Fannie Mae-No Politics (FNMA)

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Fannie, Freddie and an Outbreak of Amnesia
The growing ‘recap and release’ movement is a bad idea that could lead to another financial disaster.


A dangerous amnesia pervades the current discussion about the future of mortgage giants Fannie Mae and Freddie Mac. Recall that during the 2008 financial crisis these “government-sponsored enterprises,” hit hard by the subprime meltdown, were put into full-blown government conservatorship, with taxpayers footing the bill for a $188 billion bailout. Many, myself included, thought reforming Fannie and Freddie would be an immediate postcrisis priority. Sadly, it never happened.

Now there’s a growing movement afoot to recapitalize Fannie and Freddie and release them from conservatorship. Even conservative groups such as the National Taxpayers Union and Americans for Prosperity are pushing for passage of the Housing Finance Restructuring Act of 2016, introduced in April by Sen. Mick Mulvaney (R., S.C.), which includes a recap-and-release scheme.
Fannie, Freddie and an Outbreak of Amnesia
This is a bad idea that fails to address the fundamental flaws in Fannie and Freddie’s business model and could lead to another financial collapse and taxpayer rescue.

Those who favor recap and release are buttressed by a lawsuit filed by investors in Fannie and Freddie equity. Initially, taxpayers were compensated for the bailout with a 10% annual dividend on their investment. In 2012, however, the Treasury Department began sweeping all quarterly profits from Fannie and Freddie into the general fund, nearly $250 billion to date. Investors in the GSEs have sued the government, labeling the Treasury action an illegal “taking” that has prevented Fannie and Freddie from accumulating capital and meriting release from conservatorship.

Affordable-housing advocates, the mortgage industry, home builders and realtors are also in favor of recap and release. They argue that the Federal Housing Finance Agency, the GSEs’ regulator, should reverse course. In other words, stop eliminating Fannie and Freddie’s portfolios of mortgage securities, stop transferring credit risk to the private sector, and—most important—stop the scheduled elimination of Fannie and Freddie capital by 2018.

http://www.wsj.com/articles/fannie-freddie-and-an-outbreak-of-amnesia-1464131687