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Nows its 3 share purchases.
Maybe it’s a 4 3 2 1
BOOM signal.
Whats the deal with all the 4 share purchases?
So we overpaid by how much. All smoke and mirrors. Wait till our heads hit the floor.
Laws or not she said what she said
https://fortune.com/2024/03/20/leadership-next-fannie-mae-ceo/?deployment=overlay&device=desktop&segments=
Almodovar: Thank you for that. Not only did it not cost the taxpayer anything. So I think we drew 119 billion from Treasury. We have paid back 181 billion. So, it’s been a great investment for the taxpayer. It’s been a great deal for the taxpayer. And in the last few years, we’ve been built building capital through retained earnings. Today, Fannie Mae, this was as of December of 2023, 78 billion in capital. We’re still undercapitalized, but we’re building capital. We see how as a business, it’s an operating model that is very well-run and very well risk managed
Major News In Housing Market
— Charles V Payne (@cvpayne) March 15, 2024
NAR settles lawsuits but will this really help the housing market?
Discussing today on Making Money pic.twitter.com/UX6pIGhosD
Simple pre-judgment interest granted by Lamberth in Fannie/Freddie contract claims lawsuit where an 8 person jury unanimously found the Government liable for $612m in damages. Add around $200m in interest. pic.twitter.com/EsAx5NXAgt
— Alec Mazo (@Alec_Mazo) October 24, 2023
Is Hindes or Ackman opting in or out of the class action?
Maybe Uncle Joe remembers his old buddy Gary Hindes. Lol. I doubt it. Cheers to another decade of fanniegate!!
MC gone !!! Biden Administration to Fire Fannie, Freddie Director, Says White House Official -- 2nd Update
BY DOW JONES & COMPANY, INC. — 17 MINUTES AGO
WASHINGTON -- The Biden administration plans to fire Fannie Mae (FNMA) and Freddie Mac's (FMCC) federal regulator on Wednesday, in the wake of a Supreme Court ruling that made it easier for the president to install his preferred overseer, according to a White House official.
(END) Dow Jones Newswires
06-23-21 1215ET
Copyright (c) 2021 Dow Jones
Bloney !! Hahaha can I use that ?
Ok thanks Mr. Obvious. Who is selling AND buying them ? 35 million shares. Not me or you.
Who is actually selling this late in the game? Makes no sense.
U.S. Economy Poised for Substantial Rebound Following Historic Second Quarter Contraction
BY PR NEWSWIRE — 23 MINUTES AGO
WASHINGTON, Aug. 17, 2020 /PRNewswire/ -- The U.S. economy contracted in the second quarter by 32.9 percent annualized – the largest such decline since demobilization efforts following World War II – but the strong rate of economic recovery observed in May and June sets up the third quarter for a substantial rebound, according to the latest commentary from the Fannie Mae (FNMA) Economic and Strategic Research (ESR) Group. Third quarter GDP growth is now forecast to come in at 27.2 percent annualized. Further, the now-falling coronavirus case rate, supportive fiscal and monetary policy, and an elevated level of household savings supportive of future consumer spending are all expected to drive further recovery through the remainder of the year. While substantial downside risks remain, including the possible worsening of the coronavirus crisis leading to more stringent shutdown and social distancing measures, for full-year 2020 the ESR Group now expects real GDP to contract only 3.1 percent compared to the previously forecast 4.2 percent. This improvement reflects in part the expectation that future localized or regional flare-ups of the coronavirus (of a similar magnitude observed thus far) are unlikely to lead to a further contraction in economic output but rather a temporary pause in the rate of growth.
Citing the ongoing strength of the housing sector amid sustained increases in purchase demand, the ESR Group revised upward its expectations for home sales, as well as its estimate of total mortgage market originations, in 2020 and 2021. The ESR Group now expects total origination volume to hit $3.4 trillion in 2020,the highest annual origination volume since 2003, when total volume was $3.7 trillion.
"The economy's climb back from the sudden and severe setback of the second quarter is fully underway, but we believe the future pace will be driven largely by the path of the novel coronavirus and how the public responds to coronavirus-related information," said Doug Duncan, Fannie Mae (FNMA) Senior Vice President and Chief Economist. "Consumers have savings to draw on, but some are holding that savings in reserve until the economy and labor markets improve. Others are spending on a discretionary basis as they await evidence that the virus has receded sustainably. Our base scenario assumes that Congress will agree upon additional fiscal stimulus in support of consumers and businesses, and that the economy will only shrink 3.1 percent in 2020 relative to 2019, measured on a fourth-quarter-over-fourth-quarter basis."
"We believe housing will continue to be a sector with relative strength amid the larger downturn, as long-running supply constraints exacerbate demographic and interest rate demand-side factors that are supporting home price growth," Duncan continued. "The recently observed increase in purchase demand is largely due to pent-up demand as buyers are acting now after delaying purchases in the spring. We are, however, seeing some early signs of shifting buyer preference to locate to lower density areas, potentially driving some additional purchase activity. Here, our baseline forecast sees purchase volumes of $1.3 trillion in 2020."
Visit the Economic & Strategic Research site at fanniemae.com to read the full August 2020 Economic Outlook, including the Economic Developments Commentary, Economic Forecast, Housing Forecast, and Multifamily Market Commentary. To receive e-mail updates with other housing market research from Fannie Mae's (FNMA) Economic & Strategic Research Group, please click here.
About Fannie Mae (FNMA)
Fannie Mae (FNMA) helps make the 30-year fixed-rate mortgage and affordable rental housing possible for millions of Americans. We partner with lenders to create housing opportunities for families across the country. We are driving positive changes in housing finance to make the home buying process easier, while reducing costs and risk. To learn more, visit:
fanniemae.com | Twitter | Facebook | LinkedIn | Instagram | YouTube | Blog
Fannie Mae Newsroom
https://www.fanniemae.com/news
Photo of Fannie Mae (FNMA)
https://www.fanniemae.com/resources/img/about-fm/fm-building.tif
Fannie Mae Resource Center
1-800-2FANNIE
Opinions, analyses, estimates, forecasts, and other views of Fannie Mae's (FNMA) Economic & Strategic Research (ESR) group included in these materials should not be construed as indicating Fannie Mae's (FNMA) business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae (FNMA) will depend on many factors. Although the ESR group bases its opinions, analyses, estimates, forecasts, and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current or suitable for any particular purpose. Changes in the assumptions or the information underlying these views, including assumptions about the duration and magnitude of shutdowns and social distancing, could produce materially different results. The analyses, opinions, estimates, forecasts, and other views published by the ESR group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae (FNMA) or its management.
