Will more frequent reports on ending conservatorship get results?
By ANDREA RIQUIER
Bloomberg Mel Watt, director of the Federal Housing Finance Agency (FHFA), has said Fannie and Freddie’s current state needs to be resolved. Who says housing finance reform is dead?
Last week, House Financial Services Committee Chair Jeb Hensarling introduced the Financial CHOICE Act, touted as “the Republican alternative to the failed Dodd-Frank Act.”
CHOICE is an acronym for Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs. It spans 513 pages, even though one of its main principles is cutting “bureaucratic red tape.”
Section 336 would expand government activity, but in a way that seems likely to appeal to most parties. It requires the Treasury secretary to conduct a study on ending the conservatorship of Fannie Mae FNMA, -3.93% and Freddie Mac FMCC, -3.26% on an annual basis, and to report on the findings of that study to Congress.
As a reminder, Fannie and Freddie have been in limbo since the 2008 financial crisis. Conservatorship was meant to be temporary, until the dust of the crisis cleared. But it was amended in 2012 in a way that only muddied the waters even more.
The 2012 “net worth sweep” requires the two enterprises turn over all their capital above a certain threshold, known as a buffer, every quarter. The capital buffers are scheduled to diminish each year until they hit zero in 2018.
Fannie and Freddie’s equity shareholders have been disputing the sweep in court ever since. And most everyone agrees that the current situation is untenable. “The challenges and risks we are managing are escalating and will continue to do so the longer the Enterprises remain in conservatorship,” said Mel Watt, the director of Fannie and Freddie’s regulator, in February.
“Operating with essentially zero capital is not sustainable,” said Tim Mayopoulos, Fannie’s CEO, on an earnings call in May.
That was just days after Freddie Mac reported a loss for the quarter, a prospect that had many analysts wondering if the company would have to tap Treasury for funds. As it turned out, Freddie didn’t need more cash, but some analysts think the rhetoric over a “bailout” of an organization most Americans don’t understand could be bad for the enterprises.
But it could also help nudge housing finance reform along. There have been plenty of reform proposals over the past few years, and some Congressional bills, but no actual action, which makes Hensarling’s interest in ending conservatorship notable.
Will more frequent reports on ending conservatorship get results?
By ANDREA RIQUIER
Bloomberg Mel Watt, director of the Federal Housing Finance Agency (FHFA), has said Fannie and Freddie’s current state needs to be resolved. Who says housing finance reform is dead?
Last week, House Financial Services Committee Chair Jeb Hensarling introduced the Financial CHOICE Act, touted as “the Republican alternative to the failed Dodd-Frank Act.”
CHOICE is an acronym for Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs. It spans 513 pages, even though one of its main principles is cutting “bureaucratic red tape.”
Section 336 would expand government activity, but in a way that seems likely to appeal to most parties. It requires the Treasury secretary to conduct a study on ending the conservatorship of Fannie Mae FNMA, -3.93% and Freddie Mac FMCC, -3.26% on an annual basis, and to report on the findings of that study to Congress.
As a reminder, Fannie and Freddie have been in limbo since the 2008 financial crisis. Conservatorship was meant to be temporary, until the dust of the crisis cleared. But it was amended in 2012 in a way that only muddied the waters even more.
The 2012 “net worth sweep” requires the two enterprises turn over all their capital above a certain threshold, known as a buffer, every quarter. The capital buffers are scheduled to diminish each year until they hit zero in 2018.
Fannie and Freddie’s equity shareholders have been disputing the sweep in court ever since. And most everyone agrees that the current situation is untenable. “The challenges and risks we are managing are escalating and will continue to do so the longer the Enterprises remain in conservatorship,” said Mel Watt, the director of Fannie and Freddie’s regulator, in February.
“Operating with essentially zero capital is not sustainable,” said Tim Mayopoulos, Fannie’s CEO, on an earnings call in May.
That was just days after Freddie Mac reported a loss for the quarter, a prospect that had many analysts wondering if the company would have to tap Treasury for funds. As it turned out, Freddie didn’t need more cash, but some analysts think the rhetoric over a “bailout” of an organization most Americans don’t understand could be bad for the enterprises.
But it could also help nudge housing finance reform along. There have been plenty of reform proposals over the past few years, and some Congressional bills, but no actual action, which makes Hensarling’s interest in ending conservatorship notable.
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