×

FIRST ON CNBC: CNBC TRANSCRIPT: CNBC'S DIANA OLICK SPEAKS WITH MICHAEL BERMAN, MBA VICE CHAIRMAN, TODAY ON CNBC'S "SQUAWK BOX"

WHEN: TODAY, WEDNESDAY, SEPTEMBER 2ND AT 8:30 AM ET

WHERE: CNBC'S "SQUAWK BOX"

Following is the unofficial transcript of a FIRST ON CNBC interview with Michael Berman, MBA Vice Chairman, today on CNBC's "Squawk Box" at 8:30AM ET.

All references must be sourced to CNBC.

-----------------------------------------------------------------------------------

LIESMAN: DURING THE TUMULTUOUS MONTH OF SEPTEMBER 2008 THAT THE GOVERNMENT TOOK THE REINS OF FANNIE MAE AND FREDDIE MAC IT WAS REALLY JUST THE BEGINNING OF A REALLY PHENOMENAL MONTH. NOW THE BANKERS ASSOCIATION IS OUT WITH AN EXIT STRATEGY THAT COULD CHANGE THE FACE OF THE MORTGAGE MARKET. CNBC'S REAL ESTATE CORRESPONDENT, THE FORECLOSURE PHENOM, DIANA OLICK JOINS US WITH THE DETAILS AND A FIRST ON CNBC INTERIVEW.

OLICK: YOU HAVE TO STOP WITH THAT. JUST KIDDING.THE CREATION OF A NEW LINE OF MORTGAGE-BACKED SECURITIES THROUGH THE INVENTION OF A PRIVATELY OWNED, GOVERNMENT-CHARTERED MORTGAGE CREDIT GUARANTOR ENTITY. IT IS A McG NOW THE MCG BUYS LOANS POOLS THEM TO SECURITIES PAYS AN INSURANCE PREMIUM TO A NEW GOVERNMENT FUND AND SELLS THEM TO INVESTORS WITHGUARANTEES AGAINST THE DEFAULT OF THOSE SECURITIES. INVESTORS TAKE THE INTEREST RATE RISK BUT ARE NOT TAKING A CREDITRISK.McG TAKES THE CREDIT RISK. BUT THE NEW INSURANCE FUND GUARANTEES THE PRINCIPAL AND INTEREST PAYMENT ON THE MORTGAGE SECURITIES IF SOMETHING HAPPENS TO McGs.THEY ARE SMALLING AND WOULD REPLACE FANNIE MAE AND FREDDIE MAC. AND JOINING US FOR A FIRST ON CNBC INTERVIEW THE ARCHITECT OF THE PLAN VICE CHAIRMAN OF THE MORTGAGE BANKERS ASSOCIATES MICHAEL BERMAN, THANKS FOR JOINING US.WE HEAR GOVERNMENT-BACKED, SMALLER THAN FANNIE AND FREDDIE,BUT STILL GOVERNMENT-BACKED. WHAT IS THE TASK PAYER RISK IN THIS NEW PLAN?

BERMAN: THE KEY HERE IS TO VIRTUALLY ELIMINATE TAXPAYER RISK AND KEEP THE RISK IN THE PRIVATE SECTOR.AS YOU STATED THE INTEREST RATE RISK WOULD BE WITH THE BOND HOLDERS. CREDIT RISK WOULD BE WITH THE McGs AND IT WOULD BE A STRONG REGULATOR THAT WOULD MAKE SURE THERE'S WAS ADEQUATE CAPITAL, APPROPRIATE CAPITAL STRUCTURE FOR THOSE MCG'S ON AN ONGOING BASIS. IN ADDITION, THEY WOULD MANAGE THEIR RISK BY USING PRIVATE MORTGAGE INSURANCE, CREDIT DEFAULT SWAPS AND OTHER TOOLS. AT THE SAME TIME, AS YOU ALSO DESCRIBED, THERE WOULD BE PAYMENT ON AN ONGOING BASES EVERY TIME THEY USED THEIR ACCESS TO ISSUE THESE GOVERNMENT WRAPS AROUND THE MORTGAGE-BACKEDSECURITIES. SO, THERE WOULD BE THIS FEDERAL INSURANCE FUND THAT WOULD BE BUILT UP. THAT WOULD BE THERE IN THE EVENTOF A CATASTROPHIC EVENT WITH RESPECT TO THAT PARTICULAR McG. AGAIN, WE HAVE A SERIES OF BUFFERS SO THAT IF THE REGULATORS ARE DOING THEIR JOB APPROPRIATELY AND THEY'RE MEASURING THE CAPITAL ADEQUACY APPROPRIATELY, YOU WOULD NEVER HIT THE GOVERNMENT AND THE TAXPAYER WOULD NEVER HAVE TO PAY.