Cision View original content:http://www.prnewswire.com/news-releases/us-economy-poised-for-substantial-rebound-following-historic-second-quarter-contraction-301113151.html
SOURCE Fannie Mae (FNMA)
After many requests to see our updated #GSE timeline we thought we’d make it a little game. If this post gets 150 retweets we’ll release it. Let’s play! https://t.co/VJQp7XXr3G
— Gaby Heffesse (@GabyHeffesse) July 31, 2020
|Jul 24, 2020,08:56pm EDT
The New FHFA Capital Rule Is A Great First Step Toward Financial Sanity For Fannie And Freddie
Norbert MichelContributor
Policy
I follow the evolution and devolution of monetary and financial policy
US-POLITICS-HOUSING-HEARING
Mark Calabria (R), Director of the Federal Housing [+]
POOL/AFP VIA GETTY IMAGES
In March, the Federal Housing Finance Agency (FHFA) announced their intention to propose a new set of capital requirements for Fannie Mae and Freddie Mac. The federal register published the proposed new FHFA capital rule on June 30, and the very next day, 17 trade groups released a letter asking the agency to extend the comment period for two additional months.
This extension would push the deadline to the end of October, just a few days before the 2020 presidential election.
A cynical person might think that these groups – including the American Bankers Association, the Center for Responsible Lending, the Mortgage Bankers Association, the Housing Policy Council, and the National Association of Realtors – want to delay the new rule as long as possible while hoping for a favorable outcome in the election (one that ensures the higher capital requirements are never implemented). This is Washington, D.C., after all.
Does anyone – much less these particular lobbyists – really need another 60 days to comment on the proposal? Everyone has known that the new rule was coming since at least November 2019. Another poorly kept secret was that the FHFA was going to base the new rule on the one they released in 2018. (The rule was proposed in 2018, but the capital framework itself was released in 2017).
Sure enough, the new FHFA rule is based on the 2018 version, and it would require Fannie Mae and Freddie Mac (combined) to carry close to $200 billion in equity capital.
This new proposal is a great start because the amount required is approximately equal to the companies’ cumulative losses during the 2008 financial crisis. Those losses would have been much worse, of course, had the federal government not stepped in and placed the companies in conservatorship. So the FHFA should increase the required amount.
On the other hand, it is possible that those losses would not have been so bad – or so devastating in terms of costs to taxpayers – had the GSEs been held to higher capital requirements in the first place. Historically, though, the lack of any meaningful capital rules fueled the companies’ abnormal growth and, therefore, the outsize risk they posed to the housing finance system, borrowers, and taxpayers.
The weak rules that did exist also provided Fannie and Freddie with a funding advantage relative to banks, even though there is no objective reason to let the GSEs operate with dramatically higher leverage than large U.S. banks.
Combined, Fannie and Freddie have total assets of almost $6 trillion, roughly half the total assets of all eight U.S.-based global systemically important banks (G-SIBs). Unlike the G-SIBs, though, nearly all of Fannie’s and Freddie’s assets are concentrated in just one type of asset (home mortgages). Arguably, this concentration makes them even riskier than the banks.
The largest U.S. banks have to meet an 8 percent capital ratio, as well as additional capital buffers (like the supplemental leverage ratio and the capital conservation buffer) that effectively serve to increase the minimum requirement. On a risk-weighted basis, the G-SIBs have an average 14 percent ratio of equity to assets.
It does not appear that the FHFA rule will go this far – doing so would require Fannie and Freddie to carry closer to $400 billion in equity. But the proposed rule would dramatically shrink the funding advantage and increase the equity ratio relative to what it has been in the past.
The core of the newly proposed rule includes a total capital ratio of 8 percent, including various requirements for tier 1 equity and common equity, a capital conservation buffer and a leverage buffer (see page 39368), as well as a minimum leverage ratio of 2.5 percent. (Technically, the proposal requires core capital to be no less than 2.5 percent of adjusted total assets, and tier 1 capital to be no less than 2.5 percent of adjusted total assets (see page 39275).)
The leverage ratio is critical because it serves as a backstop to the (proposed) risk-based capital requirements.
Calabria has wisely stated that Fannie and Freddie should “maintain capital levels commensurate with their risk profiles,” and “operate under essentially the same capital rules as other large financial institutions.” No plan is perfect, but the new FHFA proposal is a great first step toward reaching these two goals.
If the housing lobby wants weaker – or lower – capital requirements on the GSEs, they should explain why. And they should do so by August 31.
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Norbert Michel
I am the Director of the Center for Data Analysis at The Heritage Foundation. I also research issues pertaining to financial markets and monetary policy.
Fannie and Freddie's Capital Dilemma
MARKETWATCH 5:00 AM ET 5/27/2020
Symbol Last Price Change
FNMA 2.255up 0 (0%)
FMCC 2.23up 0 (0%)
QUOTES AS OF 03:59:59 PM ET 05/26/2020
It seems that there is never a simple answer when it comes to Fannie Mae(FNMA) and Freddie Mac(FMCC).
The housing giants' regulator last week published capital requirements for the two government-sponsored enterprises, fulfilling one of the key steps before the pair begin to move forward with potential public offerings. The new guidelines call for Fannie and Freddie (https://www.wsj.com/articles/fannie-freddie-should-hold-240-billion-in-capital- after-return-to-private-hands-fhfa-says-11590004840) to have about $240 billion in capital between them. That number is well above what the Federal Housing Finance Agency previously estimated a couple of years ago, at roughly $180 billion.
That is good news for people worried about taxpayers' risk. But herein lies the dilemma regarding Fannie and Freddie's future course. Under some visions for reform, Fannie and Freddie's release from government control would only be part of a wider congressional revamp of the housing finance system, which would likely include explicit taxpayer support for securities issued by the housing guarantors. The new plan envisions a path forward for the companies that can be accomplished without Congress if need be. But under that scenario, investors in any public offering might expect Fannie and Freddie to have capital levels to withstand virtually any downturn themselves, so as not to necessitate another ad hoc bailout and invite possible future punitive action from the government.
