The dust is still settling from the collapse of conventional wisdom in the biggest political earthquake of our time. In the midst of this change and uncertainty, however, Fannie Mae and Freddie Mac shareholders are firm in their resolve to end the conservatorship and regain their rights.
There are many questions about the key players and policies of the Trump Administration. However, fundamental facts about federal housing finance policy reform and the illegality of the Net Worth Sweep have not changed. Investors Unite’s warnings about the need for capital, government transparency, the rule of law, the flaws in credit risk sharing and the implications of building the common securitization platform are as valid now as they were a week ago.
“The conservatorship of Fannie Mae and Freddie Mac was never supposed to last this long, and it has opened the door for lawless behavior by our government,” Investors Unite founder Tim Pagliara said in statement. “We hope the election creates the conditions to end the conservatorship and for a legal settlement with investors, either now or in early 2017.”
The election will usher in new officials at the Treasury Department, people who were not involved in concocting and forcing the Federal Housing Finance Agency to implement the Net Worth Sweep. FHFA Director Watt, however, will be allowed to continue in his post if he so chooses. Watt has navigated through politically charged policy options with thoughtful consideration of the long- and short-term implications these policies will have on taxpayers and homeowners. His warnings about the ongoing depletion of the GSEs’ capital base will require the attention of senior officials early on in the incoming Administration. It is unlikely President-elect Trump relishes the idea of seeking taxpayer assistance to shore up Fannie and Freddie. The hasty dismantling of enterprises that have been the bedrock of affordable homeownership for generations of working families will not likely engender support from the public.
The new Administration should be given a chance to evaluate credit risk sharing mechanisms that have been under way for three years and long-term strategies for housing finance policy reform and then adopt its own approach to these issues. The lame-duck Congress and President should refrain from making major policy changes in eleventh-hour, catch-all spending bills. The courts, meanwhile, are continuing to consider shareholders’ allegations that the government violated the Constitution and the Housing and Economic Recovery Act in implementing the Net Worth Sweep.
Since Fannie and Freddie were put into conservatorship eight years ago, dozens of ideas have been offered to dismantle the GSEs and create a better housing finance. Most have failed to gain traction. One reason for this is that most do not represent a better way to provide countercyclical liquidity and stability in the mortgage market. A new Administration represents a chance to take a fresh look at options. It should not be a reason to start from scratch in designing solutions and extend a conservatorship that has already gone on for too long. It is time to restore shareholders’ rights and release recapitalized and reformed GSEs to perform their invaluable service to hard-working American families.