In a letter to the Federal Housing Finance Agency (FHFA), the Mortgage Bankers Association (MBA) requested a revision of its latest housing goals for the government-sponsored enterprises (GSEs), calling them “overly theoretical.” (The letter can be found here.) Earlier in the summer, the FHFA sent a proposed rule to the Federal Register to clarify the terms of the conservatorship and possible receivership of Fannie Mae and Freddie Mac. But the MBA’s president and CEO John Courson and its chairman-elect Michael Berman outlined three main concerns about the proposed framework for the GSEs. Courson and Berman suggested the FHFA specify how it would resolve how various claimants would be treated once the FHFA puts Fannie and Freddie into receivership. For example, the FHFA says the common and preferred stock holders would be wiped out in such a scenario, but nothing is said about subordinate debt holders. The MBA also had concerns over how exactly the FHFA would trigger a receivership. “Fannie Mae and Freddie Mac have already moved well beyond the points where any other financial institution would have been put into receivership,” according to the letter. “FHFA should state clearly the degree to which the continued operation of the firms under an FHFA conservatorship benefits existing shareholders and/or increases costs to taxpayers and whether accelerating the timetable for putting the firms into receivership would reduce taxpayer expense.” The MBA also called for specific goals of the receivership similar to the policies of the Federal Deposit Insurance Corp. (FDIC) when it takes a bank into receivership. The MBA suggested the FHFA approach whether it will follow a similar, “least-cost” model or a different strategy through which returns to the taxpayer would be lower. In the letter, Courson and Berman urged the FHFA to address the specifics of a possible receivership for Fannie and Freddie in the near future, but also wrote that they understand the lack of guidance decision makers have. “Past operating practices and norms do not provide an adequate guide for two reasons,” according to the letter. “First, this is a unique situation with little historical precedent. Second, nearly every action FHFA and the enterprises take would have a financial impact on counterparties and different creditors.” Write to Jon Prior.
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