A group of Senators have warned Mel Watt saying a failure to make a dividend payment to the Treasury could “harm legislative efforts”. Now, if we go back into our magic little time machine almost a decade ago to 2008, the year the GSE’s were placed into “temporary conservatorship” (only in Washington is “temporary” a decade) they were done so to be “rehabilitated”. At no point was the goal to “replace” or “redo” them.
Fast forward in our little time machine 9 years and we have Senators saying to Mel Watt “we are working on something”. Really?? What’s the rush?? The reality is there is no legislative fix coming and there hasn’t been one coming since 2008. The Senate is not even remotely close to putting anything together and every single Senator who signed that letter knows it and is lying if they say anything different. Only two deeply flawed bills even made it out of committee and neither even came close to sniffing a vote on the Senate floor……..in 9 years!!!!
No, this is a dog and pony show. Corker may be the most disingenuous Senator holding a seat today and is wholly blinded by ideology and painfully divorced from reality.
There will not be any legislative “fix” coming until one is forced. Watt with holding these payments would jump start that process. Mnuchn could also do it by simply telling FHFA not to send them.
This is classic Washington (via Bloomberg):
A bipartisan group of senators told Mel Watt, the regulator who oversees Fannie Mae and Freddie Mac, that he shouldn’t allow the companies to recapitalize without congressional approval.
Letting the U.S.-controlled mortgage giants build capital buffers would hurt legislative efforts to overhaul the housing-finance system, the senators said in a letter Wednesday.
The letter to Watt, who is director of the Federal Housing Finance Agency, was signed by Republicans Bob Corker of Tennessee and Thom Tillis of North Carolina, as well as Democrats Mark Warner of Virginia, Heidi Heitkamp of North Dakota and Jon Tester of Montana.
The lawmakers said they wrote to “express our concern regarding any administrative action that would adversely impact” legislative efforts underway in Congress.
Some housing-finance watchers have warned that Fannie or Freddie could require taxpayer funds if a corporate tax cut, supported by Donald Trump’s administration, passed Congress. Such a cut could lower the value of assets the companies have to offset taxes.
Bailout Terms
Fannie and Freddie were bailed out in 2008 and have been under FHFA control since then. Under the current terms of their bailout agreement, they pay nearly all of their profits as dividends to the Treasury and have a declining capital buffer. That buffer fell to $600 million this year and is slated to fall to zero next year, meaning any losses the companies experience would necessitate a draw from taxpayers.
A move to suspend dividends would be sure to cheer investors in Fannie and Freddie stock, who view capital retention as an initial step to realizing value on their shares. Retaining capital has also been urged for years by some small lenders, civil rights groups and affordable-housing advocates who say Fannie and Freddie provide their best chance at broad access to the mortgage-finance system. Those groups sent Watt a letter calling for a dividend suspension earlier this month.
An FHFA spokeswoman said the companies would make their expected dividend payments of about $10 billion on Friday.