Fannie Mae-No Politics (FNMA)

[FreeFNMA]

GSE Jumpstart - Expires In Less Than 60 Days (Nov 6th 2017)

This legislation which is law prevents the US Treasury from selling off its investment in Fannie and Freddie. It was produced by Sen. Bob Corker who has publicly suggested shorting Fannie and Freddie.

This legislation is the hallmark of double speak and actually so far has prohibited/impaled/impeded/thwarted GSE reform. The conservatorship has lasted the better part of a decade and all this legislation did was make it last longer. Bob Corker has since announced that he will not be running for re-election, so when GSE Jumpstart expires it is reasonable to expect that he pulls out all the stops to cripple the GSEs. That said, if Mnuchin is serious about any solution involving the adequate capitalization of the GSEs, the best way to do it while protecting taxpayers involves raising capital in the primary markets and the best way to do this is to settle the lawsuits.

The problem with primary markets right now is who is going to put up billions of dollars with the net worth sweep in place? No one in their right mind. The money would go directly to the government. As such, the only way to attract capital is to eliminate the net worth sweep. This can be done in receivership or conservatorship. Given how the court rulings have largely favored the conservatorship, there really is no operational advantage to entering receivership. Entering receivership also would make it harder to attract new capital.

The SPSPA can be modified in a way that makes raising private capital possible. As GSE Jumpstart expires a plan can be put into place that raises over $100B to capitalize Fannie and Freddie while keeping many of the good reforms that have been put into place by FHFA.