8/20/2019 PA - U.S. White House Looking Into Ending GSE Conservatorship

http://slidepdf.com/reader/full/pa-us-white-house-looking-into-ending-gse-conservatorship 1/2

 

U.S.: White House Looking into Ending GSEConservatorship

October 5, 2015

Multiple sources have confirmed that the White House has reached out to thehousing finance community to better understand its options on what to do withthe GSEs after conservatorship. As we told you in our 9/14 note, “U.S.:Congressional Outlook for Finance and Tax ,” with no chance for comprehensiveGSE reform before 2017, the Administration is working behind the scenes todevelop an endgame before President Obama leaves office. This could havemajor implications for the GSEs capital structure.

It’s All about Affordable Housing

With GSE reform stalled, we’ve been told that the Administration is afraid of whatwill happen to the affordable housing mandate should a Republican take office in2017. Their fear is that a new Republican president could simply wind down theGSEs and kill the affordable housing mandate if the GSEs were to remain inconservatorship. Therefore, the White House wants to better understand itsoptions as it looks to preserve the affordable housing mandate into the next

 Administration.

8/20/2019 PA - U.S. White House Looking Into Ending GSE Conservatorship

http://slidepdf.com/reader/full/pa-us-white-house-looking-into-ending-gse-conservatorship 2/2

Moreover, the Administration is also trying to front-run any resolution to thecurrent litigation so they can better control the outcome.

Retaining Capital

To maintain the affordable housing mandate, the Administration is looking atoptions to ensure that Fannie and Freddie are viable companies after beingreleased from government control. While the discussions are just beginning, oneof the options seriously being discussed is the possibility of recapping the GSEs.Most importantly, terminating conservatorship would end the GSE profit sweepunder the preferred stock purchase agreements. This will allow Fannie andFreddie to retain its own capital once again.

Bottom Line

The Administration is in the very early stages of looking at various options to endthe GSEs conservatorship. This is a major shift in thinking as it would entailending the GSE profit sweep allowing Fannie and Freddie to begin to retaincapital. While we have been told the Administration is not close to deciding howto proceed, the initial announcement of the White House’s intent would clearly bebeneficial to the entire capital structure of the GSEs.