Fannie Mae-No Politics (FNMA)

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Shelby bill douses hopes for Fannie, Freddie investors


http://www.marketwatch.com/story/shelby-bill-douses-hopes-for-fannie-freddie-investors-2015-05-12?siteid=nbsh

WASHINGTON (MarketWatch) — Hopes were doused Tuesday for shareholders in federally controlled mortgage-finance giants Fannie Mae and Freddie Mac who thought a new Congress might get them closer to a payout.

A new Senate proposal aims to get Congress to work on strengthening the country’s mortgage-market infrastructure. While a healthy mortgage market is a worthy goal, there may be some casualties along the way because a draft of the bill, as currently worded, would hit investors in Fannie and Freddie, said Isaac Boltansky, an analyst at Compass Point Research & Trading, a Washington-based investment firm.

“It would foreclose on an administrative path for action and leave the issue squarely in the hands of Congress where it would surely languish until 2017 at the earliest,” Boltansky said.

Also read: Shelby takes it easy on Fed in new banking bill

The new proposals for government sponsored enterprises Fannie FNMA, -2.12% and Freddie FMCC, -1.65% are part of a broader package to revamp far-reaching bank-reform laws enacted in the wake of the financial crisis. A draft of the new bill, from Alabama Republican Sen. Richard Shelby, chair of the Banking Committee, would light a fire under Congress to get to work on GSE reform, a complex undertaking that U.S. lawmakers have made little progress on since the companies entered federal conservatorship in 2008.

Shelby’s “Financial Regulatory Improvement Act of 2015” would take several important measures aimed at moving Congress forward on reforming Fannie and Freddie, such as:

Prohibiting the government from using increases in certain fees charged by the GSEs to pay for anything other than the GSEs or housing-finance reform.
Prohibiting Treasury from selling its preferred stock in the GSEs without permission from Congress.
Enacting the first item would limit Congress’s ability to use Fannie and Freddie as cash cows. Because of amended terms of a bailout agreement for the once flailing companies, they send almost all of their profits to the U.S. Treasury Department. This agreement prevents the companies from building capital and investors from reaping rewards. The arrangement has also led to multiple shareholder lawsuits.

The second item, which limits Treasury from selling its GSE stock, could be a negative for investors if their fate is left up to Congress, which has sat of the issue of reform for years.

The Shelby bill itself faces an uncertain road to enactment. Senate Democrats, who are in a position to block legislation, have said the bill should be more focused on help to smaller banks.