Fannie Mae-No Politics (FNMA)

[Robert from yahoo bd]

https://furmancenter.org/thestoop/entry/when-will-government-control-of-freddie-mac-and-fannie-mae-end

"Under four presidential administrations, a handful of key policy decisions cumulatively extended that control far longer than anyone would have originally predicted; with its fourteenth anniversary approaching, moreover, there is arguably no end in sight."

"The PSPA, in fact, had an unusual feature that the monies invested by Treasury into the two GSEs were unable to be paid back (absent an appropriate amendment to that document to permit it). This signaled that the GSEs were never expected to go back to the status quo ante. "

"But the wind down policy did have a major impact in what became probably the most controversial GSE-related event during the Obama administration: the third amendment to the PSPA, about which there have been headlines and lawsuits ever since. As background, by mid-2012, the marketplace began to recognize that the structure of the PSPA might not, over time, have enough funding available to fully support the GSEs,17 in turn potentially leading to another loss of market confidence. To avoid this, the PSPA needed to be amended. The specific nature of the amendment that resulted (known as the third amendment) was, however, rather unusual: while it indeed eliminated the reasonable possibility of the available funding shrinking too much, it did so at the cost of guaranteeing that the two GSEs would run their capital18 down to virtually zero, regardless of what their earnings might be. I was told point blank by a Treasury official that this was done for consistency with the wind down policy of the administration.

Regardless, this meant that the GSEs, with virtually zero capital, would be wholly dependent upon the PSPA agreements to make them creditworthy issuers of their trillions of dollars of mortgage-backed securities (MBS). If the GSEs had in fact been wound down and replaced by other organizations, their having a de minimis level of capital might not have been a problem. But events transpired such that the GSEs had become even more important to the country’s housing finance system, not less–and the lack of capital extended by years any reasonable estimate of how long they would need to emerge from under government control."
"These proposals (which uniformly reflected the ideological or economic interests of the proposer) ranged from a government-owned corporate monopoly, to a cooperative owned by the lending industry, to many small GSEs, to just relying upon the private market, among others. Some showed themselves to be fatally flawed very quickly, others only after more detailed examination. As far as I could tell, none came close to being broadly accepted to operate as promised, or to be effective. More importantly, none came close to Congressional approval.14 "