H.R. 1694 passed the House Oversight and Government Reform Committee today by unanimous approval. I believe this will lead to the next leg up in Fannie and Freddie stocks.
Under current law, the Freedom of Information Act does not apply to FNMA and Freddie Mac because while they are under federal conservatorship, they are not federal agencies.
H.R. 1694 amends the Freedom of Information Act to make its provisions apply to Fannie Mae and Freddie Mac when they are in federal conservatorship or receivership.
H.R. 1694 legislation passed the House Oversight and Government Reform Committee today near the stock market close by unanimous approval and had the support of 11 cosponsors in the House, all of whom are Republicans. It will be voted on in the Senate next. There are 52 Republicans, 46 Democrats, and 2 Independents in the Senate. I suspect with a Republican majority in the Senate and with a unanimous victory in the House, it will be passed in the Senate and then President Trump will sign it into law.
I believe speculation that H.R. 1694 would pass likely contributed to recent strong price action in Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC) common and preferred stocks. Yesterday Fannie and Freddie common and preferred stock took a bit of a breather and were down a bit, even after H.R. 1694 passed the House late in the session. FNMA closed at $2.91 (-1.36%) while FNMAS closed at $7.23 (-.96%) and FMCKJ closed at $6.82 (-1.16%). As reality sinks in today that this bill will likely be signed into law, I believe Fannie common and preferred will resume a solid uptrend. I can envision FNMA approaching and ultimately surpassing its 52 week high of $5.00 and the same for FNMAS surpassing its $11.00 and FMCKJ its $10.50 52 week high.
According to this article, Dick Bove of Rafferty Capital noted that Jason Chaffetz of Utah introduced H.R. 1694. This bill came from the Chairman of the House Oversight and Government Reform Committee. Chaffetz is a Republican in a Republican controlled House.
Bove believes the bill could be very damaging to the Democrats. Bove commented:
It could ascertain if the plaintiffs in the many Fannie Mae lawsuits are correct in claiming that the government has lied to the public from Day One when it took this company away from its shareholders without compensation. It may also result in shining a spotlight on the many courts who have opined that the government has the right to do whatever it chooses and that holders of private property have no rights. I agree with this and believe this could help lead us to the Fannie and Freddie net worth sweep.
Under current law, the Freedom of Information Act does not apply to Fannie Mae and Freddie Mac because while they are under federal conservatorship, they are not federal agencies.
H.R. 1694 was introduced by Rep. Jason Chaffetz and was designed to change this. It amends the Freedom of Information Act (FOIA) to make its provisions apply to Fannie Mae and Freddie Mac when the two entities are in federal conservatorship or receivership. The administration is also looking at plans for GSE reform from the ICBA and MBA. Under H.R. 1694, the two entities would be directed to accept and process FOIA requests from the public and to release information to satisfy those requests as long as they are in federal conservatorship.
The Congressional Budget Office (CBO) estimated the bill would increase spending for Fannie, Freddie and the Federal Finance Housing Agency (FFHA) by $10 million over the 2018 to 2027 period but revenues would be unaffected. All the net costs would be derived from Fannie and Freddie because FHFA would assess the fees on the two entities to cover its costs. The CBO also estimates that administrative costs would increase by $40 million in 2018.
Once the organization's internal FOIA offices are operating, administrative costs would total about $30 million annually, according to CBO estimates. These estimates include additional costs for FHFA to review requests received by Fannie and Freddie that include information FHFA has shared with them in its capacity as their regulator. In total, CBO estimates that over the next 10 years Fannie and Freddie's administrative costs would increase by $310 million.
Currently, Fannie, Freddie, and the FHFA incur about $5 billion in administrative costs annually. The budget office suggests the new costs could be covered by reducing other expenses by $20 million per year and increasing fees charged for providing loan guarantees by about $10 million per year.
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