White House Reportedly Planning GSE Public Offerings
May 31, 2019
The Trump Administration is reportedly planning to coordinate a public offering for Fannie Mae and Freddie Mac in the aftermath of the end of their federal conservatorship.
According to reports in the Wall Street Journal and Fox Business Network that cited anonymous sources, the administration has been in discussion with Wall Street bankers on the proposal, which would be used to recapitalize them once they are outside of government control. Both of the government-sponsored enterprises (GSEs) already have outstanding shares and are traded on the over-the-counter exchange, so the public offering would be somewhere between an initial public offering and a secondary stock offering.
Details of the plan are still sketchy, but the two reports stated a 2020 date was being considered and the size of the public offering could exceed $100 billion. Last week, according to Federal Housing Finance Agency (FHFA) Director Mark Calabria told the Mortgage Bankers Association’s Secondary Marketing Conference in New York City that maintaining conservatorship “puts hardworking American taxpayers unfairly at risk” because Fannie Mae and Freddie Mac remain “too big to fail” and have grown much larger over the last 11 years.
“With a leverage ratio of nearly one thousand to one, the GSEs’ balance sheet capital cushion is razor thin relative to their huge amount of assets,” Calabria said in prepared remarks during his conference address. “As a result, they remain vulnerable to fluctuations in housing prices, interest rates, and macroeconomic conditions. This leaves American taxpayers increasingly exposed to bearing the risks of these mortgage giants through another bailout.”
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