Obama Adviser Set to Dismiss Speculation of GSE Share Sale

  • Stegman plans to discuss Fannie-Freddie at conference
  • Hedge funds have pressed governement to cede control

The White House is preparing to push back on the flurry of hedge fund speculation that it may change course on policies that have kept Fannie Mae and Freddie Mac under government control since the financial crisis.

Michael Stegman, a top White House adviser on housing matters, plans to publicly reiterate next week that the Obama administration intends to stick to its guns on the mortgage-finance giants, said two people familiar with the matter who asked not to be named before he delivers a speech on the topic. The government owns almost 80 percent of the companies’ shares and private investors have been pressing the administration to unwind a controversial 2012 decision to sweep their profits to the Treasury Department.

While White House officials might regard Stegman’s Monday remarks at a mortgage industry conference as restating the status quo, the comments could counter expectations that President Barack Obama will try to cut government ties with Fannie Mae and Freddie Mac before he leaves office in 2017.

Fannie Mae and Freddie Mac shares both jumped more than 8 percent Oct. 6 after a Washington political intelligence firm published a report that said the White House was in the “very early stages” of weighing its options to end federal control, known as conservatorship. Hedge fund manager Bill Ackman is among those who’ve mentioned the report, saying at a Bloomberg News conference that it’s clear Fannie Mae and Freddie Mac are here to stay so it makes sense that the government needs a plan to deal with them going forward.

Taxpayer Rescue

“The administration does not support Fannie Mae or Freddie Mac exiting the conservatorship in the absence of comprehensive housing-finance reform,” Treasury said in an emailed statement. A White House spokeswoman declined to comment on what Stegman plans to say next week at the Mortgage Bankers Association conference in San Diego.

Fannie Mae and Freddie Mac are pivotal to the housing market because they buy about half of new mortgages and then package the loans into bonds on which payments of principal and interest have implied guarantees.

Hedge funds that own Fannie Mae and Freddie Mac stock, including Ackman’s Pershing Square Capital Management, have sued the government over the decision to hoard earnings, rather than allowing the companies to build up capital reserves or pay dividends to outside shareholders.

Obama administration officials have argued the sweep was done to compensate taxpayers who had to save the companies from collapse as the mortgage market tanked in 2008. While Fannie Mae and Freddie Mac were rescued with a $187.5 billion bailout at the height of the financial crisis, they’ve since sent almost $240 billion to the Treasury.

The White House’s reassessment of what to do with Fannie Mae and Freddie Mac is being driven by concerns over what might happen if a Republican administration gets to decide the companies’ fates, Political Alpha, the political intelligence firm, wrote in its Oct. 5 report. 

Ending Sweep

The Obama administration is particularly worried that Fannie Mae and Freddie Mac policies intended to support affordable housing will be abandoned should a Republican win the White House, according to the report. The Obama administration is also discussing pumping fresh capital into the companies, a decision that would end the profit sweep, Political Alpha said.

Among those trying to dispel speculation that the Obama administration wants to privatize Fannie Mae and Freddie Mac is U.S. Senator Bob Corker, a Tennessee Republican who has proposed legislation that would overhaul housing finance.

“There is no factual background to the rumor that the administration is actively pursuing efforts to release Fannie Mae and Freddie Mac out of conservatorship,” Corker said in an emailed statement Friday. “It is time to put the issue of recap and release to bed.”

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