Fannie Mae-No Politics (FNMA)

[RumplePigSkin]

The below quote demonstrates how uneasy Mnuchin is about releasing FnF with the practical "zero capital" they have today compared to the full capital required.

Say, for example, they were to do a "Big Bang" in the next 20 days. FnF are released under a consent decree with the capital they have. We get a deadlier strain of Covid 19. The big one hits in California, and we have a record Hurricane season in 2021.

The capital FnF have on the books would risk another taxpayer bailout given HERA's contingency rules of being critically undercapitalized. FnF could be put into receivership, which no one wants. It could also significantly disrupt the mortgage market. You have to plan for adverse scenarios and releasing them without enough capital is not practical. Go slow, build up "reserves" and then contemplate the best path forward on an SPO.

JPS do not want to contemplate the macro view of adverse events that can't be reasonably foretold. You have to be responsible and all of the Mortgage Industry trade groups have voiced similar concerns.

The below quote from Mnuchin trumps all other viewpoints. A rush to release is foolhardy, and Mnuchin is no dummy. Not only does capital get raised via retained earnings for longer, there is also a possibility that once Calabria is dismissed, a more reasonable cap rule could be implemented under a Biden administration to assure affordable housing is not inadvertently impacted years down the road by Dr. Calabria's onerous capital rule.

Mnuchin, speaking at a House Financial Services Committee hearing earlier this month, acknowledged that a consent order could be one path to the companies’ release but suggested they had not yet accumulated enough capital to make it WORKABLE.

“There could be a scenario where at some point between basically the zero capital they have and the full capital requirement, there would be a consent order and they would be release subject to a consent order,” Mnuchin said. “There’s got to be significant capital for them, in my opinion, to be released.”

Even though Mnuchin doesn’t plan to go so far as to release the companies, the Treasury Department and FHFA could still agree to provisions that would make such an outcome more likely, such as by reducing or otherwise modifying the government’s $222 billion “senior” preferred stake in Fannie and Freddie.

In his comments to reporters last week, Mnuchin said he was likely to agree to a modification of the bailout agreements “to set them on the right direction.”

The WORKABLE usage is key. You need more retained earnings. You can't go to market to attempt to raise double, or triple, the record for the largest IPOs ever. It isn't WORKABLE ...