Fannie Mae – Sen Johnson to Watt: “Engage Treasury Department In Talks To End The Conservatorship” by Todd Sullivan, ValuePlays
Just yesterday we had Sens. Warren and Warner saying “the gov’t conservatorship of Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) is not a viable long term option” and now today we have Sen Johnson simply calling for the conservatorship to end.
The shrinking of Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC)’s under the conservatorship and the depletion of their capital bases is only hurting the housing market. Congress is beginning to understand this (finally) and has also come to grips with the fact their are no private entities or combination of private entities that could come anywhere close to being able to perform the functions of the GSE’s. So, first things first is to stabilize them and housing by getting rid of the conservatorship. Once that is done, the GSE’s can be overhauled to eliminate activities that cause them to crater in ’08-’09.
Once a chorus like this gets going, it can reached a climax pretty quick…
By Clea Benson
Nov. 19 (Bloomberg) — The U.S. Treasury and the federal overseer for Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) should consider ending government control of the two companies if Congress fails to reform the housing-finance system, Senator Tim Johnson said.
“Everyone agrees that conservatorship cannot continue forever, so I hope my colleagues will keep working towards a more certain future for the housing market,” Johnson said today in remarks prepared for a Senate Banking Committee hearing with Federal Housing Finance Agency Director Melvin L. Watt. “If Congress cannot agree on a smooth, more certain path forward, I urge you, Director Watt, to engage the Treasury Department in talks to end the conservatorship.”
Johnson, the South Dakota Democrat who leads the banking panel, co-wrote a bipartisan bill to wind down the companies that stalled in the Senate. His comments mark the first time a lawmaker has called for regulators to restore Fannie Mae and Freddie Mac to independence if Congress continues to dither.
Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC), which buy mortgages from lenders and package them into securities, were seized by regulators in 2008 after defaults on risky loans pushed them to the brink of insolvency.
After a $187.5 billion taxpayer bailout, they’ve rebounded and are now required to send the Treasury all of their profits. They’ve paid a combined $225.5 billion, which is counted as a return on the U.S. investment and not as repayment, leaving the government-sponsored enterprises without a legal avenue to exit conservatorship on their own.
“The Enterprises remain trapped in conservatorship,” Johnson said. “FHFA continues to perform the dual role of both regulating and running the businesses of the largest entities in the mortgage market. This is not sustainable, and there is no consensus in Congress regarding how to move forward.”