That is sensible, but raising that sheer volume of capital in the markets will be a tall order, especially if Fannie and Freddie aren't generating as much capital through earnings in a recessionary environment. What's more, higher capital levels come with costs in the form of lower potential returns for investors. Keefe, Bruyette & Woods analyst Bose George estimates that the two companies' return on equity with $180 billion of capital would have been in the low double digits, the threshold usually needed to justify investors' interest. At $240 billion that return is closer to 8%, based on some assumptions about their economic model, according to KBW.
Their ability to get to 10% depends not only on market conditions but on a number of additional variables. One is the commitment fee they might pay to the government in exchange for its continuing backstop. The lower the fee, the more money Fannie and Freddie could possibly earn on each mortgage--but at the potential expense of taxpayers. The firms could in theory increase guarantee fees charged to originators. But that could conflict with affordable-housing aims, and Fannie noted in its recent quarterly report that charged rates have trended downward because of competitive market pressure.
There is also the coronavirus pandemic (https://www.wsj.com/video/coronavirus-update-biden-trump-contrast-in-style- wuhan-tests-nine-million/0CB5EB8D-E2B9-4BA2-9092-0893C1EBCC3C.html?mod=theme_coronavirus-ribbon) to consider. Fannie and Freddie and their regulator said in April (https://www.wsj.com/articles/fannie-freddie-regulator-moves-to-ease-cash- crunch-at-mortgage-servicers-11587475780) that the firms will cover servicers' mortgage payment advances (https:// www.wsj.com/articles/whos-on-the-hook-for-skipped-mortgage-payments-11589535003) after four months of nonpayment related to forbearance. They will also continue to buy mortgages in forbearance, despite the added credit risk such a move might entail, though at a discount (https://www.wsj.com/articles/mortgage-credit-tightens-creating-drag-on-any-economic- recovery-11590431459). The balance between Fannie and Freddie's public-service role in the mortgage market and their obligation to generate returns and protect their capital will sometimes be in conflict; how that is resolved systematically in the future will need to be made more clear to investors.
Fannie and Freddie have been reducing their own and taxpayers' possible loss exposure through so-called credit risk transfer securities since 2013. These instruments allow Fannie and Freddie to sell some of the mortgage default risk they absorb to private investors. At their February peak, the benchmark securities hit more than $55 billion in market value, according to Mark Fontanilla & Co., an advisory firm specializing in mortgages and structured finance.
But the coronavirus crisis is the first to truly test that market under harsh credit conditions. Total returns plunged as prices on the securities dropped more than 25% in March, and there hasn't been any issuance in the past month, according to Fontanilla. The market is likely to reopen in the future, but it remains unclear where pricing will settle. Having a clear picture on that will be key for investors trying to model Fannie and Freddie's future cost of funding.
Is there a scenario in which Fannie and Freddie are attractive to private capital, the taxpayer is protected and the mortgage market doesn't face higher costs during a turbulent period? Right now, ticking all those boxes seems as tricky as ever.
Write to Telis Demos at telis.demos@wsj.com (mailto:telis.demos@wsj.com)
-Telis Demos; 415-439-6400; AskNewswires@dowjones.com
(END) Dow Jones Newswires
05-27-200600ET
Copyright (c) 2020 Dow Jones & Company, Inc.
Short Takes: Speed and GSE Cash Creation / A Surplus of $109.7 Billion / What Will Treasury Do? / Fannie, Freddie Common Shoot Through the Roof
pmuolo@imfpubs.com
Now that the Federal Housing Finance Agency has published a final capital rule of 4% for Fannie Mae and Freddie Mac, the next hurdle is cash-creation, namely just how quickly the two GSEs can build an estimated $250 billion they will need to escape the shackles of conservatorship...
Keep in mind, that since becoming wards of the federal government in September 2008, Fannie and Freddie received $191.4 billion in assistance from the U.S. Treasury, but then returned (since becoming mostly profitable again in 2012) roughly $301.1 billion. That comes out to a cash surplus of $109.7 billion for the two Congressionally chartered mortgage giants...
But will the assistance the two received from Treasury be officially forgiven as a way for the re-IPOs of Fannie and Freddie to move forward?...
According to one investor we know, “Treasury is expected to agree to use the overpayment it has already received (above the 10 percent original dividend rate) to count as some sort of prepaid asset.” Stay tuned...
And in case you didn’t notice, as IMFnews went to press Thursday, the share price of Freddie Mac common was up 36.9% on the day, with Fannie’s spiking 33.5%. Time to cash in the chips or put it all on a racehorse being jockeyed by Mark Calabria?
Key Democrats urge Mnuchin, Powell to rescue mortgage servicers https://t.co/EhpjyerBRO
— Bloomberg (@business) April 16, 2020
Why @FHFA Should Direct @FannieMae & @FreddieMac to Relist Today: https://t.co/YrAxhaGhQD @USTreasury @MarkCalabria @stevenmnuchin1 @larry_kudlow #capital #liquidity #value #safety #soundness
— joshua rosner (@JoshRosner) January 24, 2020
Anyone else notice the forked tongue irony of the @MarkWarner letter on the #GSEs that was pushed by Jim Parrott / Mark Zandi. Don’t forget, only a few years ago, he pushed to wind down the GSEs. Now he cares about them and their mission?! Pathetic!
— joshua rosner (@JoshRosner) December 18, 2019
#GSE client call this am: Last week, Court of Claims Judge Sweeney issued ruling dismissing shareholder direct takings claims, but allowing several derivative claims to proceed. Govt now faces possibility of having the entire #NWS invalidated, boosting prospects for settlement.
— ACG Analytics (@ACGAnalytics) December 16, 2019
Hon Sweeney recognized shareholders have deriv claim, direct claim is w GSEs. Does @MarkCalabria, as Chair of @FannieMae & @FreddieMac, know he has an obligation to demand, or sue @USTreasury @stevenmnuchin1 to write-down liquidation pref as per contracts. Think Goodwill suits
— joshua rosner (@JoshRosner) December 12, 2019
Fannie's and Freddie's Long Road to Public Offerings
MARKETWATCH 6:03 AM ET 11/19/2019
Symbol Last Price Change
FNMA 3down 0 (0%)
FMCC 2.81down 0 (0%)
QUOTES AS OF 03:59:53 PM ET 11/18/2019
There are now some timelines in the way forward to reshape the U.S. housing-finance system. A lot still needs to happen, though.
