In an interview on Fox Business News this morning, U.S. Treasury Secretary Steven Mnuchin confirmed stunning reports that officials from the last Administration used the windfall from the Net Worth Sweep of Fannie Mae and Freddie Mac’s profits for “other parts of the government.”
Investors Unite noted this intriguing possibility several weeks ago when Dr. Jerome Corsi, InfoWars Washington Bureau Chief, first published a series of stories in which he connected the dots found in government budget documents, court records and comments from officials related to policy priorities as the Net Worth Sweep was being formulated. With Mnuchin’s comments today on Fox Business News, it appears Corsi was onto something.
About three quarters of the way through today’s interview, host Maria Bartiromo, referring to reports of, “… how President Obama needed money for Obamacare and would take from all the agencies – and he took from Fannie and Freddie,” asked, “Is that true?”Mnuchin replied without equivocation: “It is true, they used the profits from Fannie and Freddie to pay for other parts of the government while they kept taxpayers at risk,” he said.
The current Treasury Secretary’s stark acknowledgement of Obama Administration officials’ apparent cavalier relationship with the law when they conceived a plan to divert Fannie and Freddie’s profits is itself newsworthy. But so are his comments that have a bearing on ending the fiasco of the GSEs’ conservatorship.
To recap, Corsi’s analysis showed that Congress explicitly declined to appropriate any funds to Section 1402 of the Affordable Care Act, which concerns payments of insurance subsidies. Without that money to subsidize lower-income people’s purchase of health insurance, insurers would be forced to charge people with higher incomes a lot more, which would make Obamacare “dead in the water” in Corsi’s analysis. Not surprising, Obama Administration officials scrambled to get around this impediment, leading to a fight in court. However, on May 12, 2016 U.S. District Judge Rosemary Collyer, in the case U.S. House of Representatives v. Burwell, (130 F. Supp. 3d 53, U.S. District Court for the District of Columbia), affirmed that Health and Human Services Secretary Sylvia Matthews Burwell had no constitutional authority to divert funds.
By diving deeply into budget documents, Corsi discovered that the hefty profits Fannie and Freddie were just beginning to generate would provide almost exactly what would be needed for the health insurance subsidies. Citing a report issued in March 2016, the Congressional Budget Office estimated the cost for providing Section 1402 subsidies over the next ten years (2016-2026) was estimated to be $130 billion. Corsi’s analysis also points to damning information found in a Congressional Budget Office publication “The Budget and Economic Outlook: 2015 to 2025” about how “transactions with Fannie Mae and Freddie Mac” were considered as part of “mandatory U.S. government spending.”
Getting to the bottom of what happened requires such relentless analysis because so much remains veiled in secrecy. Corsi’s analysis used documents related to the Sweep that were forced into the open by federal judges in the course of shareholder litigation and posted at FannieFreddieSecrets.org. As if to underscore the lack of transparency on matters concerning the GSEs, just last week the U.S. House approved a bill that would end an exemption to Freedom of Information Act (FOIA) requests related to Fannie and Freddie. Bartiromo noted the passage of this bill during the interview with Mnuchin but the Secretary declined to comment on the specifics of this aspect of the Fannie and Freddie misadventure.
However, Mnuchin restated his concern that the continuing Sweep poses a looming threat to taxpayers. The longer the GSEs are depleted of capital the more likely it is that taxpayers will again be compelled to advance public funds to pay their bills. Mnuchin is clearly averse to this arrangement and wants to bring it to an end as soon as possible.
He told Bartiromo that housing finance reform is a “top priority.” During public appearances last week on President Trump’s tax relief vision, Mnuchin said GSE reform is something the Administration will be looking to take up during “the second half of this year.” Mnuchin reiterated his view a “gigantic line” from Fannie and Freddie to the Treasury” was not a sustainable arrangement for taxpayers. He added, however, that preserving liquidity in the home loan marketplace remains a central tenet of GSE reform.
In a public forum sponsored by The Hill Last week, Mnuchin said preserving access to affordable home finance and protecting the taxpayer are so important that they cannot be ranked but rather should be lumped together as “the top principles” in reforming housing finance policy.
To date, Fannie and Freddie have made dividend payments of over $265 billion to the Treasury. That is a whopping profit of nearly $80 billion on the $187.5 billion the GSEs were advanced by taxpayers in the period right after the 2008-09 financial crisis. The fact that this slush fund was used to circumvent the expressed intentions of Congress is profoundly unsettling on its own but raises again the need to end the conservatorship and implement housing finance policies consistent with the rule of law.
The exact details of Mnuchin’s thinking about a path out of the conservatorship can only be gleaned from subtle qualifiers to his public statements. For example, he was quick to clarify with Bartiromo that he has never said Fannie and Freddie should be “privatized.” In addition, Mnuchin told the audience at The Hill event he wants to be sure GSE reform must avoid pushing down on the issue only to have “pop up” somewhere else. That would suggest he is disinclined to simply shift Fannie and Freddie mortgage securitizing operations to a new government-sponsored entity or to Ginnie Mae, as suggested by former FHFA Acting Director Ed DeMarco and Michael Bright.
Last week, Mnuchin pledged to work with Congress and respect the priorities of lawmakers but he stopped short of saying legislation will be required to implement GSE reform. Perhaps after considering the significant steps FHFA has already undertaken to reform the GSEs using its existing statutory authority under the Housing and Economic Recovery Act, Mnuchin and other Administration officials will conclude that they can complete the job without legislation.
Mnuchin’s interest in ending the conservatorship while retaining the GSEs’ success in making sure loans are available to average Americans looking to buy a home is welcome. His awareness of the sneaky maneuverings to misuse Fannie and Freddie’s revenues for Obamacare should spur his interest in resolving the situation as soon as possible – naturally, in a way that is consistent with the interests of taxpayers, capital markets and GSE shareholders.