Consider the math that yesterday's hearing just introduced! When asked if suspended funding would resume if the NWS is eliminated, Calabria replied in the affirmative. This largely applies to the Capital Magnet Fund and National Housing Trust Fund and represents about $1 B in required FnF combined payments.
Then Mnuchin responded to a question on how he expected taxpayers to be reimbursed for ongoing GSE support with a specific reference to periodic commitment fees which were recently estimated to be in the area of $7-9 B. These fees were suspended under the Third Amendment.
It seems likely these fees, especially the latter commitment fees, would be likely to decline if footprint reduction shrinks the guarantee portfolio in some shared market arrangement (meaning shifted to new market competitors, as envisioned in the UST/FHFA Plan). But at the get/go, something approaching $8 B out of Fannie/Freddie combined earnings of $25.2 B will NOT be going to build capital needed for release.
This is a serious hit to recap and how much may have to be raised via some form of IPO. It also likely means projected earnings for the GSEs are likely to suffer substantial impairment, either from fees or reduced market share and revenue loss. If the Plan is to be neutral to mortgage/housing costs affecting consumers... as promised. This becomes almost a certainty. I wonder if SM and MC understand what they uttered, yesterday?
This is my back-of-the-napkin first look, not any formal analysis, but I would welcome comments or corrections.