Mark Calabria, director of the Federal Housing Finance Agency, said at a conference last week that "if all is going well," the government-sponsored housing-finance giants known as Fannie Mae(FNMA) and Freddie Mac(FMCC) could be in a position to sell shares in public offerings as soon as 2021 or 2022.
That is a key step in the FHFA's and Treasury Department's plan to recapitalize (https://www.wsj.com/articles/fannie- and-freddie-reform-plan-gets-an-incomplete-11567721283) Fannie and Freddie and eventually release them from government control. Mr. Calabria further suggested that under that public-offering time frame, the companies could exit government control by 2023.
This is hardly idle chatter: Allowing Fannie and Freddie to go public is something that could be accomplished by the Trump administration without going to Congress and the political battle that would likely entail. And there is certainly precedent for bailed-out companies, such as American International Group or General Motors, being successfully resold to the public.
But Fannie and Freddie are unlike those companies in important ways. They are the twin pillars of the vastly complex housing-finance system. The preconditions for successful public offerings would likely require a series other maneuvers beyond the FHFA's powers.
Keep in mind, these would be very big offerings: likely tens of billions of dollars across the two entities. That is a lot of paper to move, and it will require the buy-in of many big investors.
Among the major issues on which investors would be focused is the possibility of future congressional action that might change the fundamentals of Fannie's and Freddie's businesses.
Consider the questions prospective investors would have to weigh if no such legislation is in place before a share offering: for one, the status of the mortgage-backed securities issued by Fannie and Freddie. The Treasury Department's official report on housing-finance reform in September recommended that Congress put in place an official government guarantee for these securities.
Without that, the U.S. government would have to continue the current arrangement of a direct financial backstop for the companies after their IPOs. The Treasury plan envisions them paying for this through a "commitment fee." It isn't yet clear how this fee would be assessed or implemented.
Treasury also has recommended that Congress make the taxpayer guarantee open to securities issued by other, future competitors (https://www.wsj.com/articles/sound-and-fury-over-fannie-mae-and-freddie-mac-11560359890). That might open the cozy, government-backed duopoly to wider competition that could affect their future growth and valuation.
There is also the question of how far along Congress and the FHFA are in any efforts to change the companies' affordable-housing goals. Treasury has proposed, through both legislation and administrative action, revisiting the current system of offering below-cost guarantee fees to higher-credit-risk borrowers and above-cost fees for lower- credit-risk borrowers. Congressional Democrats, on the other hand, are likely to want increased subsidies or other protections for affordable housing as part of any legislation. However this shakes out, it could substantially alter the economics of Fannie's and Freddie's businesses.
There are some key things that will likely be clearer by 2021: FHFA is close to formulating guidelines for the companies which would determine how much capital they need to retain or raise as a percentage of their assets.
Perhaps there are brave investors who would welcome the opportunity to own Fannie and Freddie even with a lot of unknowns. Furthermore, Mr. Calabria may be trying to compel Congress into action by preparing to move unilaterally.
Nonetheless, if he and the Trump administration believe it is possible to hold successful public offerings of Fannie and Freddie without legislation that clarifies their future roles in the housing system, there is much more to do to explain how.
-Telis Demos; 415-439-6400; AskNewswires@dowjones.com
https://www.wsj.com/articles/fannies-and-freddies-long-road-to-public-offerings-11574164980
Gretchen has written some great investigative articles ... this is hers when she was at the NY Times. Not sure why she should be doubted now ... but I hear ya.
https://www.nytimes.com/2016/05/22/business/how-freddie-and-fannie-are-held-captive.html
FAIR GAME
Fannie, Freddie and the Secrets of a Bailout With No Exit
Washington took over the mortgage giants Fannie Mae and Freddie Mac during the collapse of the housing market in 2008.
Washington took over the mortgage giants Fannie Mae and Freddie Mac during the collapse of the housing market in 2008.Credit...Ethan Miller/Getty Images
By Gretchen Morgenson
May 20, 2016
When Washington took over the beleaguered mortgage giants Fannie Mae and Freddie Mac during the collapse of the housing market and the financial crisis of 2008, it was with the implicit promise that they would be returned to shareholders after being nursed back to health.
But now, with the unsealing of documents this week that were produced as part of a lawsuit filed against the government, new evidence is coming to light on how intimately the White House was involved in the Treasury’s decision in August 2012 to keep all the companies’ profits for the government. That move effectively maintained Fannie’s and Freddie’s status as wards of the state.
The newly released documents go beyond previous disclosures in the case and make clear that the Obama administration never had any intention of restoring Fannie and Freddie, which enjoyed implicit backing from the government before the takeover, to their status as stand-alone entities.
An email from Jim Parrott, then a top White House official on housing finance, was sent the day the so-called profit sweep was announced. It said the change was structured to ensure that the companies couldn’t “repay their debt and escape as it were.”
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The documents also show the Treasury moving to modify the terms of the mortgage finance giants’ $187.5 billion bailout shortly after a July 2012 meeting when the Federal Housing Finance Agency, Fannie’s and Freddie’s regulator, learned that they were about to enter “the golden years” of profitability.
Since then, Fannie and Freddie have returned to the Treasury over $50 billion more than they received in the bailout. But the amount they owe to the government remains outstanding.
The new materials cast further doubt on arguments made in court by government lawyers that the profit sweep came about because Fannie and Freddie were in a death spiral and taxpayers needed protection from future losses. Documents unsealed last month also served to undermine that legal stance.
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A Justice Department spokeswoman declined to comment.
The trickle of documents comes years after Fannie and Freddie shareholders sued the government, contending that its decision regarding the companies’ profits was illegal. Defending against an array of these suits, lawyers for the Justice Department have requested confidential treatment for thousands of pages of materials. In a case brought in Federal Claims Court, the government’s lawyers asserted presidential privilege in 45 documents.
The Treasury’s integral role in the profit sweep comes through clearly in the new materials, indicating that it was in charge of decisions on Fannie and Freddie, and that the Federal Housing Finance Agency, created by Congress in 2008 as a purportedly independent regulator, did as directed.
