BY: ROB CHRISMAN
Fannie/Freddie Changes–Their Future Remains Uncertain
The CHLA released its version of a comprehensive GSE reform plan. “As the Trump Administration begins to wade into this issue, and Congress is starting to do the same, CHLA wanted to weigh in with a detailed set of recommendations. They focus on key CHLA priorities – broad consumer access to mortgage credit, small lender protections to ensure full and equitable access both to the Cash Window and for securitization execution, and protection of taxpayers.
“The plan identifies a series of recommended steps, starting with FHFA suspending dividends to build a GSE capital buffer, the FHFA as conservatorship developing a recapitalization plan using a so-called “Utility Model” and then agreement and implementation of a Plan by FHFA, Treasury, and Congress. CHLA believes it is critical to formalize in rule and law key small lender protections, such as G Fee parity, addressing concerns about vertically integrated banks using up-front risk sharing, and preserving the Common Securitization Platform for use by the GSEs.
“While Congress must continue to play a strong oversight and advisory role, comprehensive legislation is not needed now,” CHLA argues in its Plan. “This CHLA GSE Reform Plan would recapitalize and re-privatize Fannie and Freddie using a Utility Model under a plan to be developed by FHFA as conservator, and then agreed to by the Treasury Department and Congress. Taxpayers would be protected by private GSE capital, risk sharing, strong FHFA regulation, and sound underwriting. Other provisions in the Plan protect small lender access and consumer access to mortgage credit.”
Some argue that dealing with Fannie and Freddie is not an immediate priority, at least not for this year. Staffers are now starting from scratch to come up with a plan. One possibility is to end the profit sweep for the GSEs and let them retain that profit to build up their capital, which would take a decade or more. This would not require a legislative fix: Under the 2008 law, HUD Secretary Mel Watt has the authority to make that change.
Others are chomping at the bit for a change. Reuters reports that a group of investors have filed for a rehearing of a case on whether the government improperly seized profits of Fannie & Freddie. “The investors, led by Perry Capital LLC and Fairholme Funds, are asking a three-judge panel of the U.S. Circuit Court of Appeals for the District of Columbia to reconsider its earlier decision. The move indicates that hedge funds and other investors are not giving up in their fight to reclaim profits in the mortgage companies, which were seized by the government as part of their bailout following the subprime mortgage crisis. In February, a panel of the appeals court ruled 2-1 that a lower court had ruled correctly when it rejected investor claims the government exceeded its authority in eliminating dividend payments to Fannie and Freddie shareholders in 2012.