Fannie-Freddie Reform Won’t Happen Until 2018, Mnuchin Says

via Fannie-Freddie Reform Won’t Happen Until 2018, Mnuchin Says – Bloomberg

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Treasury Secretary Steven Mnuchin said plans for overhauling Fannie Mae and Freddie Mac won’t be addressed until next year,

Analysts said that the shares also rose because of a recently passed resolution by the Republican National Committee, which said the claims of private Fannie and Freddie investors should be resolved “in a manner that honors and respects the rule of law governing the rights of corporate stockowners.”

Hedge Funds

Hedge funds and other investors who own Fannie and Freddie shares have fought for years to secure a portion of the companies’ profits, which now all flow to the U.S. Treasury. Firms including Fairholme Funds Inc., Paulson & Co. and Perry Capital have sued the government or funded lobbying campaigns in an attempt to change the policy.

The government took control of Fannie and Freddie in 2008, eventually injecting them with more than $187 billion during the financial crisis. The terms of the bailout originally called for a 10 percent dividend, but in 2012 the government changed them to sweep nearly all of the profits when they made one. The companies have since paid the government more than $270 billion in dividends.

The 2012 change also required Fannie and Freddie to wind down their capital buffers until they reached zero dollars next year. Shareholders sued after the change, though the courts that have ruled so far have largely dismissed their claims.

The Democratic lawmakers’ Wednesday letter focused narrowly on allowing Fannie and Freddie to retain a capital buffer. Six members of the Senate Banking Committee said that Watt, who oversees the companies as FHFA director, and Mnuchin should let them stop paying all of their profits to the Treasury in order to build capital.

Further Reforms

The lawmakers wrote that they didn’t believe Fannie and Freddie should be released from conservatorship without further reforms. Still, some shareholders see rebuilding capital as a necessary first step to the companies exiting government control.

So far, few GOP lawmakers have expressed public support for preserving Fannie and Freddie in their current state,

FHFA officials have said they wouldn’t support releasing the companies from conservatorship without legislation even if Trump wanted to do that.

— With assistance by Felice Maranz, Agnel Philip, and Saleha Mohsin