSRs, which are negative duration payment intangible assets with cash flow, makes the investment proposition even more attractive for us. MSRs provide a natural hedge for mortgage loans and MBS. But we don't own REITs for alpha. REITs as a group are pass-through vehicles that are typically owned by income-oriented equity investors and are not generally good market performers in terms of alpha. Compare say the hybrid REIT Rithm Capital (RITM) , which owns a taxable lender, and PennyMac Financial Services (PFSI) , the external manager of mortgage REIT PennyMac Investment Trust (PMT). RITM purchased several lenders over the years in order to hold Ginnie Mae servicing assets, which are prohibited assets for REITs. PFSI trades on a trailing P/E of 14x vs ~ 8x for RITM. PFSI trades around 1.6x book vs 0.9x for RITM as of Friday. Case closed? We have long believed that RITM should spin off its manager to create a comp for PFSI and then externally manage the RITM REIT. Like PFSI, in this scenario the new RITM manager would need to retain the Ginnie Mae MSRs. Likewise, we believe that Two Harbors (TWO) , another hybrid REIT that owns a lender and creates MSRs with its captive lender, would benefit from spinning off the lender Roundpoint/Matrix, which would then become the external manager of the TWO REIT. Why Don't Banks Like Mortgages? No matter how many research notes our friends on the Sell Side right about banks buying more MBS, it's just not happening. As we noted in our paper, banks have not been major buyers of mortgages or servicing assets for decades, although there was an unfortunate increase after COVID leading to the failure of Silicon Valley Bank. Fact is, the portion of bank loans and assets allocated to 1-4s has been declining for a quarter of a century. Part of this indifference to mortgage exposures by banks may come from the absurd, 250% capital risk weighting for 1-4s in the Basel capital framework. After all, MSRs don’t have any default risk. The Basel Committee has never published an explanation for its punitive risk weighting for MSRs.   But the bigger obstacles to banks increasing their participation in 1-4s and MSRs are low risk-adjusted returns and reputational risk from facing consumers. The combination of idiotic progressive politics and the American trial bar serves as a significant disincentive for banks to lend money to low-income borrowers. Thus when you look at the allocation of bank mortgage and consumer credit assets, the lower 25% in terms of income and credit score are largely ignored by banks. Some 80% of all mortgage originations have FICO scores above 720. The big factor in the stock prices for many mortgage lenders is how aggressive the management team becomes in terms of capturing volumes and thereby drive higher ST earnings. The volumes may or may not be profitable, but the gain on sale accounting under GAAP manages to conceal the cash reality very nicely. The value of the mortgage-servicing right or MSR at the close of a mortgage loan represents the present value of future cash flows that have yet to be received, one big reason why we like the idea of large institutional investors financing the MSR and backstopping loss mitigation expenses. In our next comment, we will look at some of the top names in financials in a falling interest rate environment for subscribers to our Premium Service . Don't forget to take advantage of our Winter Sale by using coupon code "IRA2025" for 25% off for the first year of the Premium Service of The Institutional Risk Analyst. Offer ends 12/31/2025!   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.

December 5, 2025  | In this issue of The Institutional Risk Analyst , we recap the week’s key events and add our own insights and observations. We’ll be discussing some of these topics in our weekly conversation with Julia LaRoche , “The Wrap.” And for subscribers to our Premium Service , the audio file for our quarterly conference call is at the end of this comment.

