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The Authority to End the GSEs Conservatorship Sits with FHFA, Intentionally

The debate on what to do with Fannie Mae and Freddie Mac involves often complex and politically-charged questions about government’s role in the housing finance market.  However, the question of where authority rests with regard to the conservatorship of the GSEs should be clear in reading the Housing and Economic Reform Act of 2008: HERA created the Federal Housing Finance Agency to oversee the GSE conservatorship and to restore them to a “sound and solvent” condition so they could be returned to the private market. That’s why we’d like to comment on a recent column in the New York Times from Steven Rattner.

Mr. Rattner was the lead advisor to the Presidential Task Force on the Auto Industry charged with figuring out what to do with GM and Chrysler as they teetered on collapse. Mr. Rattner became known as the “Auto Czar” and has a lot of experience in financial markets so he understands bailouts, financial consequences and recovery better than a lot of people.

His column argues for strong presidential authority, and laments how recent Congresses have been bent on eroding presidential authority – he believes, to the to the nation’s detriment. Leaving aside the historic tug of war between the Executive and Legislative Branches on the limits of presidential authority, Rattner incorrectly blames Congress for inaction on Fannie and Freddie.  Here’s what he says:

“I saw the problem firsthand when I served in the Treasury early in the Obama administration. Mr. Obama was able to inject about $80 billion into the automobile industry without congressional approval because, in a panicked moment in the fall of 2008, Congress had given George W. Bush’s administration a $700 billion virtually discretionary rescue fund. But when it came to similar challenges — such as reforming the insolvent housing finance giants Fannie Mae and Freddie Mac — the administration was powerless. Today, more than six years after the Bush administration correctly put them into “temporary” conservatorship, they sit exactly as they did in 2008, as if preserved in amber.”

But the difference in this case is that the President doesn’t need Congress to end the conservatorship.  HERA, as we’ve previously noted, and as is spelled out clearly in the Calabria-Krimminger paper, gives FHFA the authority to end the conservatorship without direction or permission from any other source. Here’s what the paper says:

“Congress consciously chose to vest with FHFA, not Treasury, the sole authority over invoking and conducting a conservatorship or receivership.”

HERA is crystal clear on FHFA’s authority.  Mr. Rattner should be happy to know that in the case of Fannie and Freddie, the President isn’t constrained by Congress.  He can solve this on his own.  It’s time to end the conservatorship.