IMF News
Short Takes: GSE Reform is Dead, Here’s Why / Okay, Maybe a 20 Percent Chance of Passage / What’s Riskier? GSE Stock or Bitcoin? / Nonbank CEO Ready to Depart / Brett Hively Resurfaces / FHA and the Government Shutdown
By Paul Muolo
pmuolo@imfpubs.com
If you thought that GSE reform had a good chance of passing this year, think again. Friday morning, industry lobbyists were perplexed about new reports that Senate Republicans were leaning toward a reform plan that entailed placing Fannie Mae and Freddie Mac into receivership as a transition to a new housing-finance system, one with multiple guarantors. The belief is that the GSEs would be killed outright. As one trade group official noted: “There is no vote count for receivership. There is not a single Democrat who will vote for this…”
As the weekend approached, the Senate Banking Committee had yet to unveil its version of GSE reform. Rep. Jeb Hensarling, R-TX, is working on his version of reform legislation, which would make Ginnie Mae the king of the secondary market while eliminating Fannie and Freddie…
Speaking at a Thursday luncheon sponsored by Women in Housing and Finance, Treasury counselor Craig Phillips said the Trump White House is “extremely committed” to housing-finance reform and favors reform objectives outlined this week by Federal Housing Finance Agency Director Mel Watt. (Reporting by Carisa Chappell / cchappell@imfpubs.com.)
In a seven-page document provided to the Senate Banking Committee, Watt and his staff call for Fannie and Freddie to be “reincorporated as private, shareholder-owned corporations with a regulated rate of return that would enter the market as the first two SMEs [secondary market entities] in order to help ensure an orderly transition to the new system…”
One veteran GSE lobbyist told IMFnews that he believes there is just a 20 percent chance of GSE reform being signed into law this year…
Keep in mind that the Treasury Department is the de facto owner of Fannie and Freddie, controlling all of their senior preferred stock. Depending on who you talk to, the common shares are worthless and the junior preferred is “almost” worthless – but that hasn’t stopped individuals and investment vehicles from speculating in these instruments…
POP QUIZ: If you’re a speculator, which would you buy: shares in Fannie and Freddie or Bitcoin? Drop me a line at: pmuolo@imfpubs.com...
GSE Shareholders Appeal Loss in ‘Sweep’ Case Against the FHFA
By Carisa Chappell
cchappell@imfpubs.com
After their case against the Federal Housing Finance Agency was dismissed by the U.S. District Court for Delaware in November, government-sponsored enterprise shareholders David Jacobs and Gary Hindes recently filed an appeal.
In Gary Hindes v. the Federal Housing Finance Agency and the U.S. Department of Treasury, the plaintiffs argue that the net worth sweep of GSE profits to the Treasury violates Delaware and Virginia law, the states where the GSEs are incorporated. But the defendants won their motion to dismiss the case for lack of subject matter jurisdiction.
In their appeal, Hindes and Jacobs said, “The court erroneously relied on defendant-appellees’ factual assertions in granting their motions to dismiss, which was improper under the standard of review applicable to those motions.”
They went on to say, “Neither the companies nor their private stockholders received any consideration in exchange for the net worth sweep, which expropriates to the government all of the economic interests held by the companies’ private stockholders and makes it impossible for the companies to rebuild their capital reserves, exit conservatorship and return to normal operations. This action challenges the validity and enforceability of the net worth sweep.” For the full story, see the new edition of Inside MBS & ABS, now available online.
Other areas of interest: Originations, Regulatory, Fannie, Freddie, GSEs
