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U.S.

: White House Looking into Ending GSE


Conservatorship

October 5, 2015
Multiple sources have confirmed that the White House has reached out to the
housing finance community to better understand its options on what to do with
the GSEs after conservatorship. As we told you in our 9/14 note, U.S.:
Congressional Outlook for Finance and Tax, with no chance for comprehensive
GSE reform before 2017, the Administration is working behind the scenes to
develop an endgame before President Obama leaves office. This could have
major implications for the GSEs capital structure.
Its All about Affordable Housing
With GSE reform stalled, weve been told that the Administration is afraid of what
will happen to the affordable housing mandate should a Republican take office in
2017. Their fear is that a new Republican president could simply wind down the
GSEs and kill the affordable housing mandate if the GSEs were to remain in
conservatorship. Therefore, the White House wants to better understand its
options as it looks to preserve the affordable housing mandate into the next
Administration.

Moreover, the Administration is also trying to front-run any resolution to the


current litigation so they can better control the outcome.
Retaining Capital
To maintain the affordable housing mandate, the Administration is looking at
options to ensure that Fannie and Freddie are viable companies after being
released from government control. While the discussions are just beginning, one
of the options seriously being discussed is the possibility of recapping the GSEs.
Most importantly, terminating conservatorship would end the GSE profit sweep
under the preferred stock purchase agreements. This will allow Fannie and
Freddie to retain its own capital once again.
Bottom Line
The Administration is in the very early stages of looking at various options to end
the GSEs conservatorship. This is a major shift in thinking as it would entail
ending the GSE profit sweep allowing Fannie and Freddie to begin to retain
capital. While we have been told the Administration is not close to deciding how
to proceed, the initial announcement of the White Houses intent would clearly be
beneficial to the entire capital structure of the GSEs.

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