Fannie Mae-No Politics (FNMA)

[Robert from yahoo bd]

Glen has spoke: "I have written several books and hundreds of articles on the mostly fraudulent conservatorship of Fannie Mae and Freddie Mac. This conservatorship used accounting trickery to systematically flush the toilet on Fannie and Freddie's capital and deprived them of capital until Mark Calabria raised the capital buffers to $45B in September of 2019.

Fannie and Freddie were taken by force in 2008 and placed into conservatorship by Hank Paulson who basically threatened their boards of directors and implemented a plan originally put together by Dan Jester that reconstructed the record and raided their balance sheets to systematically retroactively justify the conservatorship. Running out of valuable assets that they could write to $0 cause them in 2011-2012 to start reporting profits that would reverse all these fake accounting losses (fraud) --- and the government decided to steal the money for itself in 2012 rather than restructure and recapitalize the companies.

Mark Calabria's capital rule stems from the question, "How much capital can we get these two companies to feasibly raise from capital markets?" and works backwards.

This capital rule is not much better but it is slightly better. I think Calhoun's commentary regarding capital requirements is reasonable:
https://ncrc.org/wp-content/uploads/dlm_uploads/2020/09/GSE-Capital-Rule-Comment-Letter.pdf
"However, the combination of excessive overall capital requirements and a minimum that is too high for low-risk loans in the proposed rule would result in net increases in costs for lower-wealth families."

The capital rule should be designed to make homes affordable to all worthy borrowers regardless of race or gender (aka equal opportunity).

This capital rule is built on the politics of trying to prevent people like Hank Paulson from trying to seize the GSEs during a time in financial crisis when the TBTF banking system makes bad loans (private label mortgage backed securities market imploded in 2008, but agency mbs because they were not liar loans and were made only to creditworthy borrowers fared well). Loan performance should have guided FHFA's discretionary accounting treatment of deferred tax assets, not its buddy-buddy relationship with US Treasury.

What is done is done, and I don't think the solution here is to overcapitalize these companies like Calabria envisioned. I think there is a good capital amount. I think raising guarantee fees as they have been raised the past 15 years in theory should support the narrative for lower capital requirements, but instead Calabria used this as an excuse to raise even more capital and perhaps staple higher G-fees eventually to the foreheads of American home purchasers to pay for this.

I think Calhoun would be a great fit for FHFA director. I think Sandra Thompson just is perpetuating some of the problems Calabria created. I think the overall capital rule needs to be high enough to prevent people like Hank Paulson from being able to commit fraud to seize the companies in the future but not at the cost of American Home buyers... and for this reason I think this rule is still too high.

I think Tim Howard offers good insights here. He thinks that the capital rule should be tied to business risk and outlines exactly what that is and why it is significantly lower than this one...

I'm somewhere in between. I understand the pressing need for these companies to recapitalize and exit conservatorship and note that I point my finger at Treasury for not restructuring their balance sheets when even the adverse stress test does not show that Fannie and Freddie need another bailout having retained earnings since 2019.

Treasury has acted in bad faith, and the supreme court has ruled that it doesn't matter what Treasury and FHFA do, the law, HERA, has been trampled --- and that's just where we are, and so in the spirit of that, I think that the final capital rule should be higher than Tim Howard's business requirements. There are political forces at play here that have always wanted to kill and murder Fannie and Freddie and they are--- Fannie Mae is the most profitable company on earth on a per employee basis. If you back out all of Treasury's accounting fraud, Fannie and Freddie would not have needed a bailout.

And so --- I get the political need -- the entire banking system trades in agency mbs --- and these securities need to trade like treasuries --- and so this is the main reason to have a capital rule that exceeds business risk --- and I think it goes too far when it starts impacting american home purchase decisions --- by just focusing on the political risk and figuring how much capital they can be forced to hold.

Anyway, congratulations on making something better than Calabria's capital rule, but more focus needs to be placed on the actual business of Fannie and Freddie."

https://www.fhfa.gov//SupervisionRegulation/Rules/Pages/Comment-Detail.aspx?CommentId=15858