Bankers at Odds Over GSE Re­cap­i­tal­iza­tion Pro­posal

The ICBA backs a plan to re­cap­i­tal­ize Fan­nie and Fred­die through re­tained earn­ings and pub­lic of­fer­ings, but other groups see it as a self-in­ter­ested pro­posal to help GSE stock­hold­ers.

National Mortgage News - - Secondary - By brian collins

a new pro­posal to re­cap­i­tal­ize Fan­nie Mae and Fred­die Mac so the two hous­ing en­ter­prises can exit con­ser­va­tor­ship is di­vid­ing the bank­ing in­dus­try.

The In­de­pen­dent Com­mu­nity Bankers of Amer­ica sup­ports the plan de­vel­oped by the in­vest­ment bank­ing firm Moelis & Co. that would re­cap­i­tal­ize the two gov­ern­ment-spon­sored en­ter­prises within four years. Un­like most other hous­ing re­form pro­pos­als, it would not re­quire leg­is­la­tion.

“We are aligned with the Moelis pro­posal be­cause it pro­vides the GSEs with cap­i­tal and there is a process for that un­der the cur­rent law,” Ron Haynie, se­nior vice pres­i­dent of mort­gage pol­icy with the ICBA, said in an in­ter­view.

But the Amer­i­can Bankers As­so­ci­a­tion and Mort­gage Bankers As­so­ci­a­tion have raised ob­jec­tions to the “Blue­print for Restor­ing Safety and Sound­ness to the GSEs” pre­pared by the New York in­vest­ment bank. They note that the firm that cre­ated the plan acts as fi­nan­cial ad­vis­ers to some share­hold­ers of Fan­nie and Fred­die stock, who would stand to ben­e­fit sub­stan­tially if the pro­posal was en­acted.

“This pro­posal is clearly self-serv­ing and de­signed to con­fuse un­sus­pect­ing, in­no­cent tax­pay­ers into sup­port­ing a plan that is in­tended to line the pock­ets of hedge funds who in­vested in Fan­nie and Fred­die,” said David Stevens, the MBA’s pres­i­dent and CEO.

“MBA has been clear that the self-in­ter­ests of stock spec­u­la­tors and profit seek­ers are not in the best in­ter­ests of ei­ther the tax­payer or the hous­ing sys­tem. The only so­lu­tion to re­form­ing Fan­nie and Fred­die is through the leg­isla­tive process.”

So far, the Trea­sury Depart­ment has re­couped the $187.5 bil­lion it em­ployed to res­cue and prop up the two GSEs. In ad­di­tion, the Trea­sury has pock­eted $87.3 bil­lion in GSE prof­its as the depart­ment con­tin­ues to sweep Fan­nie and Fred­die’s prof­its into its cof­fers each quar­ter.

Fed­eral Hous­ing Fi­nance Agency Direc­tor Mel Watt re­cently told Congress that the GSEs are prof­itable but that their in­abil­ity to re­build cap­i­tal is cre­at­ing “se­ri­ous risk.”

The Moelis plan calls for the FHFA and the Trea­sury to stop the profit sweeps vol­un­tar­ily and to stop wait­ing for Congress to pass GSE re­form leg­is­la­tion.

“Be­gin­ning to build pri­vate cap­i­tal now, in­stead of wait­ing for leg­is­la­tion that may not be en­acted be­fore Trea­sury has to ad­vance ad­di­tional funds to the GSEs, is ab­so­lutely nec­es­sary to main­tain the in­tegrity of the sec­ondary mort­gage mar­ket,” the Moelis blue­print says.

But the ABA is con­cerned the Moelis plan will ben­e­fit in­vestors and leave Fan­nie and Fred­die with too lit­tle cap­i­tal. “There is too much pub­lic risk and pri­vate gain in this pro­posal. I think it will have ob­jec­tions from a lot of quar­ters, in­clud­ing Congress and the Trea­sury,” Bob Davis, a se­nior vice pres­i­dent of the group, said in an in­ter­view.

The ICBA, how­ever, is back­ing the Moelis blue­print. It will al­low Fan­nie and Fred­die to raise cap­i­tal through re­tained earn­ings and through sev­eral pub­lic of­fer­ings.

“It cre­ates a sys­tem with cap­i­tal be­hind it that is fi­nan­cially sound,” Haynie said.

DAVID STEVENS

Mort­gage Bankers As­so­ci­a­tion

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