|Bid||0.0000 x N/A|
|Ask||0.0000 x N/A|
|Day's range||1.8700 - 1.9200|
|52-week range||1.8700 - 1.9200|
|Beta (5Y monthly)||2.36|
|PE ratio (TTM)||160.00|
|Forward dividend & yield||N/A (N/A)|
|1y target est||N/A|
(Bloomberg) -- The Trump administration has set a path for releasing Fannie Mae and Freddie Mac from government control, but President-elect Joe Biden gets to decide whether to take it.In one of its last acts, President Donald Trump’s Treasury Department announced changes Thursday that allow Fannie and Freddie to retain their profits to build up hundreds of billions of dollars in capital, in effect indefinitely suspending dividend payments they make to the U.S. government. However, taxpayers’ ownership interest in the mortgage giants will continue to increase as they add to their capital buffers, and Treasury didn’t address how that issue would be resolved.The net effect of the announcement will be that Fannie and Freddie will slowly keep accumulating the funds they need to protect against another housing downturn, and the Biden administration will determine the companies’ fates. That likely means that Fannie and Freddie -- firms crucial to the housing market because they backstop roughly $5 trillion of mortgages -- will remain in federal conservatorship for the foreseeable future, which has been their status since the 2008 financial crisis.In a statement, Treasury Secretary Steven Mnuchin said the revisions mark “an important step for housing finance reform and leaves behind a blueprint that we hope will help guide additional reforms.” The administration “would have preferred to have been able to achieve further reforms,” he added.Fannie and Freddie don’t make mortgages themselves. They buy them from lenders, put them into mortgage bonds and guarantee to investors the payment of principal and interest. The government took over the companies as the housing market cratered more than a decade ago and eventually injected them with $187.5 billion in bailout money.In return for the funds, the U.S. Treasury received a new class of senior preferred stock that originally paid a 10% dividend, along with warrants to acquire nearly 80% of the companies’ common stock. The accords outlining the arrangement, known as the preferred stock purchase agreements, or PSPAs, govern Treasury’s compensation for providing an ongoing U.S. government backstop of Fannie and Freddie, as well as other requirements the companies must meet.Multiple AmendmentsThe government has amended the PSPAs several times, most significantly in 2012, when the original 10% dividend on the senior preferred stock was replaced with a sweep of nearly all of the companies’ profits to the Treasury. Owners of the companies’ legacy shares have said that change was illegal and sued.More recently, Fannie and Freddie’s regulator, the Federal Housing Finance Agency, and the Treasury Department have raised the amount of capital the companies can hold, a limit which had been capped at a combined $45 billion. The changes announced Thursday in effect remove those capital limits and eliminate the profit sweep. In return, taxpayers’ ownership interest in Fannie and Freddie will also keep rising.The Treasury Department’s latest modifications to the bailout contracts, an agreement between it and the FHFA, stipulate that Fannie and Freddie can build capital until they reach their regulatory minimums.At that time, the dividend will revert to 10% or to the increase of the companies’ net worth in the prior quarter, whichever is smaller. Treasury said that it and the FHFA will also determine what fee the companies should pay for the ongoing backstop before the regulatory minimum capital is reached.Treasury said that the contract changes will also make it so that Fannie and Freddie can’t exit government control until litigation related to the conservatorship is resolved, and they build common equity capital tier 1 capital of at least 3% of their assets -- a target they are years away from.A senior FHFA official estimated that it could take decades for the companies to meet their capital requirements through retained earnings alone.The companies will be allowed to issue new common stock -- a step that is all but essential to meeting their capital demands -- only after Treasury exercises its warrants to acquire nearly 80% of the companies and the litigation is dealt with.Biden’s MoveThe upshot of all the changes is that they leave it to the Biden administration to implement a more sweeping overhaul that moves the companies toward an off ramp -- something officials at the FHFA and Trump’s Treasury Department acknowledge. To that end, the new agreement calls on Biden’s Treasury Department to write a report, due later this year, to address the unresolved issues.Thursday’s agreement also locked in several policy changes that Fannie and Freddie have already been meeting under the guidance of FHFA Director Mark Calabria. The amount of mortgages they can hold in their investment portfolios was reduced. The accord also sets caps on how much multifamily business the companies can engage in and limits their business in higher-risk loans, such as in mortgages for investor properties.The agreements also seek to require Fannie and Freddie to treat small and large lenders equally, likely permanently ending a pre-crisis practice where the companies would cut deals with giant mortgage lenders in exchange for more business.