Mnuchin Expects Deal on Fannie, Freddie Retaining Earnings Soon
(Bloomberg) — U.S. Treasury Secretary Steven Mnuchin said the Trump administration expects an agreement soon to allow Fannie Mae and Freddie Mac to retain earnings as part of a deal to release the housing agencies from federal control.
“We are in the process of negotiating with FHFA, we expect a near-term agreement to retain their earnings,” Mnuchin said early Monday on Fox Business, referring to talks with the Federal Housing Finance Agency.
Mnuchin said he aims for the mortgage giants to retain their earnings as soon as this month and that the money would not go back to investors but remain with the companies.
In a proposal released Thursday, Mnuchin’s agency laid out dozens of suggested reforms to protect Fannie and Freddie from another housing crash, shrinking their dominant market shares and creating new competitors to the companies that backstop about $5 trillion of home loans. Yet, it is only an initial step in what still would be a long and arduous road to freeing the companies from the government’s grip.
The Treasury Department’s proposal left much to be ironed out, signaling there might not be a windfall unless President Donald Trump wins re-election in 2020. That sentiment was palpable on Wall Street Friday with Fannie and Freddie suffering their biggest one-day drops since January.
Mnuchin said Monday that while he hopes to work with Congress to implement changes to Fannie and Freddie over the next three to six months, he is “perfectly comfortable” making administrative fixes if necessary.
The companies were put into federal conservatorship in 2008 as the housing market cratered and were sustained by taxpayer aid. They have since returned to profitability and paid $115 billion more in dividends to the Treasury than they received in bailout funds. Since 2013, nearly all of their profits have been sent to the Treasury under a policy called the “net-worth sweep.”
Fannie Mae and Freddie Mac investors won a big victory in their long battle to reap benefits from their stakes in the mortgage giants with a court ruling letting them pursue claims that the U.S. sweep of the companies’ earnings is illegal.
A panel of federal appeals court judges in New Orleans overturned a ruling that backed the government’s right to take all of the mortgage giants’ profits. The judges also concluded that the structure of Fannie and Freddie’s regulator, the FHFA, is unconstitutional because of job protections for the agency’s director.
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