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Stegman: White House will not consider recap and release of GSEs

“Comprehensive housing finance reform is the only way forward”

The White House’s senior policy advisor for housing policy says that there’s no way the administration will support any form of recapitalization and release from conservatorship for Fannie Mae and Freddie Mac, and that only comprehensive housing policy reform is acceptable.

Michael Stegman, senior policy advisor for housing for the White House, made the unequivocal statement on a panel at the Mortgage Bankers Association’s 102nd Annual Convention and Expo in San Diego, California. Nearly 4,500 real estate finance professionals are in San Diego this week for the convention.

Stegman was joined by Steve O'Connor, senior vice president of public policy and industry relations for the MBA, who served as moderator; Edward Golding, principal deputy assistant secretary with the U.S. Department of Housing and Urban Development, and Theodore Tozer, president of Ginnie Mae.

The panel discussed current programs and key developments that will impact the housing finance market, including the outlook for housing finance reform, evolutions within the Ginnie Mae program, and the Federal Housing Administration's plans to serve emerging borrowers. 

Stegman was adamant that there would be no recap and release, and denied all rumors and suggestions that the administration’s GSE policy is shifting toward accommodating GSE shareholders.

“This administration does not support Fannie Mae or Freddie Mac exiting the conservatorship in the absence of comprehensive housing-finance reform,” Stegman said. “We continue to believe that comprehensive housing finance reform is the only way forward.”

He said that any policy that is, in his words, “turning back the clock to the run up to the housing crisis” would be an “exercise in bad policy judgment and poor stewardship…

“None of us should be misled by the increasingly noisy advocates of GSE release,” Stegman said. Investors “made a big bet on recap and release and they are doing everything they can to make sure those bets pay off.

“If there’s one thing we learned from financial crisis, it’s that privatizes gains and socializes loses, that’s a lose-lose for the American taxpayer,” he said.

Stegman said that the prospect of a recap and release scenario happening gaining momentum has prompted a coalition in Congress to support a measure that would prohibit administrative action in that direction. .

He recounted a number of measures in Congress for comprehensive housing policy reform that failed to gain support last year, saying that such complete policies would be what the White House wants, rather than piecemeal changes.

Two weeks ago, Sen. Bob Corker, R-Tenn., said any comprehensive reform coming out of Congress will take years, and regime change at the White House.

“It’s going to be a while. Won’t happen in the next year and four months,” Corker said.

Corker’s “Jumpstart the GSEs" bill is currently languishing in the Senate.

Meanwhile, GSE shareholders continue to hold out hope that there will be some solution. 

In a HousingWire last week, Gloria O’Steen, a GSE investor in Tennessee and one of Corker’s constituents, explained her position.

“I invested in good faith with the government as my partner, and now they come out and want to just replace Fannie and Freddie. I invested and they want to take my money and give it away. That’s federalization,” O’Steen said. “At the least they should give us our investment back. The money was there, they just took it.”

James Oglesby, an estate planning and probate administration attorney in Franklin, Tenn., was an investor in the GSEs going back to the early 2000s.

“I didn’t have my rights protected as a stockholder,” Oglesby told HousingWire. “If they want to replace them with something else that’s another matter. I’m not saying they’re necessarily the best thing for the housing industry but just to say we don’t care that as a stockholder whether you lose them or not is wrong.

“I’d like to see the dividends reinstated and the money to go back into the companies. If they’re successful and making money, I’d like a return on my investment,” he said. “If they replace them with some other entity – we’re still entitled to money once conservatorship was terminated. I think we’re talking about basic fairness.”

To underscore the White House’s position, Counselor to the Treasury Secretary Antonio Weiss said in op-ed in Bloomberg today, “How Not to Fix Fannie and Freddie,” that the “recent push to recapitalize Fannie Mae and Freddie Mac and release them from conservatorship is misguided.”

The Weiss editorial was a restatement of Treasury’s positions regarding the potential impact of GSE privatization on borrower costs, the amount still owed under the terms of the GSE bailout, and the broader case against recapitalization.

Not everyone thinks this is entirely the bottom line on the issue.

“While we continue to believe that the policy conversation in D.C. is slowly shifting toward a consideration of reforming and releasing the GSEs from conservatorship, these comments from Obama Administration officials reinforce our view that administrative action is not imminent,” says Isaac Boltansky at Compass Point Research & Trading. “Instead, our sense is that the next iteration of the GSE conversation will focus squarely on the merits of GSE capital retention which should be viewed as a mile marker on the road to exiting conservatorship but still far from the privatization off-ramp.”

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