mnuchin says sweep to continue

[skibrian]

https://www.bloomberg.com/news/articles/2017-05-02/fannie-freddie-profit-payments-should-continue-treasury-says

U.S. Treasury Secretary Steven Mnuchin wants mortgage-finance giants Fannie Mae and Freddie Mac to continue sending their profits to the government under the terms of their bailout agreements, a spokeswoman said.

The most important market news of the day.

Get our markets daily newsletter.

The position is likely to disappoint some advocates of immediately suspending the dividend, including small lenders, affordable housing advocates and large homebuilders, who have sought to stop the payments and allow Fannie and Freddie to rebuild their capital buffers. Private shareholders of Fannie and Freddie, which include funds managed by Paulson & Co. and Perry Capital, have also called for a dividend suspension.

The Treasury spokeswoman, who described Mnuchin’s views in response to a question from Bloomberg News, said Mnuchin believes the companies should continue to follow the terms of the bailout by paying dividends as compensation to the government.

Decisions about whether dividend payments should continue are in the hands of Mel Watt, the director of the Federal Housing Finance Agency, who was appointed by former President Barack Obama and has a term that lasts until 2019. Watt, whose agency controls Fannie and Freddie, can direct the companies not to send the payments.

Watt in the past has expressed concern that the companies’ declining capital buffers could put the mortgage-finance system at risk and as recently as March strongly considered suspending the dividend, according to people familiar with the matter.

Fannie, Freddie Overhaul

At a Milken Institute conference in Los Angeles on Monday, Mnuchin said that an overhaul of Fannie and Freddie is a priority for the Trump administration, with changes potentially being made in the latter half of 2017 or early 2018. A revamp of the companies should ensure taxpayers are protected and liquidity is maintained in the mortgage market, he said.

The government took over Fannie and Freddie in 2008, eventually sending them $187.5 billion in bailout money. In return, Treasury received a class of “senior” preferred shares that paid a 10 percent dividend, along with warrants to acquire nearly 80 percent of the companies’ common stock.

In 2012, the government changed the terms. It would take all of the companies’ net worth over a capital buffer of $3 billion in 2013, which was designated to decline by $600 million each year until hitting zero dollars in 2018. At that time, the companies would need more bailout money if they suffered a loss.

Obama officials argued that the profit sweep compensates the government for its support and that the declining capital buffer wasn’t an issue, since the companies still have about $259 billion in available bailout money to draw from Treasury if needed. But some shareholders said the changes were illegal and sued.

Freddie reported first-quarter earnings on Tuesday and said it planned to send $2.2 billion to the Treasury. Fannie reports earnings on Friday. Under the terms of the bailout agreements, their dividends would be sent to the Treasury by the end of June.

[seysmont]

Mnuhin has been very consistent with what he says. I would want to see the statement, not the article on what he actually said.

[seysmont]

I saw some footage of that conference, I didn't hear him say what Joe Light claims. Basically his previous statements to Maria directly contradicts this article. He doesn't want them undercapitalized. Volume confirms BS. Somebody is short or has vested interest in keeping prices down.

[skibrian]

well, I hate reading into words, but i might also note the author said the quote said dividends should continue.  not the sweep.  so, his reporting is not precise.  Technically, does that mean 10% dividend should continue or the NWS continue?

Reporters that don't fully understand the nuance are a bit careless.

But, we don't have the exact quote, so we don't know, do we?

[seysmont]

Joe Light understands nuances. He is there to talk trash about the GSE's. 

[littlemo...@yahoo.com]

I had the same feeling that "dividends to continue under the bailout agreement" could be a reference to 2008 -which is when the bailout agreement was constructed- and not necessarily indicate support for the NWS. In fact one could read it that way given the qualification of "bailout agreement."

Mnuchin is playing politics so well he is toying with us. I wish the courts would help provide a little incentive for him to support the rule of law more. We need those document to be released.