December 3, 2025  | In this issue of The Institutional Risk Analyst, we feature a conversation with a long-time friend and fellow Lotosian James G. Rickards . We last spoke with Jim in 2024 when he was just releasing his latest book “ MoneyGPT: AI and the Threat to the Global Economy .” Of note, Jim will be speaking to a members-only gathering at The Lotos Club of New York in January 2026. Following the event, Julia LaRoche and The IRA editor Christopher Whalen will host a discussion with Jim. And a reminder, the quarterly conference call with subscribers to the Premium Service of The IRA will be this Thursday at 10:00 AM. James Rickards  The IRA: Jim, let’s begin with AI and the crypto mess. The Financial Times just carried a fascinating article that said that global insurers are unwilling to cover AI because it has too many errors.   Rickards: Well, there's that, and I could go on, but I think that's the smart move by the insurers. You can't underwrite a risk if you don't understand it.   The IRA: Our view is that AI is fine for consumers. We'll have a lot of fun with these tools. But for the enterprise, if it's not pretty close to perfect, you can't roll it out because somebody is going to turn around and sue you. And I think that's really what the insurers are saying. Many of our colleagues working in the mortgage and consumer credit industry confirm this view. AI tools cannot be made operational unless they are nearly perfect and most of AI is miles away from perfection.   Rickards: Well, that may be, and that would be a smart thing to say. I would go a lot further, of course, you know. In my ChatGPT book, I talk about this question and recall my discussions with Gilman Louie , who was the CEO of In-Q-Tel , which is the CIA's venture capital firm. He said, 'Jim, what's behind the curtain is way more powerful and indeed frightening than what we know about.’ There are legitimate concerns about what we already know about. What people are worried about in AI already exists. These more powerful AI tools are being held back behind a curtain because the creators are afraid themselves. They don't think the guardrails are in place, the governance, anything, and they don't even know how these AI tools will behave. So, they're holding these tools back. So, those kinds of concerns are not in the future. They're real and they're here and now.   The IRA: So you mean we may actually have something that's smart enough to drive the Waymo self-driving car around San Francisco without killing the cat ?   Rickards: Well, or smart enough to start World War III. That's the problem.   The IRA: How have you reacted to the recent sell-off in crypto? Were you kind of expecting this sort of rout as we were?   Rickards: It’s funny. People think I'm technophobic. It's not true. I read that Satoshi Nakamoto paper in 2009. But I've been in like eight or nine gold versus bitcoin debates. And I won each time. I took the side of gold and I won every single debate until about two weeks ago in Nashville. It was me and James Altucher . And James was taking the side of bitcoin. I was for gold. We had a large audience, about 700 people. And it was refereed, all fair. And I lost. And I said to myself, 'That's the top.' I said, 'If I lost this debate, if my pro-gold audience votes for bitcoin, that's a top for bitcoin.' And since then, it's down 25%, 30%. And gold's flattish, but not down at all. Maybe up a little bit. So, the answer is no— the selloff in bitcoin did not come as a surprise. In fact, the minute I lost the debate, I said, 'that's got to be a top because this is not a bitcoin crowd.' And it was an older demographic. They were 60, 70 years old. They were there because they like gold, among other reasons. I said, 'if they've gone around the bend for bitcoin, then there must be no investors left who aren't already in.'   The IRA: Or put another way, the smart money is already out. We did a piece about before Thanksgiving called “ Wall Street Killed bitcoin .” And we quoted our friend Michael Green at Simplify , who is one of the more educated, erudite people on Wall Street. And, you know, to your point, when you have... these ETFs and other things spreading and you have such broad uptake, it has to signal that kind of the bloom is off the rose, at least from the early days, don't you think?   Rickards: Yes. Leaving aside the issue of what bitcoin is, and again, blockchain has been around since the 80s. I understood the applied mathematics. I got it. It was a good illustration of the fact that really good applied mathematicians don't know anything about money, but that's a separate issue. I understood exactly how it worked— what it does, you know, and why, etc. But I never could quite figure out what bitcoin is. I mean, it's a couple electrons. I get that. But what is it? And it took me a very long time. And I finally came to understand what it is. You know, it's kind of an extended metaphor.   