16
AN UPDATE ON GSE
CONSERVATORSHIP
A year following the release of the Safety and
Soundness Blueprint by Moelis & Company
LLC in June 2017, the company has released
an update. Moelis developed the Blueprint
as financial advisers to certain non-litigating
preferred stockholders of Fannie Mae and
Freddie Mac. Key updates include a call for
several actions within the next four years, such
as earnings retention, issuance of new GSE
common and preferred stock into the capital
markets, and secondary offerings of Treasury's
holdings of nearly 80 percent of common stock
in the GSEs.
"e Safety and Soundness Blueprint ensures
that homeownership for middle-class and
working-class Americans remain available and
affordable," the update reads. "e fixed rate
pre-payable 30-year mortgage would remain the
bedrock of U.S. housing finance."
is update comes at the same time as the 10-
year anniversary of the conservatorship of Fannie
Mae and Freddie Mac. Developments at the
GSEs since the original release in 2017 include
an increase in the indicative valuation of the
Treasury Department's warrants. Moelis cites
lower tax rates from the Tax Cuts and Job Acts
of 2017 as well as improved credit performance
from Fannie and Freddie as reasons for the
increase.
Additionally, Fannie Mae and Freddie
Mac have now completely repaid the federal
government, and returns are currently exceeding
the 10 percent annualized rate of return
established at the beginning of conservatorship.
With the government repaid, it may be close to
time to end conservatorship, as the FHFA has
also developed and released its newest post-
conservatorship regulatory capital framework for
Fannie and Freddie.
Said Moelis in a release: "e original
Safety and Soundness Blueprint laid out the
means and process by which to rebuild capital
at Fannie and Freddie as shareholder‐owned
single‐purpose insurers, refocused on their core
conventional mortgage guarantee business, de-
levered, and held to the highest regulatory and
capital standards. One year later, on the 10 year
anniversary of Fannie and Freddie being placed
in conservatorship, the Safety and Soundness
Blueprint continues to provide the only
mathematically credible, detailed, and achievable
path forward for the GSEs."