OLICK: YOU TALK ABOUT REGULATORS ANDOVERSIGHT. CERTAIN TYPES OF LOANS AND RESTRICTIONS ON THE LOANS.WHICH LOANS WOULD BE ELIGIBLE FOR A McG AND FOR A McG MBS?

BERMAN: CRITICAL POINT. IN OUR VIEW, IT SHOULD BE A CORE SET OF PRODUCTS. WE THINK THAT THE INITIAL BLUEPRINT WOULD BE THE CONFORMING TYPES OF PRODUCTS, SINGLE FAMILY AND MULTIFAMILY THAT THEY CURRENTLY USE. CLEARLY, WE WANT THEM TO BE PROVEN, HISTORICALLY PROVEN KIND OF PRODUCTS AND THE REGULATOR WOULD BE SURE THAT THE SUBPRIME KINDS OF PRODUCTS, PAYMENT OPTION ARMS WOULD NOT BE APPROVED FOR THE McG's SO THAT WOULD MODERATE THEIR RISK.

OLICK: WOULD THERE BE JUMBOS INVOLVED OR CONFORMING?

BERMAN: PART OF OUR PROPOSAL IS PURPOSELY PAINTED WITH WHITE SPACES IN THE CANVAS.WE HAVE NOT TRIED TO FILL IN EVERYTHING.WE BELIEVE THIS IS THE BEGINNING OF THE DIALOGUE. AND WE'RE LOOKING FOR INPUT.WE CLEARLY DO NOT WANT THE McG's TO USURP THE WHOLE MARKET. THERE CONTINUES TO BE A PLACE AND NEEDS TO BE A PLACE FOR PRIVATE LABEL SECURITIES AS WELL AS FHA AND VA.

LIESMAN: MICHAEL?

BERMAN: YEAH.

LIESMAN: STEVE LIESMAN OTHER THAN THE FACT THAT McDONALD'S RIGHT NOW, THEIR ATTORNEYS ARE PREPARING A LAWSUIT, MOST IMPORTANT QUESTION I HAVE, WITH THE DEBT OF THESE McG's BE GUARANTEED BY THE GOVERNMENT?

BERMAN: NO.THE McG's WOULD BE PRIVATELY CAPITALIZED SO THAT THE DEBT --

LIESMAN: OKAY. THAT WAS THE SAME IDEA AS FANNIE MAE AND FREDDIE MAC, RIGHT, THEIR DEBT WAS NOT GUARANTEED BY THE GOVERNMENT EXCEPT WHEN A CRISIS HAPPENED, AND IT WAS. WHY WOULDN'T WE BE RIGHT BACK IN THE SAME SITUATION AS WE WERE WITH FANNIE AND FREDDIE?

BERMAN: REMEMBER IN THE CASE OF FANNIE AND FREDDIE, THERE WAS AN IMPLICIT GUARANTEE, BACKED BY ANEXPLICIT LINE OF CREDIT.IN THIS CASE, WE HAVE NEITHER OF THOSE. CREDIT IS ONLY WITH RESPECT TO THE MORTGAGE-BACKED SECURITIES THAT ARE ISSUED.

DOUG DACHILLE: EFFECTIVELY WHAT YOU'RE SAYING IS THAT YOU'RE GOING TO TAKE FANNY MAE, FREDDIE MAC, NOT ALLOW THEM TO HAVE A RETAINED PORTFOLIO WHERE THEY ISSUE DEBT. THEY'LL WRITE INSURANCE TO GUARANTEE MORTGAGES, WHICH WILL GET SOLD TO INVESTORS AND THEY'RE GOING TO BE GOVERNMENT GUARANTEED BECAUSE YOU'RE SAYING THE GUARANTEES WRITTEN BY THESE NEW ENTITIES WILL HAVE EXPLICIT GOVERNMENT GUARANTEES ON THE BACK OF THEM. MY QUESTION IS, THE PROFIT THAT THESE INSURANCE ENTITIES ARE GOING TO GENERATE IS GOING TO BE ENJOYED BY PRIVATE INVESTORS, IS THAT CORRECT?IT WILL BE A PROFIT THAT WILL BEENJOY BID PRIVATE INVESTORS?THAT IS WHAT'S GOING TO HAPPEN?

