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A thread on housing finance:
The Trump admin is in agreement that Fannie and Freddie's tenure under government control should have ended long ago. Now the tricky part: locking in a path to return them to private hands before everyone departs. https://www.wsj.com/articles/fannie-freddie-overseer-seeks-to-end-federal-control-before-trump-leaves-11605873600
The Trump admin is in agreement that Fannie and Freddie's tenure under government control should have ended long ago. Now the tricky part: locking in a path to return them to private hands before everyone departs. https://www.wsj.com/articles/fannie-freddie-overseer-seeks-to-end-federal-control-before-trump-leaves-11605873600
However they do this could have implications for the cost and availability mortgage credit. So it's unclear if they will legally end the conservatorships through a consent order Calabria has talked about, because it could be disruptive. MBS investors might get spooked.
One option that is definitely on the table in the talks between Calabria, Mnuchin and Kudlow: significantly restructuring the government’s stakes in the firms. This is tricky for a number of reasons, one being it could be seen as short-changing taxpayers .
Such a move would likely push up the value of shares that hedge-funds acquired at fire-sale prices after the 2008 crisis. So it rewards investors, some of whom have longstanding ties to Trump/Mnuchin, at the expense of taxpayers. Lawmakers already pushing back on this.
A related set of legal issues revolves around the government’s 2012 decision to channel nearly all of Fannie and Freddie’s profits to Treasury. The Supreme Court is set to wade into the matter with a hearing on December 9, weighing whether the FHFA is constitutionally structured.
A High Court ruling in favor of the litigating shareholders could make it easier for president-elect Joe Biden to dismiss Calabria sometime next year.
It could also give litigating shareholder leverage for a multi-billion settlement, potentially requiring Treasury to help to recapitalize the firms more quickly.
Anyway, where was I?
The thing about a capital restructuring is that it would put Fannie and Freddie on the glide path to eventual full private ownership. That's on the table but it’s not 100% that they will do even that.
