Page 15 - February 2018 Disruption Report Flip Book

FANNIE MAE AND FREDDIE MAC JAN.U-FAERBY. 2018
FHFA can reform the GSEs without Congressional actions
If Congress does not pass a housing finance reform bill by the midterm elections, some speculate that FHFA may move forward on reforming the GSEs, using its conservatorship powers before January 2019.
Under the Housing and Economic Recovery Act of 2008, FHFA has the power to create a “limited- life regulated entity,” through which the regulator maintains the operations of the enterprises,
while their assets are sold off and debt of the old GSEs are wiped out over a two-year timeframe, as prescribed by statute. New entitles could buy the GSEs’ operational assets, including its securitization expertise, during this wind-down phase. The only clear losers are current GSE shareholders, including Treasury, as their claims would go into the receivership, not the [limited-life regulated entity].
However, this resolution process, which privatizes Fannie and Freddie, runs the risk of disrupting the mortgage market and adversely impacting the 30-year fixed-rate mortgage product, which benefits from a government backing. It’s highly unlikely the Trump administration would support a housing finance reform plan that does not protect the 30-year fixed-rate mortgage product. “I don’t think the private markets on their own would support it,” said Treasury Secretary Mnuchin. “As we talk about GSE reform, we need to make sure we don’t do something that would put that at risk.”
Inside Mortgage Finance’s Paul Muolo wrote:
The [FHFA] and Treasury ...have stepped up talks on how they can find an “administrative” solution to the conservatorships of Fannie Mae and Freddie Mac, industry sources told Inside Mortgage Finance late this week. As for what direction these talks are headed in, that’s a different matter...
One lobbyist said the industry is concerned that Treasury might do something to reduce secondary market liquidity, but also fears that if the GSEs are eventually “let go” they might once again turn into the industry’s “Pac-men,” a reference to their pre-conservatorship days when they were known to throw their weight around by encroaching on the business turf of both lenders and third-party service providers, while using politicians for protection...
Meanwhile, someone suggested the White House might consider Treasury counselor Craig Phillips to succeed Mel Watt as FHFA director. Watt’s term ends next January...
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