BERMAN: YES, CORRECT.

DOUG DACHILLE: SO WHY BIFORCATE THE PROFIT? CAUSE EFFECTIVELY WHAT IS GOING TO HAPPEN IN THE GOOD TIMES ALL THE PROFIT NOW I UNDERSTAND YOU ARE GOING TO CREATE INSURANCE RESERVES AND I UNDERSTAND YOU'RE GOING TO CREATE A REGULATOR THAT WILL ASSESS CAPITAL ADEQUACY. I UNDERSTAND ALL THAT. BUT WHAT THERE ARE THESE STRESS EVENTS -- LAST YEAR WAS A SIGNIFICANT STRESS EVENT OUTSIDE WHAT ANYBODY WOULD HAVE CAPITALIZED AGAINST. AND THE QUESTION BECOMES WHY WOULD YOU EVEN BIPHORCATE THE RETURN DURING THE GOOD TIMES FROM THE TAXPAYER AND HAVE THE POTENTIAL -- I'M SURE THAT YOU'RE GOING TO HAVE ADEQUATE CAPITAL REQUIREMENTS AND YOU'RE GOING TO HAVE AN INSURANCE RESERVE THAT THESE ENTITIES WILL HAVE TO PAY INTO, WHICH YOU DIDN'T HAVE UNDER THE FANNIE MAE MODEL, BUT WHY WOULD IT BE SO HORRIBLE TO HAVE THE TAXPAYER TAKE THE RISK AND ALSO THE REWARD OF OWNING THE -- THE ENTIRE PROFIT ASSOCIATED WITH THESE ACTIVITIES?

BERMAN: SEVERAL DIFFERENT MODELS HAVEBEEN SUGGESTED. ONE OF THEM IS TO NATIONALIZE THE ENTIRE INDUSTRY.OUR VIEW IS THAT THAT IS NOT THE BEST WAY TO GO. THIS NEEDS TO BE A PRIVATE ENTERPRIZE. WE NEED THE GOVERNMENT GUARANTEETO ENCOURAGE BOND HOLDERS TO COME IN AND BUY THE MORTGAGE-BACKED SECURITIES SO THAT WE HAVE A CONSTANT FLOW OF CAPITAL TO HOMEOWNERS AND OWNERSOF MULTIFAMILY PROPERTIES. HOWEVER, THE BIG ISSUE THAT -- AND I BELIEVE YOU ARTICULATED EARLIER TODAY, OF HAVING A MULTITRILLION DOLLAR PORTFOLIO WHERE YOU'RE MANAGING THAT INTEREST RATE RISK, HAVING THAT RISK, WE BELIEVES NEEDS TO BE SEPARATED OUT FROM THE CREDIT RISK. THAT WILL ALLOW THE MANAGEMENT AND REGULATION OF THOSE ENTITIES TO BE MUCH MORE EFFECTIVE.

GUEST HOST: I CAN TELL YOU RIGHT NOW AS APERSON WHO IS ACTIVELY INVOLVED IN THE MORTGAGE-BACKED SECURITIES MARKET, THE MOST UNHEDGEABLE RISK IN MORTGAGES IS THE CREDIT. THAT'S WHY I LOOK TO THE GOVERNMENT TO ENSURE IT.WITH RESPECT TO MANAGING INTEREST RATE RISKS, ALL THOSE TOOL THAT YOU SAID WOULD BE EFFECTIVE FOR MANAGING CREDIT RISK ARE FAR MORE EFFECTIVE MANAGING THE INTEREST RATE RISK OF THESE -- OF MORTGAGES THAN YOU CAN ACTUALLY ACHIEVE IN TRYING TO MANAGE THE CREDIT RISK.AT END OF THE DAY, YOU WIND UP WEARING A BIG BOOK OF CREDIT RISK, THERE'S VERY LITTLE YOU CAN DO. YOU WON'T BE ABLE TO LAY OFF THIS RISK TO PRIVATE MORTGAGE INSURERS AND CDS MARKETS. THE CDS MARKET WILL NEVER BE OF SUFFICIENT SIZE TO BE ABLE TO SUPPORT A 5 TRILLION DOLLAR MARKET OF RISK. IN THE INTEREST RATE MARKET, MANAGING INTEREST RATES ASSOCIATED WITH MORTGAGES, THAT IS REALLY VERY, VERY HEDGEABLE AND CREDIT RISK EXPOSURES ULTIMATELY BRING YOU DOWN IN TAKING ON MORTGAGES.INTEREST RATE RISKS CAN NEVER BLOW YOUR CAPITAL. CREDIT RISK BLOWS IT.

