Fannie Mae-No Politics (FNMA)

[Robert from yahoo bd]

HeeeeHeeee! Just trying to understand his point that's all. Typically our fulcrum security holder's arguments fall in one of 3 themes: (1) instant recap (2) the dilution solution and/or (3) administrative bankruptcy.

Here, he was advocating for a theme from the David Stevens piece in Housing Wire that Fannie Mae and Freddie Mac should increase liquidity to reduce the historically elevated spreads between the 10 year Treasury and the 30 year Fixed Rate Mortgage.

The win/win scenario is Fannie Mae and Freddie Mac would be allowed to build their Portfolios again by buying MBS AND this would help create demand for MBS as the Fed is running off the MBS from its massive book of MBS and no longer buying. This should help lower or neutralize the historically high spread on the 30 yr FRM above 10Y Treasury's.

His idea is that the government is working on this behind the scenes and it will be the catalyst for instant release.

But one potential obstacle could be that the Federal Reserve (an allegedly non political institution) is currently insulated from Executive Branch Control, whereas post Collins, the FHFA is not. The Federal Reserve may or may not green light such an idea, but in theory it could object to it on the basis that a scenario could develop where the POTUS wants to juice the US Economy by having FHFA direct the GSES to put the pedal to the metal and buy tons of MBS 8-12 months prior to the Elections and potentially interfering with US Monetary Policy.

https://www.frbsf.org/education/publications/doctor-econ/2003/september/private-public-corporation/#:~:text=The%20Federal%20Reserve%20(the%20Fed,in%20fulfilling%20its%20varying%20roles.