Trump Announces Fannie And Freddie “Cap And Release” Plan

Fannie Mae and Freddie Mac’s stay in regulatory purgatory may be coming to an end.

President Trump announced his plan to recapitalize the GSEs Fannie Mae and Freddie Mac and release them into the wild.

The memorandum is short, both in length and details.

The President is directing the Secretary of the Treasury and the Secretary of Housing and Urban Development to craft administrative and legislative options for housing finance reform.

  1. Treasury will prepare a reform plan for Fannie Mae and Freddie Mac
  2. HUD will prepare a reform plan for the housing finance agencies it oversees.

What is left out of the memo is … whether Fannie and Freddie will carry a Federal guarantee or not. And where their capital will come from.

So, rather than shutting them down, Trump is “catching and releasing” like undersized lobsters. But these are not undersized (or “chicken” lobsters, but extremely large financial institutions.

For example, Fannie Mae has a loan book of 3.26 trillion …

fnmaloans

while Freddie Mac’s loan book is $1.93 trillion.

freddietrotaloans

This compares with Bank of America’s loan book of almost a trillion dollars.

bactotoloans

Wells Fargo has a similar loan book to BofA.

wflozan

So, how much capital will Fannie and Freddie have to raise to get released given their YUGE book of loans, given their interest rate exposure?

Its almost Supernatural that Fannie and Freddie are escaping purgatory.

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