Fannie Mae-No Politics (FNMA)

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Fannie and Freddie unlikely to be privatised, says US lawmaker

Sherrod Brown forecasts the two mortgage guarantors will remain under government control
Brown is a total IDIOT BOZO -

Kiran Stacey in Washington and Robert Armstrong in New York - 26 MINUTES AGO



Fannie and Freddie, which guarantee most US mortgages, have been in government conservatorship since the 2008 financial crisis © Bloomberg

Congress is likely to resist attempts by US president Donald Trump’s administration to privatise the two companies that guarantee most American mortgages, the most senior Democrat working on the plans has warned.

Sherrod Brown, the lead Democrat on the Senate banking committee, has said he is “not optimistic” about the chances of privatising Fannie Mae and Freddie Mac after more than a decade under government control.

In his role on the banking committee, Mr Brown is working with his Republican counterpart Mike Crapo on a bill to release the two entities from the government. But in an interview with the Financial Times, Mr Brown admitted he did not expect the two sides to reach an agreement.

“I still do not think the proponents of this have produced enough evidence that it is better than the status quo,” Mr Brown said. “The status quo is not particularly bad.”

He added: “We are working on it, but I am not optimistic.”

Republicans have long advocated eliminating government backing for Fannie and Freddie, but their rhetoric has only rarely been backed by action. The two companies were bailed out at the height of the financial crisis in 2008 and have since been in “conservatorship” — under government control but without their liabilities being listed on the public balance sheet.

Some of the biggest beneficiaries of a privatisation could be high-profile hedge fund managers, including Bill Ackman, who bought bombed-out shares in Fannie and Freddie in hopes that a privatisation plan would restore the securities’ value.

Earlier this year, Mr Trump wrote a memo directing the Treasury and housing department to work on a plan to release the two entities.

The US president said he wanted such measures to be both administrative and legislative, implying that Congress would put some of the changes into law. Mark Calabria, director of the Federal Housing Finance Agency, which oversees Fannie and Freddie, said in an interview last week that he wanted to give Congress two years — the duration of the current congressional session — to come up with a plan before considering unilateral action.

But in a separate interview last week, Mr Calabria indicated that he hoped to recapitalise Fannie and Freddie, if not end their conservatorship outright, without waiting for Congress. Mr Calabria said he hoped later this year to end the Treasury policy of collecting all of the two companies’ profits — a step towards building up adequate capital buffers ahead of privatisation.

He also suggested Fannie and Freddie could raise equity capital in the markets “perhaps [in] the first half of next year” at the earliest. In his role as conservator, he has the authority to raise capital, decide the amount of capital required and determine the scope of the company’s future role in the mortgage market.

Financial services

Trump eschews unilateral action on Fannie and Freddie

However, experts say that there are big financial and political barriers to a public offering of Fannie and Freddie stock.

Isaac Boltansky, a director at Compass Point policy research, said that raising private capital would be difficult in the absence of a complete plan for ending the conservatorship. “Who is going to commit capital when the entities don’t have boards acting in the interests of shareholders, and the policy landscape is more akin to quicksand than concrete?”

The suggestion that Fannie and Freddie would soon be backed by private capital rather than the Treasury could also affect mortgage rates, a major political risk for the administration. “The political paradigm is defined by the cost of the 30-year fixed mortgage, and if there was no government guarantee. it would be higher” said Ed Mills, policy analyst at Raymond James.