The IRA: Bitcoin is an option to take advantage of a greater fool. The latest version of the oldest story, namely human greed. The hard-wired propensity to chase the shiny object that exists inside all humans. As put most succinctly by Friedrich Nietzsche , “Madness is rare in the individual—but with groups, parties, peoples, and ages it is the rule.” Rickards: But around that, leaving what it is, okay, that's a core issue. The proponents of bitcoin have replicated the entire ecosystem of Wall Street, you have custodians, you have clearance firms, you have exchanges, you have derivatives, you know, et cetera . They basically took everything that's taken— four or five hundred years of experience to create around Wall Street and duplicated it around crypto – but with one difference, which is there's no regulation. There's no FDIC and there's no lender of last resort. So, you have basically set yourself up for failure. Pick the crisis; 1869, 1907, 1929, 2008. Take all the great financial panics. We've set ourselves up for that with no safety net, because the reason the safety net exists was because of all those prior failures.   The IRA: Right. But, you know, the crowd pushing crypto explicitly decided we don't want to be a security. We think that was a major miscalculation. And yet today bitcoin is correlated to the securities market because of perpetual futures and ETFs. They're kind of captive now to the narrative of Wall Street. Some of the bitcoin ETFs have been annihilated in the past few weeks.   Rickards: You're exactly right. And a lot of people are looking at correlations of statistics and standard deviations and all that stuff, which I don't have much time for. To me, the way you understand things like bitcoin is through behavioral psychology. The power of the narrative is huge. Wall Street pumps out narratives because they need a story to sell your stocks. Most of the narratives are just wrong. You can demonstrate that, but it doesn't matter. People believe it. You get into the self-fulfilling prophecy. If enough people believe the narrative, the narrative becomes true. Not because it's fundamentally true, but because people behave in accordance with the narrative. So the narrative now is that bitcoin is correlated to Nasdaq. Good luck with that.   The IRA: But that's precisely the thing we worry about. If you look at the demographics that you and I have followed for years, we're on the other side of the slope heading down. Doesn't this imply that the easy days of pump and dump and narrative building are behind us? Are manufactured narratives such as NVIDIA, obviously, vis-a-vis AI, going to be more difficult? Or are false narratives from Wall Street just a built-in thing in the marketing system? And we'll just have a next phase of marketing hype by next year?    Rickards: No, I definitely think we're at an inflection point. I hate to use clichés, but that's one that is appropriate here. People forget the Dow Jones hit 1,000 in 1969. It then went down to like 300 and didn't get back to 1,000 again until 1983. That was 14 years in the wilderness. Now, there were ups and downs. I'm not saying you couldn't make or lose money in the stock market. You could. But it never got back to 1,000 for 14 years. Then, when you adjust for inflation, the thousand was only 500.   The IRA: Inflation is one of the greatest problems of using time series data to illustrate economic trends. Look at the US banks. Balance sheets have more than doubled since 2008. You really need to inflation-adjust statistics to avoid the greatest cognitive illusion, namely the inflation trap.    Richards: Right. In real terms, because we have 50% inflation, 5-0 from 1977 to 1981. So, so in real terms, you weren't even back to a thousand on the Dow in 1983; it was only nominal. That's what a bear market looks like. But that's 14 years without making any money or actually losing quite a bit of money. So, we could be in for something like that where it doesn't have to be 1929 or 2008 all over again. It can just be 15 years of no or few real returns.   The IRA: Exactly. The strength of America, don't you think, is the fact that we're always willing to get back into the game. After COVID, for example, the US bond market came back almost immediately. And yet these false narratives with crypto and AI on the financial market side are deviating dramatically vis-a-vis gold. In fact, gold has been pretty stable in this sell-off. We don't think selling gold is really that good of an idea, given the demand characteristics in the market. How do you view it? Rickards: So gold went basically from $2,000 to $4,000 an ounce, almost in the blink of an eye, two years maybe, but that's after going more or less sideways since 2011. With the prior peak in 2011, gold peaked at $1,900, just a little bit shy of $2,000.  