Bloomberg Editorial Board: Keep GSEs in Conservatorship

The Fannie Mae headquarters stands in this photograph taken with a tilt-shift lens in Washington, D.C., U.S., on Tuesday, April 2, 2013. Fannie Mae, the mortgage financier seized by U.S. regulators during the credit crisis, reported the largest annual profit in company history as a housing rebound helped the firm stop drawing federal aid. Photographer: Andrew Harrer/Bloomberg via Getty Images

The Editors of Bloomberg published an opinion this week suggesting we just leave Fannie and Freddie where they are today, in conservatorship. In their opinion the risks of administrative action or legislative action may produce worse outcomes than the current status quo.

“The government conservatorship has provided a sort of clarity: Taxpayers still stand behind the guarantee, but now collect the profits. It has worked pretty well,” states the Editorial Board.

What’s even more clear is their distaste for recapitalization and release as well as the idea of a multi-guarantor model, both proposals argued by different groups of stakeholders with Senator Crapo and groups like the MBA supporting the multi-guarantor model, while shareholder groups and others like the ICBA favoring recap and release. Bloomberg basically attacks both but highlights that congressional action is least likely simply due to the divisive political nature existing today.

“The good news is that a divided Congress is unlikely to approve Crapo’s plan. The bad news is that, absent congressional action, the Trump administration might opt for something even worse: ‘recap and release,’ as it’s called, in effect returning Fannie and Freddie to their pre-crisis state,” they stated.

Interestingly, the Editorial Board makes a case for the Mark Zandi/Jim Parrott proposal which they link to in the article that calls for a single government utility. But, recognizing that this would be an effort likely too difficult to achieve, they end their opinion with: “If the right kind of reform can’t be done now, Congress and the White House would be wise to settle for ‘do no harm.’”

We note that this debate will be likely the most important to watch as disruption risk, under any move, is extremely high.