In the law setting up the F.H.F.A., Congress required officials to ensure that the companies were operated in a safe and sound manner with an adequate capital cushion.
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The profit sweep, the aggrieved shareholders contend, violated that part of the law because it barred the companies from being able to amass capital.
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In a statement, Adam Hodge, a spokesman for the Treasury, said the profit sweep “ended the vicious cycle where Fannie Mae and Freddie Mac drew against Treasury’s backstop to pay the 10 percent dividend owed to taxpayers.”
The recent economic performance of both companies, Mr. Hodge added, further undermines complaints about the sweep because “the required dividends to taxpayers would have exceeded their income in five of the past six quarters.” Finally, he noted, the best way to end the conservatorship is through comprehensive housing finance reform legislation.
Preventing the companies from using their profits to rebuild a strong capital position was an explicit goal of the Obama administration, the newly unsealed materials show. In an email sent the day the profit sweep was announced, Mr. Parrott said diverting Fannie’s and Freddie’s profits would eliminate “the possibility that they ever go (pretend) private again.”
Sending a message to Fannie’s and Freddie’s shareholders that they should have no hope of profiting from the companies’ recovery appeared to be top of mind to Mr. Parrott, the documents show. In another email sent the day the sweep was disclosed, he assured Treasury officials that “all the investors will get this very quickly.”
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In an email, Mr. Parrott later said that his comment about investors referred to those holding Fannie’s and Freddie’s mortgage-backed securities, who would recognize that the Treasury had addressed the problem of the companies drawing from the government to pay dividends owed to taxpayers. “I realize that you appear to want me to be referring to the G.S.E.s’ shareholders, but I am not,” Mr. Parrott said, a reference to government-sponsored enterprises.
Investors got the message. But some viewed the action as illegal and began filing lawsuits against the government.
Unlike shareholders of other bailout recipients, including Citigroup, Bank of America and even the insurer American International Group, Fannie and Freddie investors have not been able to participate in the rebound at the companies as their operations boomed.
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Mr. Parrott, now a fellow at Urban Institute and owner of Falling Creek Advisors, a consultant to financial institutions, declined to comment on the matter.
The unsealed documents indicate an intense desire to get rid of Fannie and Freddie as independent entities once and for all. They do not show any concern among Treasury officials that their actions on the profit sweep might violate the law.
Only a small portion of the materials produced in the case in Federal Claims Court has seen the light of day. Approximately 50 documents were released on Wednesday to lawyers representing Arnetia Joyce Robinson, an individual investor who sued the government in Federal District Court in Kentucky last October.
According to that lawsuit, Ms. Robinson, a retired bank manager and loan officer, bought Fannie and Freddie shares in September 2008 to help fund her retirement.
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Ms. Robinson’s suit is one of several that have been filed by investors, some of them giant institutions and speculators in Fannie and Freddie who bought shares after the bailout, contending that the government’s profit sweep was illegal. One case from 2013 was brought under the Administrative Procedure Act, which governs actions taken by government agencies.
Royce C. Lamberth, the district court judge overseeing the 2013 suit, dismissed it in September 2014, but the case is on appeal. In dismissing the complaint, Judge Lamberth seemed to rely on the government’s contention that Fannie and Freddie were in a death spiral.
But the documents released on Wednesday indicate that the financial projections for Fannie and Freddie the judge received were significantly out of date. These projections, showing large losses in the near term, were produced to the court by the Treasury in a document dated June 2012, but they actually contained figures from September 2011, when the companies’ operations had not yet begun to turn around.
Those projections, produced by Grant Thornton for the Treasury to use in valuing its investment in Fannie and Freddie, did not account for improvements in the housing market that took place in late 2011 and early 2012. As the unsealed materials show, Treasury officials knew in the summer of 2012 that Fannie and Freddie had turned the corner and appeared to be well on their way to a strong recovery.
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Experts disagree about what the government’s role in housing should be and whether Fannie and Freddie should be wound down, replaced by some sort of new mortgage finance guarantee.
The significance of these documents, however, goes well beyond the future of housing finance. They demonstrate the perils of allowing the government to act in secrecy. In asking for confidentiality surrounding its actions, the government argued that the release of such documents would roil the financial markets. What seems clearer all the time is that their release will instead help the public understand what the government did here and why.
Twitter: @gmorgenson
A version of this article appears in print on May 22, 2016, Section BU, Page 1 of the New York edition with the headline: The Secrets of a Bailout With No Exit. Order Reprints | Today’s Paper | Subscribe
In 2018, WSJ broke the story about conflicts in McKinsey's bankruptcy and investment units. Now comes a criminal investigation. https://t.co/sO4tpdWeY8 via @WSJ
— gretchen morgenson (@gmorgenson) November 12, 2019
https://www.wsj.com/articles/mckinsey-bankruptcy-unit-faces-criminal-probe-11573512656?redirect=amp#click=https://t.co/t4KQhQViy6
McKinsey Bankruptcy Unit Faces Criminal Probe
Giant consulting firm faces mounting legal and court challenges as it attempts to defend its bankruptcy-advisory business
Federal prosecutors are examining McKinsey’s investing unit, known as MIO Partners. PHOTO: CHARGES PLATIAU/REUTERS
By Gretchen Morgenson and Rebecca Davis O’Brien
Nov. 11, 2019 5:50 pm ET
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A McKinsey & Co. unit faces mounting legal and court challenges as the giant consulting firm defends its bankruptcy-advisory business.
Federal prosecutors have launched a criminal investigation into whether McKinsey’s bankruptcy unit improperly failed to disclose investment interests in companies it was advising in bankruptcy and clients that had ties to those cases, according to people familiar with the matter.
Bankruptcy laws require advisers to troubled companies to be disinterested in the outcomes of chapter 11 cases.
As part of the probe, the people said, prosecutors are examining McKinsey’s investing unit, known as MIO Partners. MIO held undisclosed stakes in hedge funds giving it a direct financial interest in the outcome of roughly half of the chapter 11 cases the firm had worked on between 2002 and the end of 2016, according to a 2018 investigation by The Wall Street Journal. In six of the 12 chapter 11 cases in which McKinsey acted as an adviser to the debtors, the Journal found, the firm had a financial interest in the outcome. In 2015, for instance, McKinsey advised Alpha Natural Resources, a troubled coal miner, and didn’t disclose its investment in a hedge fund that received valuable Alpha assets in the bankruptcy.
