When Congress passed the Housing and Economic Recovery Act (HERA) it included a provision that Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) contribute to the newly established Housing Trust Fund, but considering the shape the GSEs were in at the time it also gave the head of the Federal Housing Finance Agency (FHFA) the right to suspend payments, which he promptly did. Six years later, that’s about to change.
“While the profit levels Fannie Mae has experienced since 2012 are not expected to be sustainable, reasonable projections indicate that Fannie Mae will remain profitable for the foreseeable future,” writes FHFA chief Mel Watt in a letter sent to Fannie Mae CEO Tim Mayopoulos earlier today. “Until further notice, Fannie Mae should set aside and allocate funds for transfer to the Housing Trust Fund and the Capital Magnet Fund.”
Fannie Mae: Watt says capital classification, recapitalization no longer apply
The conditions that HERA set for suspending payments to the Housing Trust Fund were that doing so would destabilize Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA), cause it to become undercapitalized, or prevent it from recapitalizing. Watt determined that the first condition was no longer true and that the other two conditions didn’t apply because “FHFA has suspended capital classifications for Fannie Mae during conservatorship” and “Fannie Mae is not attempting to complete a capital restoration plan.”
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Watt is also mindful of how the decision could affect ongoing lawsuits, noting that “This determination relates solely to whether contributions to these Funds would cause financial instability and is not a finding for any other purpose.” Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) longs will try to read something into this decision, but according to Watt they shouldn’t.
Housing Trust Fund decision was sure to be controversial
Even though the size of the contribution is fairly small, 4.2 basis points for the unpaid principal balance of new business each year, it has proven to be divisive. At last month’s Senate testimony, Watt said that he had heard from Senators both for and against resuming payments to the Housing Trust Fund and that he had not yet made up his mind on which way to go. Whether it was affordable housing advocates on the left or small government advocates on the right, he was bound to anger someone.
“Watt’s decision to activate the Fannie Mae and Freddie Mac slush fund may be an early Christmas present for Acorn-like, liberal housing activists, but it’s a lump of coal in the stocking of every American taxpayer,” said House Financial Services Chair Jeb Hensarling, reports Clea Benson at Bloomberg.