Houston Chronicle by Michael Taylor June 14, 2019
The U.S. Treasury Department reportedly is wrestling with a plan for the recapitalization and reprivatization of Fannie Mae and Freddie Mac, two behemoths at the center of the $10 trillion U.S. mortgage bond market.
As a former mortgage bond salesman, I suffer painful flashbacks from Fannie Mae and Freddie Mac. Their weird past, and current status, represent one of the last unresolved issues of the 2008 mortgage crisis.
Since their $187.5 billion bailout — and effective nationalization — in September 2008, virtually all profits from Fannie and Freddie have been remitted to the U.S. Treasury. Fannie and Freddie’s first-quarter 2019 profits were $2.8 billion and $2.2 billion, respectively, and all of it went to the federal government. Over the last 11 years, they have returned more in profit to the Treasury than they received in the bailout.
The Obama administration inherited the problem of these companies from the Bush administration in 2009. But it couldn’t figure out a way to move forward on a permanent resolution of their status.
The Trump administration is close to announcing its plan for Fannie and Freddie. Let’s hope it’s not investors’ favorite option, the “recap and release plan†— meaning raise enough private capital to make the companies fail-proof and then turn them back into private entities.
If they truly become private, well then, fine. But I have my doubts. My worry is they will revert back to the public-private hybrid monstrosities they were before the 2008 crisis. Bloomberg reported that Treasury Secretary Steve Mnuchin would like the privatized companies to retain a government guarantee. Ugh. That’s the part I don’t like.
More:
https://www.houstonchronicle.com/business/business_columnists/michael_taylor/article/Rebuilding-the-Fanny-Freddie-Frankenstein-13998813.php