“Today’s agreement that allows Fannie Mae and Freddie Mac to continue retaining earnings is a step in the right direction, but more hard work remains,” Calabria said in a statement, adding that the companies will be at risk of failing in a fresh crisis until they can raise private capital. A senior FHFA official said that Calabria pushed for the Treasury Department to address the senior preferred shares but was unable to convince Mnuchin to modify it.Now, focus will turn to the Biden administration’s goals for Fannie and Freddie and the future of Calabria, a Trump appointee whose term doesn’t expire until 2024. People familiar with the matter say Biden is unlikely to prioritize Fannie-Freddie reform, instead keeping them in government control for some time.Calabria can keep making changes that prepare the companies for a government release as they build capital, but how much time he’ll have left is in question. The Supreme Court in December heard arguments that Biden should be allowed to fire the FHFA director at any time, and it’s expected to make its decision by the midyear.The same case, which was brought by legacy shareholders in Fannie and Freddie, could provide clarity on whether the 2012 profit sweep was illegal, potentially providing an impetus for the government to modify its ownership stake.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
(Bloomberg) -- The Trump administration is poised to unveil last-minute changes to Fannie Mae and Freddie Mac that would allow the mortgage giants to retain significantly more capital, while leaving many of the thorniest issues on releasing the companies from federal control to President-elect Joe Biden, said four people familiar with the matter.The revisions -- expected to be announced as soon as Thursday -- would modify the contracts that govern taxpayers’ backstopping of Fannie and Freddie. They fall far short of freeing the companies from their government conservatorships, something Treasury Secretary Steven Mnuchin vowed to accomplish after President Donald Trump’s 2016 election win.Shares of both companies fell on the news. Fannie declined 4.4% to $1.97 at 10 a.m. in New York. Freddie dropped 5% to $1.92.Treasury Department officials have already started briefing lawmakers on the tweaks, which are the result of an agreement between Mnuchin’s agency and the Federal Housing Finance Agency -- Fannie and Freddie’s regulator. While the revisions have been presented as if a deal has been finalized, they could still change before they are publicly released.The actions will lock-in several policies the companies are already subject to under FHFA Director Mark Calabria, said the people who asked not to be named to discuss the matter before the changes are announced. They include ensuring big lenders don’t get advantages unavailable to smaller ones when doing business with Fannie and Freddie and limiting the amount of higher-risk mortgages that the companies can guarantee.Most significant, Fannie and Freddie won’t have to pay their profits to the government until they have much bigger capital buffers to protect the companies against losses. Right now, Fannie and Freddie combined can’t hold more than $45 billion in capital, after which they must pay their entire net worths to the U.S. Treasury.Controversial PolicyPeople briefed on the plans said it wasn’t clear how much capital the companies will be permitted to keep but said the changes were framed as an end to the so-called net-worth sweep, a controversial policy implemented during the Obama administration that requires they send their earnings to the Treasury.However, Treasury opposes reducing the government’s ownership stake in Fannie and Freddie, a longtime goal of the companies’ private shareholders. Whether to modify the Treasury’s senior preferred stake is under consideration at the White House, said one person familiar with the matter. If Treasury’s position holds, Biden will be guaranteed a strong say in the companies’ futures. Unlike the current White House, the incoming administration is seen to be in no hurry to re-privatize the companies, the people said.A Treasury spokeswoman declined to comment, while an FHFA spokesman had no immediate comment.Fannie and Freddie don’t make mortgages. They buy them from lenders, wrap them into securities and guarantee to investors the repayment of principal and interest. The government took them over in 2008, as billions in loans soured during the financial crisis, eventually injecting them with $187.5 billion in bailout money.Since then, two presidential administrations and Congress have tried and failed to replace Fannie and Freddie with a new housing-finance system. Most recently, Calabria has vowed to lead the companies out of conservatorship, rapidly publishing new rules for the companies on products, capital and liquidity, while setting prerequisites for leaving government control.Calabria’s PushIn recent months, Calabria tried to garner support for releasing Fannie and Freddie before they have built up large capital cushions, an effort meant to lock-in their eventual release before Biden took the reins. That push ended up being a bridge too far for Mnuchin.Calabria won’t have to leave after Biden is sworn in because he is serving out a term that extends into 2024. That said, Biden would likely seek to replace the FHFA chief if he tries to quickly release the companies or put them into receivership, people familiar with the matter have said.With the agreement, the Treasury and FHFA plan to set out recommendations for what needs to happen before Fannie and Freddie are freed. But the