FNMA, FMCC: Clinton Advisors Detail Housing Plan With Need for Over $100B in Private Capital

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Advisors to Clinton detailed a mortgage plan that would replace Federal National Mortgage Assctn Fnni Me (OTCMKTS:FNMA), and Federal Home Loan Mortgage Corp (OTCMKTS:FMCC) with the creation of a National Mortgage Resinsurance Corporation. The plan comes with major strings as it needs up to $125 billion from private investors.

Advisors Familiar Foes to GSE Investors

The paper’s authors and Clinton advisors are familiar to Fannie and Freddie investors. They are former White House officials Gene Sperling and Jim Parrott. Parrott is well known to GSE investors as his name has appeared frequently in emails released in discovery. Parrott described the Net Worth Sweep as a “high risk exercise, which could have gone sideways on us any number of ways but it didn’t- great great work.”

It is noted that Sterling and Parrott have no formal ties to the Clinton campaign but have advised her campaign on housing policy.

Bloomberg details the proposal which would call for the creation of a National Mortgage Reinsurance Corporation and wind down Fannie Mae and Freddie Mac.

Notably, NMRC would create a new class of securities paying a fixed dividend to erect a buffer against possible downturns. As the company ramped up, the securities would build capital amounting to 2.5 percent of the company’s guarantees — or about $125 billion, assuming that the firm backed about $5 trillion of mortgages

Hurdles

The new system proposed is not very different then the existing system and raises the question of where private capital would come from after the government has treated private capital so badly with Fannie Mae and Freddie Mac. The plan would require up to $125 billion from private investors. $196 billion was raised from IPOs globally in 2015 versus $249 billion in IPOs in 2014, so raising over $100 billion could be a challenge. The action in 2014 was described as a frenzy by Fortune and the highest amount since 2010.

The Bloomberg article points out a quote from Bill Ackman during an event last year at Columbia University in relation to the GSEs and Housing Reform that speaks directly to the challenges the government would face:

“If the government’s allowed to take 100 percent of the profits forever, no one’s going to put a dollar of capital in a rescue situation and it’s going to cause people a real question whether they’re willing to put a dollar of capital into any financial institution.” – Bill Ackman

The proposal has no way of fairly dealing with existing investors and Bloomberg notes it could face Republican opposition as it still leaves taxpayers backing mortgages with a system that is not all so different from the existing one.

Disclaimer: Author has positions in Fannie Mae Preferred, and Freddie Mac Junior Preferred.

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  • Roderick Hoffman

    Haha, this sounds identical to current system, except without competition. It also sounds like the winding down of Fannie and Freddie were indeed a plan all along when put into conservatorship just to pave way for a third c consecutive (fifth total) Obama/Clinton administration. 2 of those terms couldn’t solve the problem, I don’t see how any voter should elect yet another term.

    • steve vrionis

      Yup. Very similar to current system, except they need to wind down for some unknown reason.

      The Obama/Clinton administration seems cut from the same cloth on this issue, probably why Obama is putting his weight behind Clinton. Someone has to keep the sch-tick going. Not that there is any white knight on the issue, unfortunately it seems elements on all sides are against them and for different reasons.

  • DayT

    So Fannie Mae and Freddie Mac paid back $190 billions including interest they borrowed. Government (aka Hillary) wont let them capitalize and asking private investors for $125 billions?

    • steve vrionis

      Sure seems like someone you’d want to invest a new $125 billion with after they’ve gone against their word, changed deals in the mid-point for their benefit, and swept away profits for themselves.

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