Fannie Mae-No Politics (FNMA)

[GreenWizard]

KBW: Fannie and Freddie Emerging From Conservatorship ‘Increasingly Plausible’

By Paul Muolo
[e-mail]

The battle over the future of Fannie Mae and Freddie Mac likely will rage on for the rest of the decade, but it’s “increasingly plausible” that the two government-controlled mortgage giants will emerge from conservatorship, according to a new report from Keefe, Bruyette & Woods.

However, KBW analyst Brian Gardner readily admits that the firm is unsure “how or when” the Treasury Department or Federal Housing Finance Agency can legally take the two out of conservatorship.

Industry officials who have studied the issue contend that Treasury does not have the legal right to give the companies back to their junior and common shareholders and that it would take an act of Congress. Hedge funds that speculated in GSE stock are suing the government, claiming – among other things – that a GSE earnings sweep initiated by Treasury almost two years ago was illegal.

KBW, though, does not see GSE shareholders eventually prevailing in court. Regarding GSE legislation, the firm notes “many in Congress are wary of changing the current mortgage finance system and are reluctant to trust the private sector to step into the role that would be vacated by Fannie and Freddie” should pending GSE reform legislation prevail.


Other areas of interest: Originations, Servicing, Secondary/MBS, Regulatory, Fannie, Freddie