Since then, two presidential administrations and Congress have tried and failed to replace Fannie and Freddie with a new housing-finance system. Most recently, Calabria has vowed to lead the companies out of conservatorship, rapidly publishing new rules for the companies on products, capital and liquidity, while setting prerequisites for leaving government control.
Calabria’s Push
In recent months, Calabria tried to garner support for releasing Fannie and Freddie before they have built up large capital cushions, an effort meant to lock-in their eventual release before Biden took the reins. That push ended up being a bridge too far for Mnuchin.
Calabria won’t have to leave after Biden is sworn in because he is serving out a term that extends into 2024. That said, Biden would likely seek to replace the FHFA chief if he tries to quickly release the companies or put them into receivership, people familiar with the matter have said.
With the agreement, the Treasury and FHFA plan to set out recommendations for what needs to happen before Fannie and Freddie are freed. But the suggestions won’t be binding for Biden’s Treasury, the people said. That means the changes effectively amount to a blueprint for eventually making Fannie and Freddie fully privatized companies.
One of the thorniest issues that Treasury intends to leave unresolved will be the government’s stake in Fannie and Freddie, a position that now exceeds $220 billion in senior preferred shares as well as warrants to acquire nearly 80% of the companies’ common stock.
Private shareholders of Fannie and Freddie, including hedge funds, have desperately hoped that the Trump administration would at least reduce its stake. That would allow investors to again receive dividends or mitigate how much they would be diluted if the companies raise capital in the private market.
Pending Case
Shareholders have also sought redress in the courts, claiming the 2012 decision by the Obama administration to sweep nearly all of Fannie and Freddie’s profits was illegal. The Supreme Court heard that case in December and legal analysts expect them to issue a ruling this year.
The same case could determine what happens to Calabria, who is an independent regulator insulated from the White House. The Supreme Court could decide that Biden should be allowed to fire Calabria at any time for any reason, further jeopardizing efforts to release the companies.
This article was provided by Bloomberg News.