According to recent rumblings, should Joe Biden win the election in November, he plans to completely undo the efforts by President Trump and his team. Biden wants to free mortgage giants Fannie Mae and Freddie Mac from government control.
The news, from housing analysts with ties to economic advisors in the Biden campaign, is a major blow to those hoping the two government-sponsored enterprises, or GSEs, will eventually be removed from conservatorship and become free companies once again.
One of the sticking points for Democrats over the future of the GSE’s is affordable housing mandates. Those in the Biden campaign say the presidential hopeful would like to expand their mandate for affordable housing. He wants to do this while keeping them under government control.
If elected, Biden would remove Federal Housing Finance Administration (FHFA) chief Mark Calabria from his role. He wants to put an end to Calabria’s efforts to recapitalize the two GSE and release them from government control.
Fannie and Freddie have been unable to retain their earnings since the net worth sweep took place in January 2013. This action allowed the Obama administration to keep the companies profits and use them to help fund Obamacare. There are multiple court cases underway challenging the legality of the net worth sweep.
Biden’s actions, if enacted, would allow the government to continue taking all of the companies profits. It would never allow them to rebuild enough capital to exit conservatorship.
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What Could Happen
Calabria is aware that he is facing the potential of a countdown clock on his tenure. He knows this can happen even if Trump wins re-election.
Legally, his position as the head of an independent agency means he can only be fired for “cause.”
The Supreme Court is getting set to decide whether independent directors should be immune from presidential appointment or if the president should have the power to remove such officials without showing cause.
If the Supreme Court decides that Calabria can be removed from his role without the need to show cause, he could be removed as soon as Biden’s inauguration in January.
That doesn’t leave him much time to accomplish his “recap and release” plans before he could be out of office.
According to investors who spoke with Fox Business, some speculate that Calabria could ram through his plan to recap and release the GSEs in late 2020 or early 2021, but others believe there are too many challenges to getting a massive equity offering to the market in such a short period of time.
The offering may be as much as $200 billion — making it one of the biggest in history.
The GSEs will be announcing their plans in the coming week’s to sell stock. Also, they will hopefully get legislation in place soon. They aim to do so before it can be potentially undone by a Biden White House in 2021.
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