McKinsey’s spokesman said Monday that in mid-2018, it received an inquiry from the U.S. attorney’s office in New York City. The firm addressed the inquiry and has received no additional requests from the office, the spokesman said.
The chapter 11 bankruptcy process requires advisers to be disinterested advocates for their clients and to disclose all relationships that might give rise to a conflict of interest so that other participants in the cases are aware of them. McKinsey has routinely disclosed far fewer potential conflicts of interest than other bankruptcy professionals over the past decade, the Journal has reported. The McKinsey spokesman said that the firm’s disclosures “have always been undertaken in good faith” and have been “entirely lawful and responsive to industry developments.” The firm strongly denies that MIO created a conflict of interest with its bankruptcy advisory business, the spokesman said.
The criminal inquiry into McKinsey, first reported in the New York Times, is taking place alongside an investigation into the firm’s practices by the U.S. Trustee Program, a unit of the Justice Department charged with protecting the integrity of the bankruptcy system.
Earlier this year, McKinsey agreed to pay $15 million to settle with the U.S. Trustee over three chapter 11 cases it worked on. At the time, the U.S. Trustee said it was continuing to investigate McKinsey and that the settlement didn’t foreclose the possibility of criminal charges down the road. The firm did not admit to wrongdoing in connection with the settlement.
The U.S. Trustee has focused on MIO, McKinsey’s $12.3 billion investment unit, and in court filings has characterized as inaccurate the firm’s sworn testimony that the unit is operated independently from the firm “as a blind trust.”
The U.S. Trustee late last year also cited the fact that Jon Garcia, founder of McKinsey’s bankruptcy advisory unit, simultaneously sat on the board of MIO Partners for many years and ratified its investment decisions. McKinsey’s disclosures about MIO lacked “timely, voluntary, and direct candor,” the U.S. Trustee contended.
McKinsey said at the time that its “disclosures in bankruptcy advising fully meet the terms of the U.S. bankruptcy code,” adding: “We have been transparent about the connections we were disclosing and the process utilized to identify those connections.” Mr. Garcia has declined to comment.
MIO Partners is under scrutiny in the 2018 bankruptcy of Westmoreland Coal, another company advised by McKinsey. The U.S. Trustee objected to McKinsey’s application to work on the Westmoreland matter, which is being heard in Judge David Jones’s Houston courtroom, saying the firm’s disclosures were insufficient and at odds with bankruptcy law. McKinsey’s spokesman said it is working constructively with the U.S. Trustee in the Westmoreland case.
McKinsey eventually withdrew its first application and submitted another with added disclosures, which the U.S. Trustee says remain “incomplete, inadequate and, in some areas, raise questions.”
—Tom Corrigan contributed to this article.
Write to Gretchen Morgenson at gretchen.morgenson@wsj.com and Rebecca Davis O’Brien at Rebecca.OBrien@wsj.com
Here, the stakes are clearly quite high, as plaintiffs seek hundreds of billions of dollars in damages. Yessir!!!
FHFA Logo
11/4/2019
Prepared Remarks of Dr. Mark A. Calabria at SFA Residential Mortgage Finance Symposium
????????Remarks as Prepared for Delivery
Dr. Mark A. Calabria, Director
Federal Housing Finance Agency
STRUCTURED FINANCE ASSOCIATION
RESIDENTIAL MORTGAGE FINANCE SYMPOSIUM
MONDAY, NOVEMBER 4, 2019
1:15 PM – 1:45 PM
CONRAD NEW YORK – NEW YORK CITY, NY
“REAL CHANGE HAS BEGUN:
BUILDING MOMENTUM FOR LASTING HOUSING FINANCE REFORM”
Thank you, Reed, for that kind introduction. And thanks to Michael Bright and the leadership of SFA for inviting me to speak here today.
The mission of SFA is to ensure that securitization finances “responsible lending and remains committed to the safety, soundness, and growing needs of the entire economy.”
I share that mission, too. And it is why I believe our mortgage finance system is in urgent need of reform.
Fannie Mae and Freddie Mac – the two largest entities that I regulate – just entered their eleventh year of conservatorship.
This is much longer than any financial institution conservatorship has ever lasted. It gives Washington a far-reaching influence over the nation’s housing finance system, and it leaves taxpayers at risk.
If you add up all federal programs, taxpayers are exposed to nearly 63 percent of all single-family mortgage debt outstanding, or $6.9 trillion.
Today’s mortgage finance system poses significant risk not only to taxpayers, but also to borrowers, renters, homeowners, and our entire financial system. Yet, since 2008, mortgage finance reform has received much discussion but very little action.
When my tenure at FHFA began six months ago, I said the status quo is no longer an option and change is on the way. Since then, real change has begun, and we are building momentum for lasting reform.
And one week ago, FHFA marked another critical milestone in our progress when we released a new Strategic Plan and Scorecard for Fannie Mae and Freddie Mac.
I came here today to discuss what is in the new Strategic Plan and Scorecard. These two documents will be critical in guiding Fannie and Freddie through this important time of change and reform.
But first, let me clarify why we need reform now.
I recognize that business is pretty good for most people in mortgage finance today – especially now that we are in a refi market. And it does not hurt that the economy has been booming the past few years and house prices have been rising at a steady clip.
Some see these positive economic trends as evidence that reform should wait for a crisis. I disagree. To quote President John F. Kennedy, “The time to repair the roof is when the sun is shining.”
Now is the time to reform our mortgage finance system because our economy and housing market are strong.
Also, I imagine many of you would prefer a little bit less “boom and bust” in the real estate and mortgage markets.
A more stable and predictable market would be better for everyone’s business. It may also be more boring. But boring looks pretty good from the wrong side of a cycle of boom and bust.
As a safety and soundness regulator, my job is to hope for the best but prepare for the worst. That is why we must act now to repair the roof before it starts raining.
A root cause of the 2008 financial crisis was imprudent mortgage credit risk backed by insufficient capital. This fundamental problem remains unresolved today.
A case in point is Fannie and Freddie, which are undercapitalized for their size, risk, and systemic importance.
Together, they own or guarantee $5.6 trillion in single and multifamily mortgages – nearly half the market. And until very recently they were limited to just $6 billion in allowable capital reserves. When I first walked in the door at FHFA, the combined leverage ratio at Fannie and Freddie was nearly a thousand to one.
