Fannie, Freddie's path will likely be left to Biden - WSJ
Dec. 15, 2020 By: Liz Kiesche
--- Treasury Secretary Steven Mnuchin indicated that he would be unlikely to approve a legal step that would bring Fannie Mae & Freddie Mac closer to ending their government conservatorships before President Trump leaves office, he told the Wall Street Journal in an interview.
--- "We’re going to not do anything that jeopardizes taxpayers and puts them at additional risk,” Mnuchin said.
“We also want to be careful that we don’t do anything that overnight would limit access to mortgage finance.”
--- As recently as November, Federal Housing Finance Agency Director Mark Calabria, who oversees the two mortgage giants, was seeking to accelerate the process to end the government's control of Fannie and Freddie before Joe Biden's inauguration in January.
--- He wanted the government to take legal steps that would make it difficult for the next administration to unwind. That would mean a consent order. And he needs Mnuchin's approval to accomplish that.
--- The Treasury secretary, though, said he's focused on allowing the companies to increase their capital cushion to absorb potential future losses and eventually to raise money from new, third-party investors.
--- "The real issue is how do you get them out of conservatorship?" he said. "You need to raise third-party capital and you need to retain capital. That’s, to me, the issue."
--- As it stands, FNMA and FMCC are allowed to retain only $45B of earnings combined. They're expected to reach that in early 2021. That's far less than the ~$280B that the FHFA expects they would need.
--- Mnuchin suggests that the Trump administration is likely to increase the earnings that the GSEs are allowed to retain before the change in administration, though he didn't give amounts.
--- He's also considering whether the Treasury should impose new restrictions on Fannie and Freddie's businesses that would balance their roles in supporting housing finance, a move that could limit their size in the $11T mortgage market.
--- Although he declined to say what specific changes are being considered, the Treasury in 2019 said the FHFA should review whether the GSEs' purchases of cash-out refinancings and loans for investment and vacation properties fit with their core mission.
