Steven Mnuchin’s Legacy For Fannie Mae And Freddie Mac

He pointed out that Mnuchin's name is on the lawsuit over Fannie Mae and Freddie Mac, although when he leaves office, it will be Janet Yellen's name on the case. Pagliara believes Mnuchin should think about the Supreme Court case when considering his legacy for the GSEs.

"You look at all the different things that have happened here, and some of it is just absurd, and so a lot of what the court will do is… they're just going to validate how absurd some of it is," he said. "You don't strip an entity of capital that's in conservatorship that you're trying to rehabilitate. You don't create a finance facility… to allow for unlimited payments, thereby making it impossible to ever repay the loan. That was a creative thought, but it was never legal. It never made any sense, but we were gaslighted into thinking that it did make sense."

What will Mnuchin do about Fannie Mae, Freddie Mac?

In considering Mnuchin's legacy regarding Fannie Mae (FNMA) and Freddie Mac (FMCC), Pagliara questioned what the Treasury secretary will do in his last 40 days. Mnuchin could defer the issue again or deal with it now, but Pagliara expects him to deal with it now. He doesn't believe Mnuchin wants his legacy to be aligned with what was done in the Bush and Obama administrations, which was take advantage of two companies in conservatorship.

The net worth sweep was modified in September 2019, allowing the GSEs to accumulate up to $25 billion in capital. Pagliara said they're going to exceed that amount with this quarter's earnings, so something will have to be done soon. Officials can either modify it again, or "go back to the same old shenanigans that they started with," Pagliara explained.

That would mean all their excess earnings get swept into the Treasury again. He said they need to do another amendment that will deal with all the issues, allowing Fannie and Freddie to raise capital over and above the $25 billion they are currently allowed to raise.

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