The Corker-Warner Bill that would dissolve Fannie Mae and Freddie Mac violates the rule of law, is unfair to existing shareholders and contributes to the uncertainty in the housing market, according to three housing-industry insiders.
Tim Pagliara, Chairman and CEO of CapWealth Advisors, Joshua Rosner, managing director at Graham Fisher & Co., and Anthony Sanders, professor of finance in the School of Management at George Mason University, assailed the bill Tuesday in a media conference organized by the Center for Individual Freedom.
The problem with the bill, they claim, is that it seeks to replace Freddie and Fannie with another government institution that retains some of the same problems of the current GSEs, as well as introducing new ones.
For Pagliara, who owns significant interest in Freddie and Fannie, the treatment of existing shareholders undermines the credibility of any new institution.
“Until the Treasury deals fairly with the investors in the private mortgage market, until they demonstrate a willingness to deal within the rule of law, they won’t get private investors,” Pagliara said. “Nobody wants Tony Soprano as a business partner.”
According to the three, that lack of trust comes from changing the rules mid-stream with Freddie and Fannie.
“By August 2012, they were still publicly traded companies. Treasury realized they were profitable and they randomly changed everything that was put in place,” Pagliara said.
In addition to eliminating Freddie and Fannie, the Corker-Warner bill, introduced in July by Sen. Bob Corker, R-Tenn., and Mark Warner, D-Va., would create the Federal Mortgage Insurance Corporation.
This new agency would replace the FHFA within five years and be responsible for creating standards for the secondary mortgage market. But Sanders said of the bill, “I see nothing that puts in place any safeguards.”
Rather, he said it takes the failed model of Freddie and Fannie and creates another system where the taxpayers bear the risk.
Rosner agreed, saying, “Part of the reason we had the crisis is there were no standards…Private market players have done nothing to create standards for securitization.”
The bill’s first loss regulation can be waived in a crisis, he said, another example of how it repeats the mistakes of the current GSEs.
Sanders compared the government’s bailout of Freddie and Fannie to its bailout of GM, and said what they’re doing is “sending shockwaves throughout the world that we’re not to be trusted.”
Fixing the problems with the GSEs would be a better solution than starting from scratch with an entirely new agency, according to the insiders. But the prolonged uncertainty of how the government is going to reform Freddie and Fannie is having its own negative effect.
“The uncertainty is creating a lot of problems of its own, making the situation worse,” Pagliara said.