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Calabria: Fannie Mae and Freddie Mac won’t privatize until 2020’s end or later

FHFA director comments in Bloomberg TV interview

The federal regulator for Fannie Mae and Freddie Mac said the nation’s largest mortgage financiers won’t be privatized until the end of 2020 at the earliest.

“It really depends on how quickly they raise capital,” said Federal Housing Finance Agency Director Mark Calabria in a Tuesday interview on Bloomberg TV. “What we want to be able to do, essentially, is to some extent put their destiny back in their hands. They’re going to be responsible for building capital, they’re going to be responsible for hitting goalposts.”

Of course, they don’t have a chance of hitting the goalposts until they’re allowed to retain their earnings and build up capital. Since 2013, the companies have been required to send almost all their profits to the government in a so-called “net-worth sweep.” Calabria said he remains on track to reach an agreement with Treasury Secretary Steven Mnuchin within the next two weeks to end the sweep.

“We’ve not settled on a final number, but we’re in the neighborhood and we’re close, and I’m very hopeful that will get done by the end of the month,” Calabria said.

Calbria said he doesn’t plan major changes to the types of loans Fannie and Freddie can buy from lenders once they are private companies. He said he sees “some very modest reductions in risk.”

“The major footprint will look the same,” Calabria said. “It will just look a little bit safer, and I think that’s appropriate, especially given where we are in the housing cycle.”

Fannie Mae and Freddie Mac were seized by the government in 2008 during the financial crisis. Since then, their profits have repaid the $191 billion in bailouts they received, plus they’ve sent an additional $115 billion to Treasury. 

On Sept. 6, a day after Treasury released a proposal on reforming housing finance that included a plan to end the sweep, investors who hold shares of Fannie and Freddie won a key court ruling. A panel of federal appeals court judges in New Orleans said they could pursue claims that the government’s profit seizures were illegal.

The pace of the so-called “recap and release” of the GSEs will depend on Trump’s outlook for re-election, Jaret Seiberg, managing director of Cowen Group, said in a note to clients on Friday. If polls show the Democrat's eventual nominee as beating Trump, it may speed up the privatization of Fannie and Freddie, he said.

The timing “may well depend upon how the polls look for Donald Trump and on which Democrat emerges as the nominee,” Seiberg said. “We have trouble believing this Treasury Department or this FHFA wants to leave housing finance reform to many of the Democrats now in the race.”

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