All Wound Up over “Wind Down”

So, today in Phoenix, President Obama used the seemingly unmagical words “wind down…!!”

First of all, there seemed something wrong with that part of the speech.

“…that was the largest lending settlement in history…and that’s why I called on Congress to wind down Fannie Mae and Freddie Mac…”

The passage didn’t make sense. He was staring right at the teleprompter when he read the words….but they didn’t make sense.

Consider, that the President’s speech was originally scheduled for 10:25 am, then pushed to 10:45 am. However, the President’s speech didn’t start until 11:10 am. Obviously, the President’s entourage was way off schedule. Shortly after the President dropped “wind down” the speech seemed to be rushed and ended awkwardly. It appeared that the teleprompter operator pushed fast forward to get the President back onto his schedule.  Did his speech writers intend for the President to introduce the “failed duopoly business model?”  If so, would that section of the speech have made more sense…?  We’ll never know…  Or will we… this week was a dress rehearsal for the State of the Union.  It’s likely his speech writers will fix whatever went wrong in Phoenix.

Regardless, the speech did include the words “wind down.” And people reacted to it…

However, if you read how FHFA describes wind down in FHFA Strategic Plan: Fiscal Years 2015-2019

Performance Goal 3.2: Reduce taxpayer risk from Enterprise operations

FHFA is focused on ways to bring additional private capital into the housing finance system to lessen taxpayer risk by reducing Fannie Mae and Freddie Mac’s overall portfolio risk exposure. FHFA’s objective is to shift risk to private market participants and away from the Enterprises in a responsible way that does not reduce liquidity or adversely impact the availability of mortgage credit.

This priority includes having the Enterprises conduct additional credit risk transfers for their single-family credit guarantee business. The transactions to date have attracted private capital to share in credit losses, which protects taxpayers from bearing all of the potential losses. FHFA is also overseeing ongoing and required reductions in the Enterprises’ retained portfolios. The Senior Preferred Stock Purchase Agreements with the U.S. Department of the Treasury require the Enterprises to reduce their portfolios to no more than $250 billion each by 2018. FHFA is requiring that the Enterprises prioritize selling their less liquid portfolio assets and develop plans to meet the PSPA 2018 portfolio reduction goals even under adverse market conditions. Another risk-reduction priority involves private mortgage insurer counterparties. The work FHFA is undertaking will strengthen master policies and eligibility requirements for private mortgage insurers, a critical source of private capital in the mortgage finance markets.”

The Structured Finance Industry Group’s response to the wind down:

“As a consequence of the strength of our members’ beliefs, SFIG would urge FHFA to approach performance goal 3.2 not just in terms of reducing the risk to taxpayers embedded in the current book of business, but of also exploring ways in which the assumption of further taxpayer risk can be scaled back to be more in line with the Enterprises’ pre-crisis level share of the nation’s housing finance market.

Although SFIG believes that the nation is rightly indebted to FHFA and the Enterprises due to the way in which they carried out their fundamental statutory mandate of preserving mortgage market liquidity during the financial crisis, we believe that “reducing the Enterprise footprint” should also be a priority for performance goal 3.2.”

Efforts by FHFA and Treasury have been to reduce the size of Fannie Mae and Freddie Mac since taking over the companies in 2008.  When President Obama “calls on Congress to wind down” the companies, he references the fact that it is Congress that has the authority to legislate the eventual size of the Fannie and Freddie’s business.

Sure you could argue “wind down” means “eliminate.”  But, you could just as easily argue it means “reduce.”

We need to keep fighting the good fight!  Stay positive and stay focused!

3 thoughts on “All Wound Up over “Wind Down”

  1. Why would one keep on repeating the same thing without clarifying the
    statements. One is repeating the same thing knowing very well that there are no alternatives.

    If there are/were clear alternatives why one is not making them public.


    • Could be a few reasons… pushing it to Congress to deal with; not focusing on the details closely enough; only concerned with reducing the size of Fan and Fred and not being more deliberate with his words… or perhaps another reason.

      I think the current plan is to shrink Fan and Fred and keep them alive. Time will tell…


  2. The saga of Fannie and Freddie will dictate what it means to be shareholder, be it of an individual company through stock or through an index fund in your 401K or pension.


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