The Hot Potato and How It Gets Mashed
Last night, Treasury and FHFA announced an agreement on the GSEs’ conservatorship unsatisfactory to all concerned and highly objectionable to many of those on the Hill with the power to change it. However, we doubt the new Congress will be any more able to reform the GSEs than any of the old ones equally determined to do so. And, even if Congress could, it won’t anytime soon because of the flood of critical issues and nominations. Absent a catastrophe causing receivership, two things will thus determine the GSEs fate: the outcome of the Supreme Court case and – more immediate and important – FSOC’s ability in the near term to declare the GSEs systemic nonbanks and then redefine their role in U.S. housing finance.