What Treasury Could Do to the GSEs
As we noted last week, Secretary Mnuchin told Senate Banking that he has the authority to restructure Fannie and Freddie without any change in law. This created considerable consternation, but Mnuchin stayed mum on what he could do were he to decide he wanted to. In short, it’s a lot. Current law gives FHFA considerable discretion to redesign Fannie and Freddie into limited-life regulated entities (LLREs). We first examined this question when FHFA was in a privatizing mood and since then have looked at it for you when it appeared that the conservatorships might need deep draws in the absence of GSE capital. Here, we renew our assessment of what could be done under current law – it’s a lot.

GSE-020618.pdf