OLICK: MR. BERMAN, YOU'VE TAKEN THIS PLAN TO THE TREASURY, YOU'VE TALKED TO THE FED CHAIRMAN AND ADMINISTRATION.THEY'LL BE COMING UP WITH THEIR OWN PLANS.WHAT WAS THEIR REACTION TO THE MORTGAGE BANKERS PLAN?

BERMAN: AT THIS POINT THEY'RE PRIMARILY IN A LISTENING MODE. IT IS VERY EARLY IN THE DIALOGUE, VERY EARLY IN THE PROCESS.THEY DID SAY THAT THEY FELT THATTHIS WAS THE FIRST PLAN THAT HADREALLY CONNECTED ALL THE DOTS. AND THEY LISTENED QUITE CAREFULLY AND ASKED LOTS OF GOOD QUESTIONS. WE ARE ALSO PLANNING TO GO TO THE HILL BOTH SIDES.WE TALKED TO FANNY, FREDDIE AS WELL AS THEIR REGULATOR, FHFA. NO ONE AT THIS POINT HAS CRYSTALLIZED THEIR VIEWS, A GOODTHING. THAT IS ONE OF THE REASONS WHY WE, THE MORTGAGE BANKERS, WANTED TO GET OUT AND START THAT DIALOGUE.

OLICK: HOW DO YOU GO ABOUT BREAKING UP THE BEHEMOTHS? YES IT IS GREAT TO TALK ABOUT THESE POSSIBLE MCGS BUT FANNIE AND FREDDIE HAVE GOOD ASSETS BUT HAVE A WHOLE LOT OF BAD ASSETS. WHAT DO YOU DO ABOUT THAT?

BERMAN: RIGHT WELL WE THINK THAT FANNIE AND FREDDIE ARE PLAYING A CRITICAL ROLE TODAY AND WILL CONTINUE TO. OBAMA ADMINISTRATION HAS DECIDED TO USE FANNIE AND FREDDIE AS A TOOL TO HELP SOLVE THE PROBLEM AND THERE WILL BE A CONTINUING AMOUNT OF BAD ASSETS, TOXIC ASSETS, IF YOU WILL. YOU NEED TO PUT A FENCE AROUND THOSE, DO A GOOD BANK, BAD BANK KIND OF SCENARIO, SIPHON OFF THE BAD ASSETS AND ALLOW ALL THE IMPORTANT GOOD ASSETS THAT ARE IN FANNIE MAE -- IN PARTICULAR, THE INTELLECTUAL CAPITAL, PEOPLEOF FANNIE MAE ARE ABSOLUTELY CRITICAL, AT THIS POINT IN TIME, TO MAINTAINING THE SYSTEM OF FINANCE WE HAVE IN THIS COUNTRY.SO, IT'S THE PEOPLE. IT'S THE INTELLECTUAL CAPITAL.IT'S SYSTEMS, IT'S THE IT., THE DATA, THE SERVICING RELATIONSHIPS. SO, WE BELIEVE THAT IT WOULD BE QUITE APPROPRIATE -- IN FACT, RECOMMEND THAT THE FIRST McG's COULD, IN FACT, BE A GOOD BANK, RECAPITALIZED FORM OF FANNIE AND FREDDIE.

OLICK: GOOD BANKS, BAD BANKS SORT OF LIKE THE S&l CRISIS. MICHAEL BERMAN, THANKS SO MUCH FOR JOINING US.





About CNBC:
CNBC is the recognized world leader in business news, providing real-time financial market coverage and business information to more than 340 million homes worldwide, including more than 95 million households in the United States and Canada. The network's Business Day programming (weekdays from 5:00 a.m.-7:00 p.m. ET) is produced at CNBC's headquarters in Englewood Cliffs, N.J., and also includes reports from CNBC news bureaus worldwide. Additionally, CNBC viewers can manage their individual investment portfolios and gain additional in-depth information from on-air reports by accessing http://www.cnbc.com.

Members of the media can receive more information about CNBC and its programming on the NBC Universal Media Village Web site at http://nbcumv.com/cnbc/.