Wipeout! Will Fannie Mae And Freddie Mac Adopt A Good Bank/Bad Bank Model? (FHFA Director Calabria Open To Wiping Out Shareholders)

As FHFA Director Mark Calabria ponders putting Fannie Mae and Freddie Mac back in the “private” sector, one model that is being considered is the “good bank-bad bank” model.

Under the good bank-bad bank model, legacy assets would be transferred to the “bad bank” (rather than purely troubled assets).

 

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Fannie Mae has $3 trillion in loans on its books, much of it acquired after Fannie Mae was placed into conservatorship in Q4 2018.

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Freddie Mac is similar, but smaller.

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Legacy assets could be loan acquired prior to Q1 2009 that have not been refinanced or in default. Or sell off the stressed assets (orange and red) and keep the low risk loans (green).

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Will there be an appetite for Fannie and Freddie legacy assets? Other than from The Federal government?

Good bank-bad bank. You know we’ve had our share.

And then we have FHFA Director Mark Calabria saying that he is open to wiping out existing Fannie Mae and Freddie Mac shareholders

WASHINGTON — At the second of two hearings to examine the Trump administration’s housing finance reform blueprint, key officials charged with implementing the plan made clear they are abundantly focused on Fannie Mae and Freddie Mac’s capital levels.

Members of the House Financial Services Committee were mostly concerned with issues that the administration proposal did not discuss. But Treasury Secretary Steven Mnuchin, Federal Housing Finance Agency Director Mark Calabria, and Housing and Urban Development Secretary Ben Carson offered additional insight on the process to end Fannie and Freddie’s conservatorships.

Calabria told the committee that he is open to wiping out shareholders of the government-sponsored enterprises, but he cautioned that “no decision has yet been made on moving forward.” He also hinted at a future rulemaking intended to shrink Fannie and Freddie’s footprints.

Shareholder Wipeout?

 

 

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