I want to call attention to a few key developments. I am thrilled to see an article today on American Banker entitled: “If Congress Won’t End GSE Conservatorship Soon, FHFA Can.”
By CLIFFORD V. ROSSI http://www.americanbanker.com/bankthink/if-congress-wont-end-gse-conservatorship-soon-fhfa-can-1070408-1.html. Clifford makes some excellent points that are critical to bringing about our release.He points out: “As many, including Congresswoman Maxine Waters, have noted, the conservatorship — now in its sixth year — was never meant to be permanent; nor was the government’s 100% profit sweep meant to be perpetual. With the agencies in conservatorship, the federal government has effectively engineered a redistribution of capital out of housing and into the budgetary either to help cover costs associated with the payroll tax cut extension through higher guarantee fees and by siphoning off profits from the companies well in excess of the costs incurred by the government to cover GSE credit losses.
The situation is untenable. Under the current provisions of the agreements swapping preferred stock in the agencies for a Treasury backstop against credit losses, taxpayers effectively remain on the hook for future losses associated with outstanding mortgage-backed securities guaranteed by the agencies — which total approximately $6.5 trillion — until some resolution of Fannie and Freddie is completed.
Taking the step to end the conservatorship and recapitalize Fannie and Freddie is in the best interest of the taxpayers by monetizing a substantial profit from their investment in the GSEs over the last six years. And with changes already in place, coupled with strict risk-based capital rules, this step would virtually eliminate future taxpayer exposure to housing crises.”
I may have an opportunity to meet with Clifford soon; he is a valuable ally.

Another key development is a letter that ICBA sent to the FHFA Re: Request for Input: Fannie Mae and Freddie Mac Guarantee Fees and Draft Revised
Private Mortgage Insurer Eligibility Requirements. (PDF below)
They state:
“Currently the GSEs are operating under conservatorship with very little capital to support and sustain their operations. As per the terms of the GSEs’ preferred stock purchase agreements (PSPAs) with the U. S. Treasury, they cannot retain earnings to build capital.
However, current GSE g fees assume a capital charge that ranges from 83 basis points in the lowest risk bucket to 712 basis points in the highest risk bucket2. The question is where does this capital go? It is not reflected on the GSEs’ balance sheets, and there is no
accounting for it at the FHFA. Rather it is swept directly into the U.S Treasury where its status is unknown. If the GSEs are including a charge for capital (which we believe is prudent), then there should be some type of accounting to show its disposition. If it is just treated as general revenue to the U.S. Treasury for deficit reduction, then it should not be
charged. To protect taxpayers and to prevent the need for future draws from the Treasury, ICBA strongly recommends the FHFA either amend the GSEs’ PSPAs to allow them to rebuild capital or create a capital account held at FHFA that would be used to offset losses should
they occur. ICBA further recommends that GSEs hold capital equivalent to what a FDICinsured institution would be required to hold for mortgage loans on a balance sheet (4%- 6.5%). Given the nature of the GSEs’ public mission, duty to serve, and current operation
under conservatorship, ICBA would recommend a lower targeted return on equity in the range of 4-5 percent. Guarantee fee pricing using those components would still provide an acceptable return to the GSEs while keeping mortgage credit affordable in the conventional conforming market. ICBA firmly believes that the purpose of any financial regulator is to ensure the safety and soundness of the entities being regulated. In operating the GSEs without any meaningful capital, and preventing the GSEs from building needed capital, FHFA is putting taxpayers, the GSEs, and U.S. housing market at risk.”

This both play a big role in changing the narrative and point out some common sense reasons for reform and release. The fact that all of Fannie and Freddie are being forced to stay grossly undercapitalized presents extreme financial risks to the taxpayers of the event of another downturn.In the next few days I will be sharing a portion of the strategy document that I circulated in DC last week. I am thrilled to see that we have gotten off to such a quick start in taking some of the initial steps. Developments sometimes occur at such a rapid pace it can be tough to keep up but I also want to make mention of Bernanke’s “Refinance dilemma” This was a key signal, it started the process of changing the narrative.
Keep the Faith!

10:8:14 ICBA letter 2