FHFA Chief Offers No Hope on GSEs Emerging From Conservatorship

Edward DeMarco, the acting director of the Federal Housing Finance Agency, believes the future of Fannie Mae and Freddie Mac is bleak. In a recent speech he noted that (despite improving loss numbers) the two will never "be able to earn their way back to a condition that allows them to emerge from conservatorship." Of course, anyone who's familiar with the plight of the GSEs knows they are weighed down each quarter by a regular “protection payment” they give to the U.S. Treasury in the form of dividends. This means that no matter how much they earn (gross) that profit will turn into a loss after the dividend payment to Uncle Sam is paid. But what if Treasury decides to suspend or reduce that dividend? So far, no one is talking about such a move. A change of this magnitude would mean that one or both becomes steadily profitable, at least on an operating basis. But there's something else to think about: What if FHFA wins big on all the civil damage cases the agency recently filed against Wall Street on behalf of the GSEs? Maybe the $142 billion of U.S. taxpayer assistance given to Fannie/Freddie thus far (by Treasury) can be greatly reduced....