Fannie Mae (FNMA)

[Robert from yahoo bd]

https://www.washingtonpost.com/opinions/2021/07/11/forever-war-over-fannie-mae-freddie-mac/

JULY IS slipping away, and Sept. 6, the 13th anniversary of the federal takeover of Fannie Mae and Freddie Mac, is on the way. Mark your calendars - and marvel at the permanence of what was supposed to be a temporary measure to keep these government-backed housing-finance giants from going bankrupt amid financial panic in 2008. The latest institution to weigh in on this situation was the Supreme Court, which ruled against opponents of the federal takeover late in its just-completed term.

Before 2008, private shareholders owned and profited from Fannie and Freddie, which nevertheless enjoyed various congressionally conferred advantages because of the "public purpose" of their business - providing liquidity to the market for 30-year home mortgages by packaging them as securities for sale to investors. Implicitly backed by the full faith and credit of the United States, the two companies could and did take risks in pursuit of shareholder gain, leading to distress when housing prices crashed - necessitating a bailout-cum-takeover by the Federal Housing Finance Agency (FHFA).

At issue in the Supreme Court was a 2012 government policy under which the FHFA continued to send all Fannie- Freddie profits to the Treasury long after the pair had recovered and paid back a federal cash injection estimated at $187 billion. The plaintiffs opposing it were hedge funds that had bought the companies' beaten-down stock and would make a killing if the firms wer suddenly required to share cash with private investors again. In fact, the plaintiffs argued that they were entitled to $124 billion Fannie and Freddie had allegedly overpaid the Treasury. Fortunately, the justices ruled that the government's profit "sweep" was fully authorized by a 2008 statute that created the FHFA. This was correct both legally and common-sensically - a taxpayer-funded speculator windfall would have been a deeply unjust conclusion to this saga.

Not that this result is necessarily the happiest possible ending (assuming it is an ending), in terms of public policy. The government will continue to bear the downside risk of backing nearly half of the United States' $11 trillion in mortgages, while also reaping the profits. That's an improvement over the pre-bailout situation, in which taxpayers bore the risk but shareholders got the upside, but it's still far from optimal. Under the FHFA during both the Obama and Trump administrations, Fannie and Freddie took incremental steps toward greater transparency and reduced risk. Nevertheless, the country could benefit from a more fundamental overhaul of its mortgage- finance system. Bipartisan coalitions repeatedly tried to craft one in Congress - without success. This failure of governance was a victory for housing lobbies that benefit from the status quo.

President Donald Trump placed Mark Calabria, a free-market advocate of privatizing the companies, in charge of the FHFA, but the court's opinion, in a separate holding on the executive's power to hire and fire agency directors, enabled President Biden to dismiss Mr. Calabria. An end to government control, for which Mr. Calabria had prepared the companies by modifying the 2012 policy and letting them retain profits as a capital base, is therefore seemingly off the table. The risk is that the status quo develops even more inertia. Mr. Biden replaced Mr. Calabria with Sandra L. Thompson on an acting basis, but must soon make a permanent choice. He should use the pick to advance the cause of reform.