Mark Calabria, director of the Federal Housing Finance Agency, said he’s willing to wipe out Fannie Mae and Freddie Mac shareholders if needed to protect taxpayers from another bailout.
“I’m working for the taxpayers,” Calabria said during testimony Tuesday to the House Financial Services Committee. “If the circumstances present themselves where we have to wipe out the shareholders, we will.”
The FHFA director was responding to a question from Rep. Bill Foster, D-IL, who responded to Calabria’s pledge by saying: “I look forward to that.” Fannie Mae and Freddie Mac back about half of the nation’s mortgages.
Calabria added he believes shareholders should have lost their stakes in the private companies in 2008 when the two government-sponsored enterprises, or GSEs, were taken over during the mortgage meltdown.
Instead, they were put into conservatorship – not receivership, which would have been a clearer legal situation – and the government received new senior preferred stock and common stock warrants amounting to 79.9% of the companies.
Fannie and Freddie shares that once traded over $60 each and were considered almost as safe as U.S. Treasuries because of the implied federal backing were suddenly worth pennies. That’s when hedge funds like Pershing Square and Wall Street firms like Blackstone stepped in and began scooping them up.
Last month, investors won a lawsuit on appeal that advanced their position that the government’s forced sweep of GSE profits into the Treasury was illegal, causing the shares to soar.
“I’m on the record as saying in 2008 what we should have done is wipe out the shareholders,” Calabria told Congress in the Tuesday hearing.
But, Calabria said, his mandate now is to put the companies on firm footing and release them from conservatorship or, if warranted, put them into receivership – and he made clear his intent was the former.
Treasury Secretary Steve Mnuchin, who sat next to Calabria at the witness table at the Tuesday hearing, last month released the Trump administration’s long-awaited “blueprint” laying out plans to reform the nation’s housing finance system and release Fannie Mae and Freddie Mac from conservatorship, calling it the “last unfinished business of the financial crisis.”
Three weeks ago, the FHFA announced it would allow Fannie and Freddie to rebuild a portion of their capital reserves to a total of $45 billion combined. The two companies have paid pack taxpayers for their bailouts, plus more than $100 billion on top of it.