During a three-hour hearing on Tuesday at the House Financial Services Committee, Treasury Secretary Steven Mnuchin and Federal Housing Finance Agency Director Mark Calabria both used the word “receivership” when replying to questions about Fannie Mae and Freddie Mac.
They were pointing out that the mortgage giants hadn’t been put into receivership when they were seized in 2008 – but it seemed odd to some housing-finance watchers that both men cited the fact. The subject of receivership – a legal step used to restructure struggling companies to avoid bankruptcy – seemed out of place.
It caught the ear of Jaret Seiberg, managing director of Cowen Group in Washington, who has been tracking the two mortgage giants for more than a decade. He saw it as a message to Congress and to Fannie and Freddie shareholders, who won a key legal victory last month.
“To us, receivership came up because Treasury and FHFA wanted to argue to the House Financial Services Committee that they have not made any firm decisions about what to do with Treasury’s preferred shares in Fannie and Freddie,” Seiberg said in a note to clients on Friday.
“Bringing up receivership allowed them to declare that they are still debating recap and release, which means they cannot have decided any of the details on how recap and release would work,” Seiberg wrote. “And if they have not decided on any details then there is nothing to disclose to Congress.”
More than that, it may have been a threat, Seiberg wrote.
“The inclusion of a receivership option could also be used to punt until after the election the politically contentious issue of how to handle Treasury’s preferred holdings in Fannie and Freddie,” he said. “Receivership would be the threat to get all of the parties to cut a deal.”
The Treasury and the FHFA didn’t respond to HousingWire emails seeking responses.
Seiberg concluded:
“This is an issue to watch as the argument could be that Fannie and Freddie would have to be compliant with the new capital standard by a certain date. If they are not compliant by that date, then it could be possible to trigger receivership. We don’t see this as a desired result as it would likely result in a decade of litigation and it could disrupt housing finance.”
