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Ten Terrible Years and a Prelude to More of the Same
Wednesday, September 12, 2018
It is now over ten years since Fannie Mae and Freddie Mac were placed into a government conservatorship as the U.S. economy inched toward a catastrophic free fall. And where do things stand?
For one thing, what could have been a decades-long coma in the housing sector turned out to be a relatively short health scare, thanks in part to bold, if controversial, actions taken by federal officials and Congress. Notably, it turns out that Fannie and Freddie were not in the terrible shape that many big banks were in after decades of gambling but the government sponsored enterprises (GSEs) remain wards of the state.
Fannie and Freddie have dramatically shrunk their portfolios and shifted assets to private sector entities. They also operate under disciplines imposed by their conservator, the Federal Housing Finance Agency (FHFA), to prevent them from again wheeling and dealing in mortgages that should have never been offered in the first place.
As of today, these twin pillars of the secondary mortgage market have paid back the $187.5 billion in taxpayer funds provided to keep them going belly up – plus another roughly $90 billion. That windfall is the result of a 2012 policy pivot that directs their profits to Treasury, the so-called Net Worth Sweep. While the Sweep is in direct opposition to the law that set up the conservatorship and remains the focus of numerous suits by GSE shareholders and others, it has come in the face of stubborn budget deficits and escalating debt.
The housing market in many parts of the country has recovered from the 2008 bubble burst but mortgages are harder to come by for many people. On top of lending restrictions, many Americans are short of the cash or the willingness to get back into a mortgage. Meanwhile, it might be years before Millennials unload their student loan debt. This seems especially true in parts of the country where President Trump remains popular.
So what are Congress and the Administration doing to mark the occasion? Well, the outgoing Chairman of the House Financial Services Committee, Rep. Jeb Hensarling, R-TX, is looking to reintroduce a so-called GSE reform bill, the PATH Act, which has failed to gain traction for more than five years, as well as a new proposal he doesn’t seem to like very much.
“I am reintroducing the PATH Act this week, if for no other reason than it is the right thing to do and it will let me sleep better at night,” Hensarling said.
Both bills have only the slimmest chance of passage.
The Senate, meanwhile, has pretty much given up. Sen. Bob Corker, R-TN, who tried several times to find a bipartisan way to shut Fannie and Freddie down, is retiring, probably to the delight of President Trump.
And the Trump Administration? Treasury Secretary Steven Mnuchin keeps pushing this top priority farther into the future. Perhaps whoever is selected to replace FHFA Director Mel Watt when his term ends in 2019 will be ready to take up GSE reform in earnest and with the Trump Administration’s complete engagement. Of course, that assumes a sufficient amount of interest by the Administration or an abundance of bipartisan tranquility in the coming months.
The new bipartisan legislation Hensarling unveiled last week would repeal Fannie and Freddie’s federal charters and shutter them, allowing big banks to take up more of mortgage securitization activities now performed by the GSEs. It would also anoint Ginnie Mae with the authority to approve “private credit enhancers” and provide a government backstop for trillions of dollars of mortgage backed securities that underpin the U.S. housing market. Taxpayers would only be on the hook if mortgage market losses were catastrophic. But that won’t happen, right?
Hensarling’s new bill sounds a little like a proposal designed by the Milken Institute’s Edward DeMarco. DeMarco, remember, helped engineer what he thought would be the end of Fannie and Freddie when he was acting director of FHFA. At the Milken Institute, he’s been teaming up with Michael Bright, who worked on ill-fated legislation to get rid of Fannie and Freddie as a staffer to Corker.
To be sure, Hensarling has modified his hardline aversion to a government role in guaranteeing mortgage securitization enough to secure the co-sponsorship of Rep. John Delaney, D-MD. Delaney said the legislation seeks to preserve affordable-housing programs and consumer protections connected to the GSE charters. Other Democrats might not be so sure. Cowen analyst Jaret Seiberg, who thinks the rescue of Fannie and Freddie was a success, said his initial take on the bill is that would “substantially” curb affordable-housing requirements.
After ten years, lawmakers continue in vain to devise a solution in search of problem. The GSEs are performing their intended role of preserving liquidity and stability in the home lending sector and taxpayers have more than recouped loans extended at the height of the crisis. And yet, DeMarco, Hensarling, and others continue to find ways to shut them down and construct a system that provides no additional protections for taxpayers or homebuyers and denies the GSEs shareholders their rights.
If Congress doesn’t act swiftly, Hensarling said he would expect the next leader of the FHFA to implement aspects of his plan. But which plan? There is speculation that Hensarling or DeMarco might get the job. That would be the final insult to add to the injury inflicted on mortgage markets, taxpayers, and GSE shareholders.
At this tenth anniversary, there is not much to celebrate.
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Real Reform for Fannie & Freddie
Current legislation needs to be amended in order for all investors – pensioners, community banks and individuals – to be repaid and create a solid platform for the mortgage market to thrive.
- Repayment of Pensioners, Community Banks and Individuals invested in Fannie and Freddie.
- Stricter lending standards and oversight of Fannie and Freddie.
- Affordable housing goals reinstated and upheld under stricter oversight.
Click here for more information
Investors Unite works to educate Fannie Mae and Freddie Mac shareholders and lawmakers of the importance of reforming the GSEs in a way that will reimburse shareholders what they are contractually and legally owed, but have not been paid.
The United States Congress is considering Government Sponsored Enterprise (GSE) reform that would wipe out Fannie Mae and Freddie Mac shareholders for good. These shareholders include everyday Americans such as public service retirees, teachers, firefighters and police officers. These individuals and pension funds invested in the GSEs before, during, and after the conservatorship and should be made whole under any reform. Taxpayers have been repaid with interest for their 2008 bailout of the GSEs.
Our country’s respect for the rule of law demands that private property rights be protected and Investors Unite gives Fannie Mae and Freddie Mac shareholders a voice in that fight.