In September, Treasury Secretary Mnuchin and I signed a letter agreement modifying the terms of the Preferred Stock Purchase Agreements. Now, Fannie and Freddie can retain capital of up to $45 billion combined.
After retaining just one quarter’s net worth, I am proud to say that in my first 6 months at FHFA, we have nearly tripled the capital at Fannie and Freddie. This is a significant step forward. But it is just the beginning.
Their combined leverage ratio still stands at just over three hundred to one. To put this in perspective, our nation’s largest banks have an average leverage ratio of around ten to one.
In addition to low capital levels at the Enterprises, we have seen mortgage credit risk rising across the market for several years.
Regardless of loan quality, when the tide turns, there will be defaults, and Fannie and Freddie do not have the capital today to withstand a downturn.
Fannie and Freddie are not the only ones responsible for today’s broken status quo. For more than 11 years, they have been operating under government control through the conservatorships. This means their performance is also a function of government policies.
That is why there is momentum building across the government to fix those policies.
A critical step forward came in September when the Departments of Treasury and Housing and Urban Development released reform plans.
These plans represent a fundamental shift from past policies. They aim to prepare Fannie and Freddie to withstand a downturn and to operate safely and soundly outside of conservatorship.
I share this goal. The new Strategic Plan and Scorecard are critical to achieving it.
The Strategic Plan outlines FHFA’s priorities that will guide Fannie and Freddie’s operations. And the Scorecard is FHFA’s primary tool to hold Fannie and Freddie accountable for achieving those priorities.
The three objectives of the new Strategic Plan and Scorecard are to ensure that Fannie and Freddie…
Number 1 – Focus on their mission of fostering competitive, liquid, efficient, and resilient national housing finance markets.
Number 2 – Operate in a safe and sound manner appropriate for entities in conservatorship.
And Number 3 – Prepare for their eventual exits from the conservatorships.
Let me emphasize that third point: FHFA is moving forward to develop and implement a roadmap to end the conservatorships of Fannie Mae and Freddie Mac.
This is not simply a policy preference. It is a statutory duty.
The Housing and Economic Recovery Act of 2008 directs the FHFA Director to release Fannie and Freddie from conservatorship through one of three mechanisms: “reorganizing, rehabilitating, or winding up [their] affairs.”
Ending the conservatorships is one of my top priorities because it is what the statute requires. FHFA is not going to ask Congress for permission to do what Congress has already told us to do.
Of course, I will also continue advocating for – and working with Congress to advance – much-needed legislative reforms.
There are some things that only Congress can do. One of them is to create an explicit guarantee.
If Congress does create an explicit guarantee, it should be limited, clearly defined, and paid for.
At the same time, FHFA will move forward to fulfill our responsibilities under the law.
One of my principal statutory duties is to ensure FHFA’s regulated entities foster competitive, liquid, efficient, and resilient national housing finance markets. This is the first objective of the new Strategic Plan and Scorecard.
A critical component of a liquid housing finance market is the continued success of the Uniform Mortgage Backed Security. UMBS is now the primary vehicle for the Enterprises to bring affordable liquidity to the market by connecting global investors to lenders of all sizes to borrowers.
The UMBS is the result of an industry-wide effort. On the FHFA side, Liz Scholz – who you will hear from later today – played a key role in the successful launch in June and its operation since then.
The continued success of the UMBS is a key priority in the Strategic Plan and Scorecard. And to ensure that success, this morning FHFA issued a Request for Input around the Enterprises’ UMBS pooling practices.
This RFI seeks to ensure that UMBS remains a source of stable, affordable liquidity for our nation’s housing finance system.
The requested input will help FHFA determine whether further action or alignment is necessary to ensure reasonably consistent security cash flows and continued fungibility of the Enterprises’ UMBS.
Also, FHFA is seeking input on whether more aligned pooling practices could facilitate the issuance of UMBS by market participants beyond Fannie Mae and Freddie Mac.
To facilitate market engagement, the RFI includes a proposal for Enterprise pooling practices that would channel the majority of Enterprises production into larger, multi-lender pools.
This would ensure more uniform cash flows for TBA investors. And it would continue to allow issuance of specified pools under appropriate circumstances.
The RFI proposal would also align Enterprise policies with the actions to be taken when a specific seller or servicer exhibits prepayment behavior outside acceptable norms that may adversely impact UMBS. We look forward to input from all interested parties on this important matter.
The new Strategic Plan and Scorecard are also focused on preparing for the transition from LIBOR to alternative reference rates.
I know this is a topic of great interest to all of you – and it is a major priority for FHFA and the entities we regulate. This transition is vitally important given the planned phase-out of LIBOR as early as 2021.
FHFA’s focus is to ensure that the Federal Home Loan Banks and the Enterprises reduce risk exposure and prudently expedite the transition away from LIBOR.
FHFA supervisory guidance has already directed the Federal Home Loan Banks to stop purchasing LIBOR-based investments or entering into LIBOR-indexed transactions with maturities beyond December 31, 2021. And at some point, Fannie and Freddie will transition away from LIBOR-based mortgage loan products.
FHFA has taken several other steps in the past six months to foster markets that are competitive, liquid, efficient, and resilient.
In September, FHFA released new multi-family loan purchase caps for Fannie and Freddie. They ensure a strong focus on their statutory mission without crowding out private capital.
The new caps provide ample support to the multi-family market with a combined $200 billion in purchase capacity through 2020. And they close loopholes that had enabled the Enterprises to unnecessarily displace private capital.
A key aspect of the new caps is that they increase the levels of Fannie and Freddie’s multi-family business that is mission-driven, affordable housing to at least 37.5 percent.
Also in September, FHFA issued formal policy guidance prohibiting the Enterprises from volume-based variances and exceptions. Within conservatorship, it is my intention that all lenders receive similar treatment.
This is an important element to leveling the playing field for small lenders and fostering fair competition. But there is more work to be done.
A key example is the Qualified Mortgage standard. The responsibility to change QM lies with the Consumer Financial Protection Bureau. But Fannie and Freddie have a role to play, too.
In the Strategic Plan and Scorecard, FHFA directs Fannie and Freddie to support the development of a QM standard that applies equally to all players originating responsible loans. This means there can be no special advantages for anyone.