It then fell 50%. And hit an interim low in 2015, December 2015. Right? So, it was a four-year bear market. And it's been coming back ever since. But most of the period— from 2015 to 2022, or give or take— it was 1,300, 1,400, 1,800, back down to 1,200. Again, you can make or lose money, but it was in kind of a broad range, but not a very broad range. And then boom! So now here we are at 4,000.   The IRA: The move to $4,000 was driven by a lot of changes going on in the background, central bank buying and also the increases in the US debt.   Rickards: Yes and all the people who were like, 'Look at gold! It's amazing! It's incredible! I'm, like, this is just noise. The fact is, saying that gold's going to $10,000 an ounce now is almost a cliche. I mean, it is. But everyone's saying that. It's funny, when I started... as kind of as a public voice on gold around 2012, there were a bunch of people advocating gold who had this space. I was probably older than some of them, but I was the new kid on the block. Anyway, when gold crashed after 2011, they all disappeared. And I kept going. I kept writing my book, The New Case for Gold . I kept talking. And these guys went away. And then some of them reemerged as crypto bulls. But this would be my value-added forecast. Gold is going to go to $10,000 a lot faster than people realize, a lot faster than people think. And the reason is, again, behavioral psychology.   The IRA: Do tell.   Rickards: So there's a phenomenon called anchoring. And anchoring is a cognitive bias. And basically, we get a number in our head, or we get an idea in our head, and we anchor on it. That's our safety zone. But then we filter all the incoming information. We filter through that anchor. There are, like, 100 cognitive biases, but that's a powerful one.  And so, people say, well, if you have 50 ounces and it goes up $1,000 an ounce, you just made $50,000. And that's true. And it goes up another $1,000 an ounce. You just made another $50,000. And that's true. And we've had a couple of those milestones in the last couple of years. People get anchored on the $1,000 and the $50,000, but what they don't realize, this is fifth-grade math, is that each $1,000 hurdle is easier than the one before because you're working off a higher base. So, as a percentage gain, it's much easier. So going from 3,000 to 4,000 is a 33% gain, that's a heavy lift. But going from 9,000 to 10,000 is an 11% gain, which is like a good month. So my point is: Yeah, we're going to take a while to get to 5,000 and then 6,000. But you're going to go 7, 8, 9, 10 really fast because they're just easier milestones because each one is a smaller percentage gain than the one before. And so people who... watch gold go from 2, 000 to 3,000, 3,400, like man that was yeah nice going but that was a long haul. And they extrapolate that without stopping to think that it actually gets easier and faster.   The IRA: Well, it's very similar to the progression of bitcoin. If you had been in early on, in 2009, it had some of its best gains in the first few years.  And from then on, it was diminishing returns, even though impressive. What you've just described makes me think about some of the doom and gloom voices who are either all into bitcoin or also all into gold. Talking about how there's going to be this sudden apocalyptic collapse of the US dollar and the economy. And I keep looking at them and I say, no, no, it's just going to change. We'll have more gold, but the fiat system in all of these countries that are now buying gold for reserves is going to continue. They have no choice, right? The Financial Times August 15, 2025   Rickards: That's right. Your analysis is exactly right, Chris. You just have to take a breather and say, 'Wait a second.' Let's deconstruct that a little bit. There are charts flying around from different services and they show that gold as a percentage of total reserves and then dollar denominator securities as a percentage of total reserves. And they just crossed for the first time in some time, decades or maybe longer. Gold is a higher percentage than dollar denominator securities. And everyone's like, 'Well, this proves that—' Countries are dumping treasuries and buying gold. No, it doesn't. I mean, central banks are buying gold, but it doesn't prove anything. It's because the price went up. You don't need any more gold. If your numeraire is the US dollar and you're computing dollars as a percentage of the total, then the mere fact that the price of gold went up is going to increase that percentage, even if you didn't buy an ounce.   The IRA: Correct, but isn’t the major change the level of gold buying by global central banks even if they are not sellers of dollar securities?  The Chinese don’t earn any income on the gold sitting in a vault in Beijing.     