In a strange twist, Bill Ackman revealed on Bloomberg that Political Alpha has published a research note on the GSEs that at first glance appears to confirm that there has been a major shift within the administration.Upon closer examination it has a master of the obvious ring to it.
They begin with:
“Multiple sources have confirmed that the White House has reached out to the housing finance community to understand better its options on what to do with the GSEs after conservatorship.”
This is certainly no secret as we have been tracking these developments right along, and there have even been news articles discussing this as well.I could cite “numerous” sources with a quick Google search.
Their note also falsely portrays the primary motivation for the administration to end the conservatorships as saving the affordable housing mandates.This absurd header reads like a Saturday Night Live Parody on a GSE research note: “It’s All about Affordable Housing.”
Although this is a concern, it is hardly the primary motive.It almost seems as if they tried to see how many times they could get the term “affordable housing” in the same paragraph.I would hope that no one working on this within the administration would have leaked anything that would have lead to this overly simplistic and false portrayal.
They interspersed some great red meat as well here:
“the initial announcement of the White House’s intent would clearly be beneficial to the entire capital structure of the GSEs.” and here “This is a major shift in thinking as it would entail ending the GSE profit sweep allowing Fannie and Freddie to begin to retain capital.”
The overall tone forces me to question the authenticity of the note and their “sources”.I hope this is not a sloppily written hoax designed with ulterior motives as it appears. I am very skeptical of how beneficial it is to force the administration’s hand at this point that is what it seems clearly aimed to do.I hope that if their sources are non-existent that the administration does not feel compelled to comment on this. A simple we have not currently changed course would be a sufficient statement, and more than this deserves if their “sources” are as fictitious as they appear.I am sure the administration will handle this well considering the media has been bombarding them with similar questions over the last several weeks.Although most of what they wrote is obviously true, I believe their motives and sources are highly suspect at this point. It has been said that what I attached below is a mere summary of a 105-page report that is due out tomorrow. I can only imagine what that contains if it even exists.
I would suggest that everyone downplay this as much as possible until we can get further confirmation as to its accuracy. Keep the Faith!
U.S.: White House Looking into Ending GSE Conservatorship
October 5, 2015
Multiple sources have confirmed that the White House has reached out to the housing finance community to better understand its options on what to do with the GSEs after conservatorship. As we told you in our 9/14 note, “U.S.: Congressional Outlook for Finance and Tax,” with no chance for comprehensive GSE reform before 2017, the Administration is working behind the scenes to develop an endgame before President Obama leaves office. This could have major implications for the GSEs capital structure.
It’s All about Affordable Housing
With GSE reform stalled, we’ve been told that the Administration is afraid of what will happen to the affordable housing mandate should a Republican take office in 2017. Their fear is that a new Republican president could simply wind down the GSEs and kill the affordable housing mandate if the GSEs were to remain in conservatorship. Therefore, the White House wants to better understand its options as it looks to preserve the affordable housing mandate into the next Administration.
Moreover, the Administration is also trying to front-run any resolution to the current litigation so they can better control the outcome.
To maintain the affordable housing mandate, the Administration is looking at options to ensure that Fannie and Freddie are viable companies after being released from government control. While the discussions are just beginning, one of the options seriously being discussed is the possibility of recapping the GSEs.
Most importantly, terminating conservatorship would end the GSE profit sweep under the preferred stock purchase agreements. This will allow Fannie and Freddie to retain its own capital once again.
The Administration is in the very early stages of looking at various options to end the GSEs conservatorship. This is a major shift in thinking as it would entail ending the GSE profit sweep allowing Fannie and Freddie to begin to retain capital. While we have been told the Administration is not close to deciding how to proceed,
Director of Research