A year ago, Treasury Secretary Steven Mnuchin and Federal Housing Finance Agency Director Mark Calabria released the Trump administration’s so-called blueprint to re-privatize mortgage giants Fannie Mae and Freddie Mac with the biggest stock offering in history.
Calabria has stuck to the plan, even as a deadly pandemic swept across the nation, killing more than 200,000 Americans and sparking a recession that forced millions of borrowers to seek forbearance plans because they couldn’t pay their bills. Last month, the FHFA endorsed an adverse-market fee that will aid in the “recap and release” of the government-sponsored enterprises at a cost of about $1,400 per refinanced loan, with the fee paid by borrowers.
All of this was done without input from Congress, which chartered both companies decades ago in a bid to expand homeownership and has oversight of their activities.
On Friday, the Financial Stability Oversight Council, which is chaired by Mnuchin, voted unanimously to endorse Calabria’s plan to recapitalize and release the GSEs by executive action – with the caveat that even more capital may be required than the FHFA has called for – and after the vote Calabria made a statement commending FSOC members for their endorsement.
There’s just one problem: If former Vice President Joe Biden usurps President Donald Trump in the U.S. presidential election five weeks away, as more than a dozen polls show him poised to do, the GSEs likely won’t offer their shares to the public any time soon.
“If Biden wins, he’ll appoint a new director, and then it will be up to Congress to figure out what to do” with Fannie and Freddie, Stephen Myrow, managing partner of Beacon Policy Advisors in Washington, D.C., told HousingWire.
Biden will have that power because of a Supreme Court decision in June that invalidated the single-director structure at the Consumer Financial Protection Bureau that was modeled after the FHFA directorship.
In other words, if Biden is elected, he now can fire Calabria at will, rather than having to prove malfeasance, Myrow said.
The first order of business for a new Biden administration would be battling the pandemic, and when that is handled, it’s unlikely to pursue the “recap and release” plan for Fannie and Freddie, said Jaret Seiberg, managing director of Cowen Washington Research Group.
“The question becomes whether those inside the administration who want to move beyond the status quo will have enough influence to disrupt a system that is effectively delivering low-cost mortgages to consumers,” Seiberg said.
PIMCO, the largest private buyer of Fannie and Freddie mortgage bonds, wrote to the FHFA four weeks ago warning that re-privatizing the two companies without input from Congress would lead to higher mortgage rates, which would drive down homeownership.
“While the focus to release the GSEs from conservatorship is understandable, we believe that any release particularly prior to Congressional action would have unfavorable – and likely dramatic – consequences,” the PIMCO letter said.