Tuesday, October 6, 2015

Fannie Mae not going to be reformed by congress, political alpha FNMA #FANNIEGATE

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Political Alpha This is the report Ackman referred to:
U.S.: White House Looking into Ending GSE Conservatorship
October 5, 2015
Multiple sources have confirmed that the White House has reached out to the housing finance community to better understand its options on what to do with the GSEs after conservatorship. As we told you in our 9/14 note, “U.S.: Congressional Outlook for Finance and Tax,” with no chance for comprehensive GSE reform before 2017, the Administration is working behind the scenes to develop an endgame before President Obama leaves office. This could have major implications for the GSEs capital structure.
It’s All about Affordable Housing
With GSE reform stalled, we’ve been told that the Administration is afraid of what will happen to the affordable housing mandate should a Republican take office in 2017. Their fear is that a new Republican president could simply wind down the GSEs and kill the affordable housing mandate if the GSEs were to remain in conservatorship. Therefore, the White House wants to better understand its options as it looks to preserve the affordable housing mandate into the next Administration.
Moreover, the Administration is also trying to front-run any resolution to the current litigation so they can better control the outcome.
Retaining Capital
To maintain the affordable housing mandate, the Administration is looking at options to ensure that Fannie and Freddie are viable companies after being released from government control. While the discussions are just beginning, one of the options seriously being discussed is the possibility of recapping the GSEs.
Most importantly, terminating conservatorship would end the GSE profit sweep under the preferred stock purchase agreements. This will allow Fannie and Freddie to retain its own capital once again.
Bottom Line
The Administration is in the very early stages of looking at various options to end the GSEs conservatorship. This is a major shift in thinking as it would entail ending the GSE profit sweep allowing Fannie and Freddie to begin to retain capital. While we have been told the Administration is not close to deciding how to proceed, the initial announcement of the White House’s intent would clearly be beneficial to the entire capital structure of the GSEs.
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