Many of the president-elect’s advisors are strong opponents of the Treasury Department’s net worth-sweep, and include a plaintiff in ongoing litigation about the legality of the third amendment to the Preferred Stock Purchase Agreements. One might surmise that this should increase the new administration’s support for enabling the government-sponsored enterprises (GSEs) to rebuild capital as a possible prelude to their eventual re-privatization. While eliminating the sweep could be done without an act of Congress, it would require approval by the new Treasury secretary and the current director of Federal Housing Finance Agency (FHFA), Mel Watt, whose term has two more years to run. Director Watt has suggested he wants to replenish the GSEs’ diminishing capital buffers, but there is no indication he supports recap and release as a reform strategy. Further muddying the waters is that we are only half-way through a congressionally-imposed two-year cooling off period that would make it very hard to execute recap and release.
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