Mnuchin's comment that the NWS was used to support O-care was pretty huge, IMO; and that was a direct quote. But we are all growing weary of trying to read Mnuchin's comments like tea leaves.

[skibrian]

well, mnuchin said the sweep paid for o-care, and other stuff.  that claim is totally true.  sweep went into the general fund, which means it paid (pro rata) any expense that is paid for out of the general fund.

there are some expenses that are paid out of a seperate fund that direct taxes are paid into (I think Social Security, if I recall, has a "lockbox" so that payments on SS tax go straight to SS payments, and cannot be used to build an airport or a bomb).

So, yeah, whatever % of expenses that are paid out of the general fund that went to o-care, take that same % and multiply it by the NWS, and that's how much of the NWS went to pay for o-care.

as Tim Howard said, money is fungible.  unless it goes into a lockbox sort of account and governed by law.

[seysmont]

What he did is he clearly had a problem with NWS. Then he said something about the dividend. Which is not a sweep. I hope Joe Light's innuendo's lead him to trouble.

[seysmont]

It would be funny if Mnuchin believes in the original agreement, and the NWS innuendo is flat out wrong. That would be consistent with his stance. FMCC actually pays off their sr pfds with this payment and and extra billion. I'm not sure if they were forced to take an extra billion, but it's somewhere there.

[bmp152]

I don't like this, coupled with part of Mnuchin's statement from the Bartiromo interview:

"And as you know, those two companies only exist because we have a giant line from the Treasury that supports them.” - Mnuchin

Treasury "lifeline" is quid pro quo for the NWS. I think it will only get worse once the capital buffer reaches zero.

Or perhaps this a strategic move to quell Congress from making any legislative decision that would impair an Administrative solution. Who knows at this point...

[littlede...@gmail.com]

"follow the terms of the bailout," what does that mean?

[seysmont]

It's all a linguistic exercise to appease everyone. If he wants to honor the original bail out terms (10%), what he says is truth. If he wants to continue NWS what he says is truth. The value of those type of statements is zero. So it's not good or bad, it's non events. You can interpret them any which way and will be right. These are carefully crafted statements that could be read in may ways. What it means is Mnuchin doesn't want to giveaway his real intentions. If you believe his intention is to continue NWS, you can read it as such. If you believe his intention is to release them, you can read them as such. What do you think he wants to do and why his statements are so carefully worded?

[skibrian]

@seys,  don't forget, Light paraphrased (did not quote) a Treasury spokesman, not Mnuchin.  So, even throwing around "he said this" "he said that" in the Joe Light article is pure speculation.

What we know are his quotes from TV appearances or Congressional testimony.  Nothing else.

[skibrian]

This is the Joe Light quote:

"The Treasury spokeswoman, who described Mnuchin’s views in response to a question from Bloomberg News, said Mnuchin believes the companies should continue to follow the terms of the bailout by paying dividends as compensation to the government."

Notice his article contains no Treasury Dept. quote or Mnuching quote.

So, best be careful.  You aren't just reading between the lines as to what Treasury thinks, but also reading into the lines about what Joe is trying to say Treasury thinks.

[ron...@comcast.net]

Even if it's accurate I find it somewhat innocuous. Let's just continue on course until we come up with a plan. We can do the math later.

[SimSla]

Tim Pagliara‏ @timpagliara  1h1 hour ago

More

Tim Pagliara Retweeted Darcangelo

Watch what they do- from this point forward stop focusing on what they say. Joe Light has to stay busy :)

[bmp152]

Listening to Mnuchin's comments today at ICBA, I wonder if he is simply trying to stay out of the FnF reform solution discussion. One of the complaints I see over and over again on these boards (and in the courts!) pertains to collusion between Treasury and FHFA. Perhaps Mnuchin is just trying to stay independent of the regulator and let FHFA make administrative policy calls (i.e. the NWS is in place until FHFA tells him it isn't)? I have no idea...it's all just speculation and chatter.