Attention Fannie Mae and Freddie Mac leadership, hear this, hear this! No dancing!!
One of the “Seven Great Truths*” is, “When you dance with a bear, it’s the bear who leads and the bear who decides when he’s danced enough…not you.”
Other “Truths” which the GSEs should internalize are, “You don’t get to be Archbishop by sitting around on your butt” and “It’s better to be healthy and rich than poor and sick.”
Nobody but the GSE hierarchy, their boards, and the Administration and Fed officials knows if the GSEs are at all interested or can be induced/seduced to sign up for any part of the government’s dance offer.
The companies should never agree to gavotte with the Feds because the price will be outrageously expensive. And, if the Treasury and Fed claims it isn’t, don’t believe them. There are lots of credibility-weakened people in this town, especially after 8 years of George Bush. So the GSEs must display great caution in dealing with any federal “saviors.”
Your company stocks already have been ravaged, so IF sufficient GSE capital is a question, start unloading as much of your portfolios as you can—balancing the macro mbs market impact on the rest of your portfolio--and grow your capital base, without Uncle Sam’s help or direction? Hopefully, it won’t come to that.
As a former Fannie lobbyist, I remember how urgently we would ask the Congress in any piece of legislation dealing with the GSE matters of the need to remind the Administration (no matter which party controlled it) that it was important “not interfere with the day to day operations of the company.” That phrase exists in a number reports accompanying GSE legislation.
Some of that caution already has been lost, irretrievably. OFHEO’s been dictating to the companies ever since they agreed to OFHEO “temporary” capital increases and portfolio limits.
A pact with the Treasury and Fed could steal the rest of the GSEs corporate discretion and send them to “regulated utility” status, quicker than the Bear might want to stop doing the polka.
If it isn’t too late, avoid boogying with this Bear.
Sell everything you can sell, shrink yourself, but don’t give away any more of your management discretion. This is the one fight where you want to dig in your heels and—if it comes to it—go to court to stop them, if they insist that you need help which you don’t want.
If you accept the Bear’s paw, you’ll be fast underway to becoming some bastardized version of Ginnie Mae or the FHA and that would be horrible for the mortgage finance system, the mortgage consumer, and the companies.
The residential real estate market will come back. All cycles change. Fannie and Freddie should want to be there --when that time come--fully functioning with all of the GSE market tools, weapons, and techniques firmly in their possession.
*Totally mythical and made up.