Another example is Reg AB II. Ultimately, this is the responsibility of my colleagues at the SEC – and I am encouraged to see them taking steps to gather public input on some of the challenges of asset-backed securities disclosures.
I know just before lunch you heard from my good friend SEC Commissioner Hester Peirce, who is doing a fantastic job. I will continue to partner with Commissioner Peirce and all of SEC on this important issue. Identifying relevant and streamlined data standards will provide transparency to investors in all mortgage-backed securities markets.
I noticed that the next session on today’s schedule asks: “Will Private Capital Fill the Gap?”
Private capital has the potential to fill the gap. But it will not be able to if it is hobbled by regulation.
Both QM and QRM create a tremendous amount of uncertainty that is holding back the mortgage market today. Fixing QM and QRM is critical to resolving that uncertainty. This will level the playing field, bring competition into the market, and enable private securitization to play a larger role.
This should be obvious, but it is worth emphasizing: No policy change will matter unless Fannie and Freddie are financially viable and strong enough to withstand a downturn in the economy.
That is why it is critical for FHFA to ensure Fannie and Freddie operate in a safe and sound manner. This is the second objective of the new Strategic Plan and Scorecard.
Meeting FHFA’s safety and soundness standards means aligning Enterprise risk profiles with their capital levels. This is paramount while Fannie and Freddie remain in conservatorship. And it is a prerequisite for ending the conservatorships.
The essential criteria of safety and soundness is: Are Fannie and Freddie resilient enough to withstand a downturn on the scale of what we saw in 2007 and 2008?
We know they cannot meet that standard right now. But I believe they are capable of and committed to getting there. In fact, today I think we see the strongest board and management teams in the history of these companies. I will measure progress by looking at whether they are moving in the right direction and as quickly as possible without jeopardizing their mission.
Implementing the Strategic Plan and Scorecard will not be calendar driven.
It will be driven by meeting the key mile markers needed to move from today’s unsustainable status quo to a reformed and resilient housing finance system.
Fannie and Freddie cannot change their risk profiles overnight. But the Strategic Plan and Scorecard direct them to begin the process of calibrating their risk to their capital levels.
Here again, real change has already begun.
In response to the rising risk I mentioned earlier, Fannie and Freddie have taken measured steps to address loans with layered risk.
When tailoring risk, we will proceed thoughtfully. But this does not mean moving slowly. Small adjustments to the footprint can pay significant dividends in trimming the tails of risk.
Within the conservatorship, Credit Risk Transfer has been an important mechanism of reducing credit exposure at Fannie and Freddie.
I know you have already heard from FHFA’s Naa Awaa Tagoe on the latest with CRT. Naa Awaa has played an integral role in driving the successes of CRT, and we are fortunate that she is on the team at FHFA.
In the six years since the program began, CRT activities have included securities issuance, insurance and reinsurance structures, senior-subordination securitizations and a variety of lender risk-sharing transactions.
Fannie and Freddie have conducted just over $3 trillion of CRT activity on reference pools with mortgage loan balances at the inception of the transactions.
This has transferred a substantial amount of credit risk to private capital and helped reduce taxpayer exposure.
The new Strategic Plan and Scorecard recognizes a continued role of CRT in managing risk at the Enterprises. That is why FHFA is directing the Enterprises to conduct a comprehensive CRT review in 2020 to develop lessons learned and strengthen the program for the future.
One of the new ways that FHFA will tailor risk at the Enterprises is to address overlaps with the Federal Housing Administration.
Reducing these overlaps is one of the recommendations in the Administration’s housing finance reform plans.
It is also essential to preparing for a responsible end the conservatorships. This is the third objective of the new Strategic Plan and Scorecard.
Thoughtfully addressing these overlaps makes sense for both the Enterprises and FHA because they were created to perform different roles in our housing finance system.
Improving the credit quality of FHA lending will also improve the quality of Ginnie Mae securities.
Change has already begun. FHFA is in the early stages of consulting with HUD and FHA. Our approach is to focus each program on fulfilling its distinct mission, while ensuring the secondary market continues to provide liquidity and access to credit.
In order to responsibly exit conservatorship, Fannie and Freddie must not stretch to serve borrowers who are better served by FHA. This is critical to not repeating the mistakes of the 2008 crisis.
Aligning risk to capital must be coupled with building capital to match risk. This is a precondition for exiting conservatorship.
Here again, change has already begun – and it is building momentum for lasting reform.
As I mentioned, in September, Secretary Mnuchin and I modified the PSPAs, allowing Fannie and Freddie to nearly triple their capital.
FHFA is also working on a capital rule that balances the imperative of protecting taxpayers, the mission of supporting liquidity, and the economic incentives of raising private capital.
We will soon be announcing whether or not the capital rule will be re-proposed and under what terms. We are moving thoughtfully and methodically because this may be the most important rule of my tenure.
But FHFA having a capital rule is not the same as the Enterprises actually having capital. The real work of reform can begin only after we finalize the rule.
Also, I will continue to work with Secretary Mnuchin on further revisions to the PSPAs necessary to end the conservatorships.
The objectives of the new Strategic Plan and Scorecard – and the changes we have made the past 6 months – lay the foundation for Fannie and Freddie to ultimately raise private capital.
But again, the path out of conservatorship will not be driven by the calendar. It will be driven by Fannie and Freddie meeting the mile markers set out for them.
I am the first to recognize the size and scope of the agenda that I just outlined. We certainly have our work cut out for us.
The only way to accomplish an agenda like this is to work together. Organizations like SFA have an important role to play.
I invite you to be partners in today’s effort to ensure that we have the strongest and most resilient mortgage finance system in the world.
Let me close with some words of wisdom from President Lyndon Baines Johnson.
In his first Thanksgiving address from the White House, he told the American people: “Yesterday is not ours to recover, but tomorrow is ours to win or lose. I am resolved to win the tomorrows before us.”
I hope you share that resolve – because when we put in the hard work to enact the changes that we believe in, we will “win the tomorrows before us” and build momentum for lasting reform.
Thank you.
Contacts:
?Media: Raffi Williams (202) 649-3544 / Stefanie Johnson (202) 649-3030?
Mnuchin said he would invest in the GSEs. Yes I will invest ... after I crush current shares. Give me a break.