Fannie Mae-No Politics (FNMA)

[obiterdictum]

You have probably seen this clip, but here it is in case:
video.foxbusiness.com/v/5279352704001/?#sp=show-clips
Not included in this clip is a later comment by Freeman that he hopes senators will ask Mnuchin directly if he finally plans to get rid of these two behemoths to which Bartiromo replies, well that's exactly what he said he would do.

In addition, there are now multiple stories regarding Mnuchins investment in Paulson's fund and the fact Paulson stands to benefit from FnF.

I believe that FnF is likely to be a central theme at his confirmation hearing. There is even strong potential that those in favor of his nomination will press him on the future of FnF, i.e. Crapo. Short of a decision in Perry, to me, this will be a monumental event for shareholders as he is likely to make comments regarding the admins beliefs and plans regarding the future of FnF. It appears to be a key catalyst for the pps IMO.

My hope is that given Chuck Cooper prepped Jeff Sessions for his hearing that maybe he will also prep Mnuchin regarding FnF.

What are your thoughts regarding above?

First, it is useful to know what the former administration and current Congress have thought about the GSEs. What are the GSEs to these people in general? The OMB Budget defines them.

Government-Sponsored Enterprises (GSEs).— Government-Sponsored Enterprises are privately owned and therefore distinct from government corporations. The Federal Government has chartered GSEs such as the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), the Federal Home Loan Banks, the Farm Credit System, and the Federal Agricultural Mortgage Corporation to provide financial intermediation for specified public purposes. Although federally-chartered to serve public-policy purposes, the GSEs are classified as non-budgetary. This is because they are intended to be privately owned and controlled, with any public benefits accruing indirectly from the GSEs’ business transactions. page 124

Second, what has the former administration and current Congress thought and planned about the future of the GSEs? The OMB Budget submitted by the to be former President Obama to Congress to sign off on lays out their thoughts and plans.

Future of the GSEs
To finish addressing the weaknesses exposed by the financial crisis, the housing finance system must be reformed, and Fannie Mae and Freddie Mac should be wound down. The bipartisan progress in the Senate in the previous session was a meaningful step towards securing a system that aligns with many of the Administration’s principles for reform, including ensuring that private capital is at the center of the housing finance system so that taxpayer assistance is never again required, and that the new system supports broad access to credit and affordable rental housing through programs like the Housing Trust and Capital Magnet Funds. Further, the Consolidated Appropriations Act, 2016, included a provision that prohibits Treasury from selling or otherwise disposing of the preferred stock it holds in Fannie Mae or Freddie Mac until January 1, 2018, unless legislation instructing Treasury on how to do so is enacted into law. Further, this provision recommends that legislation regarding the future of Fannie Mae and Freddie Mac be enacted and, notwithstanding the previous limitation, suggests that Treasury should not sell or dispose of its stock until such legislation is enacted. The Administration will continue to work with Congress to pass comprehensive reform, centered on several core principles: require more private capital in the system; end the Fannie Mae/Freddie Mac duopoly business model in order to improve system stability and better protect taxpayers; ensure broad access for all creditworthy families to sustainable products like the 30-year fixed rate mortgage in good times and bad; and help ensure sustainable rental options are widely available. page 314

It is clear that Mr. Freeman adheres closely to this impracticable plan for the future of the GSEs offered by President Obama and supported in part by a few legislators in the House and Senate. These plans never made to a floor vote in the House or Senate (Path Act, Corker-Warner, Crapo-Johnson).

Mr. Mnuchin's statement made on November 30, 2016, probably raised eyebrows among leading legislators in the House and Senate who have plans for the GSEs.

Mr. Mnuchin said:

“It makes no sense that these are owned by the government and have been controlled by the government for as long as they have. In many cases this displaces private lending in the mortgage markets and we need these entities that will be safe. So let me just be clear— we’ll make sure that when they’re restructured they’re absolutely safe and they don’t get taken over again. But we gotta get them out of government control.” - http://www.foxbusiness.com/politics/2016/11/30/steve-mnuchin-time-to-jettison-fannie-mae-freddie-mac.html Mnuchin also said "...in our administration its right up there in the list of the top 10 things that we’re going to get done and we’ll get it done reasonably fast.”

These statements do not provide specific details and can be construed in a number of different ways. How will the GSEs be restructured? Will it be done with Congress or without Congress? How to remove GSEs from government control, the conservatorship and the bindings of the SPSPAs, senior preferred stock and warrants? What is reasonably fast? What time frame is suggested here?

Given the lack of detail and specificity in these statements, during the confirmation hearings, the Senators may ask what Mr. Mnuchin what he meant by one or more these statements. Also, they may directly question him about their views of the future of the GSEs versus his and the President-elect's view of the future of the GSEs. Mr. Mnuchin may answer their questions with detail. He may not. It is not necessary for him to answer in detail and he can say that he has not spoken directly to the President-elect about the GSEs, that the GSEs are an outstanding issue that is in need of resolution and/or that the President-elect has not briefed him on his opinion or plans for the GSEs and cannot say more than a,b,c, d....

It may be better for his confirmation chances that Mr. Mnuchin is circumspect and general in his answers to questions about the specific future of the GSEs, especially from a legislative point of view. He is not a legislator and should avoid being baited into a snarl of legislative opinions and goals held by the U.S. Senate Committee on Banking, Housing, and Urban Affairs, especially those held by Senators Crapo, Corker, Warner and Warren. Potential conflicts of interest should be avoided or downplayed. The confirmation hearing is for the position of Treasury Secretary and Mr. Mnuchin will do well to limit his answers to the limits and confines of his potentially future office.

Whatever Mr. Mnuchin does answer, it will affect the pps in some manner.

We will soon see what President-elect Trump's OMB budget will say about the Future of the GSEs.

Source:
Analytical Perspectives, Budget of the United States Government, Fiscal Year 2017
https://www.whitehouse.gov/sites/default/files/omb/budget/fy2017/assets/spec.pdf