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Fannie, Freddie Soar After Mnuchin Comments (Duke Nuchin?)

This is a syndicated repost courtesy of Confounded Interest. To view original, click here. Reposted with permission.

Trump’s choice for Treasury Secretary, former Goldman Sachs partner and film producer (American Sniper and Mad Max: Fury Road), said that mortgage giants Fannie Mae and Freddie Mac should be released from the grip of the Federal government.

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If Mnuchin does make inroads into releasing Fannie Mae and Freddie Mac into the wild (or shut down), he will probably be nick-named “Duke Nuchin.” Or “The Munchkin,” I haven’t decided which, depending on what he is intending.

(Bloomberg) -By Kasia Klimasinska and Felice Maranz- Fannie up as much as 33% to highest intraday since Aug. 2014; Freddie up as much as 32%, also highest since Aug. 2014, after Steven Mnuchin, Donald Trump’s choice for Treasury secretary, says FNMA, FMCC should exit government’s grip, didn’t appear to mimic Republicans who’ve said they should
be wound down or eliminated.

* Mnuchin’s comments “certainly positive” for GSE pfd, common shareholders,’’ Height Securities analyst Edwin Groshans writes in note

* At the same time, “any path” that leads to GSEs exiting govt control needs to permit the GSEs to rebuild capital; estimates FNMA would need to raise at least $190b of capital, FMCC would need $119b in order to meet minimum risk-based capital requirements — which means no capital would flow to shareholders for a decade or longer

* Mnuchin has “significant powers” related to FNMA, FMCC conservatorship; tenure as head of mortgage bond trading at GS, role at OneWest demonstrate “significant background” in mortgage industry, FBR’s Edward Mills writes in note.

Here is the reaction in the stock market to Duke Nuchin’s comment.


The alternatives facing Duke Nuchin and Congress are 1) shut down Fannie Mae and Freddie Mac, 2) turn Fannie and Freddie loose in the wild with sufficient capital (either externally raised OR a Federal government “loan” with no strings attached), or 3) fold Fannie and Freddie into a Federal government insurance “corporation” per the Parrott, Ranieri, Sperling, Zandi, Zigas “A More Promising Road to GSE Reform” plan.

Someone mention a fourth option, making Fannie and Freddie a clone of FHA and Ginnie Mae (which is similar to the Parrott, Ranieri, et al plan. But one FHA/Ginnie is enough, thank you.

But whatever course Duke and Congress agree on, there has to be TRANSPARENCY as to what mortgage loans are being insured/purchased in terms of average LTV, FICO, and other measures (e.g. loan type).


Duke Nuchin is clearly preferable to being nick-named “The Munchkin.” But if he and Congress succeed in getting Fannie and Freddie loose from the grip of the Federal government, they can all sing together!!


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