suggestions won’t be binding for Biden’s Treasury, the people said. That means the changes effectively amount to a blueprint for eventually making Fannie and Freddie fully privatized companies.One of the thorniest issues that Treasury intends to leave unresolved will be the government’s stake in Fannie and Freddie, a position that now exceeds $220 billion in senior preferred shares as well as warrants to acquire nearly 80% of the companies’ common stock.Private shareholders of Fannie and Freddie, including hedge funds, have desperately hoped that the Trump administration would at least reduce its stake. That would allow investors to again receive dividends or mitigate how much they would be diluted if the companies raise capital in the private market.Pending CaseShareholders have also sought redress in the courts, claiming the 2012 decision by the Obama administration to sweep nearly all of Fannie and Freddie’s profits was illegal. The Supreme Court heard that case in December and legal analysts expect them to issue a ruling this year.The same case could determine what happens to Calabria, who is an independent regulator insulated from the White House. The Supreme Court could decide that Biden should be allowed to fire Calabria at any time for any reason, further jeopardizing efforts to release the companies.(Updates with share prices in third paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
(Bloomberg) -- President-elect Joe Biden’s team has held preliminary talks on how it could oust Fannie Mae and Freddie Mac’s regulator, said people familiar with the matter, a move that would let the new administration fill a post that’s crucial to the mortgage market and its goal of boosting affordable housing.The Federal Housing Finance Agency is now led by Mark Calabria, a libertarian economist appointed by President Donald Trump whose term extends into 2024. The incoming administration has no plans to take action against Calabria any time soon and it’s unclear whether Biden would even have the authority to remove him. The U.S. Supreme Court has taken up a case that could eliminate any ambiguity, though a ruling might take longer than Biden and his aides would want to wait.One candidate the transition team is considering as a potential Calabria replacement is Susan Wachter, a professor at the University of Pennsylvania’s Wharton School of Business, said the people who asked not to be named in discussing private conversations. Another possibility is Mark Zandi, chief economist at Moody’s Analytics, said a different person familiar with the matter.Any effort to oust Calabria probably wouldn’t be activated unless he starts to take drastic steps to change Fannie and Freddie’s status that the Biden administration would have difficulty reversing, such as trying to release the companies from federal control, one person familiar with the matter said. The president-elect’s team hasn’t decided whether to remove Calabria and no move is imminent, with a transition official adding that no push to replace him has been set in motion.A Biden transition spokesperson declined to comment.“Director Calabria committed to the Senate During his confirmation that he would serve his full term, and he intends to fulfill his commitment to the Senate,” FHFA spokesman Raphael Williams said in a statement.Wachter declined to comment, while Zandi didn’t respond to a request for comment.Companies’ FateDetermining what to do with Fannie and Freddie is the last major policy decision outstanding from the 2008 financial crisis. The firms got into trouble when the housing market tanked, prompting the government to take them over and rescue them with $187.5 billion in taxpayer funds.The companies don’t make loans. Instead, they buy mortgages from lenders and package them into bonds, guaranteeing payments to investors even if homeowners default. The process is considered essential to the $10 trillion mortgage market and in keeping interest rates low.As FHFA director, Calabria has sought to reduce Fannie and Freddie’s footprint in the mortgage market, an objective consistent with his free market views. He’s also a staunch advocate of ending the companies’ government conservatorships.Calabria’s fate likely hinges on a case the Supreme Court heard last month that will decide whether the president can fire the FHFA director at any time for any reason. Legal analysts expect a ruling by the middle of this year.The high court ruled in favor of granting the president such authority in a similar case last year that affected the Consumer Financial Protection Bureau, which is also an independent regulator with the same structure as the FHFA in that it’s led by a single director. There’s an argument to be made that the Biden administration could justify removing Calabria based on the CFPB decision alone, though the FHFA chief may have more grounds to challenge such a move.With Biden poised to go in a different direction on Fannie and Freddie, Calabria has been pressing to make progress on some of his objectives before the Trump administration ends.He’s been urging Treasury Secretary Steven Mnuchin to sign off on last-minute changes to the government’s relationship with Fannie and Freddie, including altering the terms of the Treasury Department’s roughly $220 billion stake of senior preferred shares in the companies. Such a move is key to releasing them and might be difficult for Biden to undo.(Updates with comment from FHFA in sixth paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.