Put simply, the two sides are agreeing that the conservatorship of the GSE’s, as it is currently being run, cannot continue……

Last month conservative groups send FHFA Director Mel Watt a letter saying “Hearings should also be held to ascertain how the Third Amendment, now embroiled in legal controversy, was allowed to metastasize in the first place.”

Last week Democratic lawmakers sent Watt a letter saying ““The fact that the GSEs are currently in conservatorship, and that Congress has not enacted further legislation post-HERA, does not justify an agreement between FHFA and the U.S. Treasury to ignore HERA’s mandate,”

For the last 8 years there has been little agreement between the two sides on much of anything (blame whoever you want).  It is inconceivable Congress does anything before the election on GSE reform as neither side will cast a vote on one of the if not the largest sector of the economy before an election. So, it is up to Watt. Though he has shirked his responsibility up to this point, he does have the ability to change the course of what is happening.

Watt, NOT Treasury is the regulator of the GSE’s and people are increasingly coming around to the notion Treasury here is calling the shots and they shouldn’t be.

The sentence from the Democratic lawmakers is most damning. The 3rd Amendment, “Does not justify an agreement between FHFA and the U.S. Treasury to ignore HERA’s mandate”. Congressional Democrats now are charging both Treasury and FHFA of violating HERA.  If the regulator is violating the law that gave it its authority, then its actions are wholly open to judicial review.  If they are then open to judicial review, the actions that cause the GSE’s to become unsound and under capitalized, both in violations of HERA, are then open to judicial review (this would be the 3rd amendment).

Conservative groups are saying the 3rd amendment “metastasized” and Democrats are saying it “ignores HERA’s mandate”

Political pressure is rapidly mounting on Watt and the White House. Now that the first shots have been fired from both sides of the aisle look for other groups to begin to pile on.

I have and still maintain this issue becomes and election gambit for the Democrats… Obama can easily use it to both remind the public of the state of the economy (and place blame on republicans) and take credit for “finally closing the last chapter” on the financial crisis.

He can say his actions have and will (it matters not if you believe any of this……it is politics):

  • make taxpayers billions more in profits (Treasury owns >70% of the GSE’s by exercising their warrants)
  • he has substantially reformed the GSE’s so this never happens again
  • ensure affordable homes for minorities and the poor
  • expand homeownership for millions more Americans
  • force the GOP to either agree with him OR oppose his actions in which case they are “against poor/minority home ownership”
  • remind everyone over and over what 2008-10 was like and cast blame where he sees fit
  • tell the pension funds of teachers unions and auto workers and others that because of him their funds holdings of GSE securities have now gone up in value

It works on a lot of levels… it really does

Now that Congressional Democrats are pushing for this also, we can assume they will easily fall in line applauding Obama’s actions should he take them and it’ll be one big happy party.

Timing? I’ve always said summer 2016 and are sticking to it. Should the government lose at the  appellate court (decision due out soon) it may be even sooner than that. The last thing the government wants is expanded discovery and more docs released to the public. A settlement with a gag order puts this all to bed nice and neat before the election…

Letting it linger simply opens up the White House and Democrats to increased conspiracy charges/theories that could become a larger issue as we head into November.

 

Fannie Mae & Freddie Mac