Rickards: From an investment trading point of view, gold is what I call an asymmetric trade, which is the central banks are net buyers. From 1970 to 2010, central banks were net sellers of gold every single year. Beginning in 2010, they've been net buyers every single year. Now, different central banks, not all the same players. Some are in, some are out. On the whole, they've been net buyers ever since, and that's going to continue. And this is what, for people who want to go back and look at my book, Currency Wars , which came out in 2011, but I described a financial war game that I facilitated in 2009 where Russia and China would come up with a new... currency backed by gold.     The IRA: But neither Russia nor China have tried to create a new global currency. Russia had about 600 metric tons, and China had about 600 metric tons. Today, Russia has about 2,500 metric tons. And China has about 2,900 metric tons. That they admit, odds are China has perhaps doubled that off the books in the State Administration of Foreign Exchange (SAFE). In other words, Russia and China did exactly what we told the Pentagon they were going to do in 2009. Although, you know, here we are, what, 16 years later.   The IRA: What do you expect in terms of official buying of gold?   Rickards: Well, it’s going to continue. And central banks are actually very smart buyers. I hate to say, you know, they buy the dips, but they kind of buy the dips. In other words, if you were buying gold and you weren't done. You actually don't want the price to go up that much because you want to keep buying. It's going to go up eventually. Yeah, if you're still in the market you're happy with a lower price, but above all, they don't want to disrupt the market. Nobody did this better than Russia. Russia had standing orders with the banks of London. It's like you know, 10 to 30 tons a month. You know, don't disrupt the market. Buy the dips.   The IRA: We did an interview earlier this year with Henry Smyth , who runs a gold fund in the Bahamas. In 2011 when you became an advocate of gold, he tried to get managers to increase allocations. He did not get much of a reception, but like you he stayed focused on the long-term value proposition and had done very well for his clients.    Rickards: But all of this means is, from an investor's point of view, is that the central banks kind of have your back. They're not going away. And so, there's limited downside. An unlimited upside. Because there is a long list of things that could drive the price of gold up a lot higher. Not necessarily central bank buying, but, you know, pandemic, social unrest, civil war, another war in Ukraine. A natural disaster. So, when you have a trade where you have limited downside and unlimited upside, that's my favorite kind of trade. The IRA: Thanks Jim. See you in January at Lotos.    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.

December 1, 2025 | We have published the latest edition of The IRA Bank Book for Q4 2025 . Entitled "Defaults Fall, Market Risk Grows," the report details how indicators of consumer credit risk are falling even as risk to financial markets from institutional and commercial credit, crypto tokens and market exposures grow. Bank income has reached record levels in Q3 2025, but what happens in Q4 2025 and 2026? The flow of bank loans supporting private equity, credit strategies and crypto offerings continued to grow in Q3 2025, although the rate of increase is naturally slowed as the size of the bubble in non-depository financial institutions (NBFIs) expanded. As in Q2 2025, the largest bank portfolio increases reported by the FDIC are in loans to NBFIs and broker-dealer loans to purchase or carry securities, including margin loans. Many large securities dealers that extend margin credit are affiliates of big banks. Source: FDIC The WGA report notes that the market performance for the banks in the WGA Bank Top 50  continues to be strong despite the selloff in early November. SoFi Technology (SOF)  leads the pack up 85% YTD as of the end of November. Goldman Sachs (GS) , Morgan Stanley (MS)  and Citigroup (C)  continue to lead the larger group. Lending Club (LC)  was #2 behind SOFI at the end of November, the report notes. The top ten bank stocks in the WGA Bank Top 50 as of November 28, 2025, are shown below: Source: Yahoo Finance Margin credit in the US reached another new peak in October 2025. While rising margin debt can reflect investor confidence, we see it as a warning sign of excess speculation, potentially increasing market risk for depositories. The selloff in AI stocks and crypto tokens in the first two months of the fourth quarter may result in credit losses to banks and dealers. Source: FINRA Copies of The IRA Bank Book for Q4 2025 report are available to subscribers to the Premium Service of The Institutional Risk Analyst . Stand alone copies of the WGA report are also available for purchase in our online store . Media wishing to receive a courtesy copy of the report please email us: info@rcwhalen.com Premium Service subscribers may download the new report below.

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 .