I don't think Mnuchin is being secretive on what he plans to do with the GSE's. I think he's not made up his mind on how housing should be reformed.
Liquidity on the market, no taxpayers at risk. Access to infrastructure by community banks. Do not cause a problem for FHA. That's what Mnuchin says.
Liquidity on the market means that there is some entity that is regulated to make sure they are taking the risk of packaging, insuring, and selling MBS securities. Not putting taxpayers at risk could mean a plethora of things. Specifically, I think Mnuchin initially thought to get rid of the government guarantee backing these securities--either implicit as it was before, or explicit as it is now. However, removing this guarantee would be antithetical to providing liquidity to the secondary mortgage market. If the govt is not providing backing to the entity that is insuring these securities, the premium charged by that insuring entity will be higher, and the investors will see them as less attractive, some parking their capital elsewhere. I think this ends up with an explicit guarantee with both (1) a fee paid to the govt, lowering net income, and (2) a first loss reserve that the entity would need to set aside--a capital intense requirement.
I think initially Mnuchin wanted to privatize the lucrative MBS insurance business given them to big banks that have the infrastructure to become MBS insurers, and allow FnF to compete in this market to 'ensure' small community banks have equal access to this market. He has said that community banks know their local markets better and are thus better equipped at making mortgage decisions than big banks. Whether he believes this, or is trying to gain political points, I think allowing big banks to run their own MBS insurance business would--unless very well regulated--disadvantage community banks.
The other functions of FnF are social goals to make sure everyone worthy of buying a home has access to a fair mortgage. If you put strict, conservative rules on the GSE's, less people will have access to mortgages; however, people would then turn to FHA loans and this in turn would go back to putting taxpayers at risk.
The current tax plan proposal is a huge tax break for the wealthy (no estate tax would save them tremendous amounts of money) veiled as a middle class tax break (there's no way to tell without the tax plan providing more specific details). The reason I mention this is because of the way it's presented and what it's actually doing is structured in a way housing reform would be as well: give more access to people to mortgages, and reduce taxpayer risk by giving community banks equal access to the secondary mortgage market, by privatizing mortgage insurance business (huge win for big banks).
Even under some of the bad or more dire scenarios, I think the GSE's will end up returning to shareholders, albeit with a smaller market share, and less profitability. I agree with Ackman on his latest assessment of teens ($12-15) of share price once all is said and done. There will probably be a spike above that in the meantime, with $17-18 the place where I'd personally sell.
The courts only provide more upside, low probability of a win, big reward if we do. That's the story of this stock
UnHombreAlado
AI
