Treasury Department US Secretary Steven Mnuchin told a Senate committee on Tuesday that he wanted to reach an early agreement with the Fannie Mae and Freddie Mac to allow companies to keep their profits to rebuild their capital – a first step in releasing the country's main sources of mortgage finance.
He would not have much to do. Mark Calabria, Director of Federal Housing Finance Agency, the independent agency created in 2008 to oversee the mortgage giants, was sitting at the other end of the table, with Ben Carson, secretary of the Housing and Urban Development Department, enter.
"We would allow the accumulation of significant capital, but in return, we will ensure that taxpayers are compensated for the continued support of the Treasury," Mnuchin said. Senate Banking Committee, citing the Trump administration's plan to charge government-sponsored businesses a commitment fee that would protect taxpayers.
The lack of acrimony and partisan quarrels at the committee hearing prompted Cowen Washington Research Group publish a note to customers after which it is mentioned that the so-called "earnings sweep", in which all GSE profits are transferred to the Treasury every quarter, can end as early as this month.
"We expect an agreement before September 30 in which Fannie and Freddie will stop paying a quarterly dividend to Treasury," says Jaret Seiberg, chief executive of Cowen, in the note. "Instead, they will pay a commission for the outstanding capital line outstanding. This means that they can keep the rest of their profits in order to replenish their capital. "
After that, we should expect a period with little progress, Seiberg said. The Trump administration will give Congress a chance to act, if only to provide "political coverage for administrative actions" in the future, he said.
"While the Treasury and the FHFA seem to want Congress to act, we believe that they are quite willing to act alone if necessary," wrote Seiberg. "That's why we strongly recommend not to assume that recapitulation and publication is a problem, simply because the Trump team is trying to get Congress to participate.
Seiberg said he was "surprised at the lack of political fireworks" at the hearing and described the Trump Administration Housing Finance Reform Plan of 53 pages as having "survived" at the hearing.
But that does not mean that there was bipartite approval. Several lawmakers voiced objections, including Senator Sherrod Brown, D-Ohio.
"The Trump plan will make mortgages more expensive and harder to obtain," said Brown. "In addition to increasing costs, the plan would make competition for smaller lenders more difficult."