Actually, the Path Act incorporates the PSPA reduction of the GSEs retained investment portfolios to $250 billion and no less (SEC. 1369E - https://www.govtrack.us/congress/bills/113/hr2767/text). As you say, Corker-Warner does not give a specific amount for the wind down but the bill uses the same reduction formula. With GSE elimination as a final goal in both the House and Senate bill, the transfer of investment portfolios to regulated entities (PATH) or wind down of the portfolios will not be of use to the eventually non-existent GSEs whose charters will be repealed and new business operations discontinued five years after either bill enactment (https://www.govtrack.us/congress/bills/113/s1217/text).
Yes. It has been misreported that the GSEs put the taxpayers on the hook. It is actually a bold lie. The GSEs loans and securities were never explicitly guaranteed by the government. That guarantee was made by government action. The US Treasury under Paulson put the taxpayers on the hook and blamed the GSEs for that.
The shareholders could be the legal beneficiaries of profits of the quasi-public privately owned GSEs having a government guarantee in case there was a catastrophic failure. However, such an arrangement post conservatorship would not go over well with the public or the wholly private business sector since the companies would always have an upside and no downside under all business and economic conditions with government standing behind them. It is doubtful that a majority of lawmakers would go for that plan.
For TARP recipients, the US Treasury has sold the stock warrants in auctions to the highest bidder, sold them on the open market through various banks and exercised warrants for stock and then sold their shares. We do not know which of these methods the US Treasury will employ for the GSEs if they do it at all. There is no obligation to do so on callable warrants. Each method will lead to different results for shareholders. In all cases their will be dilution but the amount of rise in pps will be different for each method employed. No idea on what is likely..
The CSS is co-owned by the GSEs, so, at the moment, profits in some unknown percentage will flow to the GSEs from CSS operations. Also, it is important to note that the CSS is a technological infrastructure for securitization, and an issuance utility and bond administration hub. However, the GSEs remain the issuer of MBS, maintain high touch operations with MBS that cannot be handled technologically and have revenue streams coming from the sale of MBS to investors.
The CSS platform is a market utility that is being designed to be used by the secondary market participants with an opening to for lawmakers to have input into its operations, rates, etc. The GSEs have initial and primary access to the utility as owners and as the CSS develops over the next five years, other qualified market participants in the private sector will have access to the utility. This allows Fannie and Freddie to co-exist with other market participants with the hope that the GSE footprint will be reduced and private capital increased in the secondary mortgage market. At the moment, the GSEs are the secondary mortgage market.
A major source of revenue has in recent times been guarantee fees paid by MBS purchasers. Fannie and Freddie also earn on the spread that lies between in difference between the interest paid on the bonds (debt) the GSEs sell to earn cash to buy more mortgage loans from originators and the yield on the purchased mortgage loans. The former is straightforward. The latter is plus/minus balancing act of mortgage interest incomes and bond interest payments.
Through the simple and complex means above, the GSEs provide an enormous and consistent flow of liquidity to the primary mortgage loan market for residential and multi-family housing within the GSEs conforming loan limits. There is no substitute for them. Without them, where will the cash come to lend to borrowers taking out mortgage loans of the various types in the US?
There are manipulations of GSE functions but so far it appears that there has been more of a streamlining than a stripping. The CSS does offer the possibility of a future stripping of securitization away from the GSEs by regulation, law and additional member interest owners, but in doing so it is stripping it away from the entire housing finance industry or in way sharing it by making the platform the go to securitization place for certain qualifying loan poolings (and not all loans). The big banks do not want to loan and hold the kind of mortgages that Fannie and Freddie purchase from big banks, community banks and other mortgage lenders and insurers (e.g. 30 year fixed rate mortgage loan).
So thinking of the entire industry is required to get a full picture of what is happening.
The government may or may not get further involved in the secondary mortgage market as it already has done in Ginnie Mae. They could do it through legislation in the same way that the wholly owned government agency Ginnie Mae was formed.
The GSEs purchases mortgages, issues debt, sell the debt and uses the cash from debt sales to buy loans. Ginnie Mae does not purchase mortgages and only guarantees pooled mortgage securities. The Ginnie Mae guarantee allows the FHA, Farmer Mac, PIH and the VA to raise capital from investors through securitized pools of loans so that they can put cash revenues into new loans. Ginnie Mae also gets guarantee fees when these FHA, Farmer Mac, VA , PIHCMOs are sold and using these fees they run Ginnie Mae operations. See: http://www.ginniemae.gov/consumer_education/Pages/ginnie_mae_and_the_gses.aspx
It seems that there will be considerable resistance to the idea of the government getting involved in purchasing mortgage loans and doing all that Fannie and Freddie do as a new government agency. It seems that would not get the talent necessary to pull that off equally well as the GSEs.
The lawmakers are at a loss when the whole of the working parts of the housing finance industry and system is considered. They do not even have a quarter of it clear in their heads. So, there is a ways to go before they develop something that will be thoughtfully productive and constructive rather than the carelessly made, disruptive and destructive proposals already made.
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