Administration Playing Both Sides on Fannie Mae

On Friday the Obama Administration released its report on “reforming America’s Housing Finance Market.”  The report claimed that the Administration would work toward “winding down Fannie Mae and Freddie Mac on a responsible timeline.” 

While the report was silent on what a responsible timeline would be (surprise, no details); I assumed, perhaps naively, that a reasonable timeline would be 5 to 6 years.  So you can imagine my surprise while reading the Administration’s budget proposal (see Table S-12 of the summary tables), released Monday, that the Administration is projecting that the government will be receiving, between 2012 and 2021, $89 billion in dividend payments from Fannie Mae and Freddie Mac.  In 2021 alone the White House projects $8 billion in dividend payments.  But here’s the rub, for Fannie Mae and Freddie Mac to be paying dividends in 2021 requires that they still be around.

So would the Administration please be straight with us for just a minute: are you or are you not proposing that Fannie Mae and Freddie Mac disappear; and if so, when?

Another odd thing from the budget, again Table s-12 lists the net equity position of Fannie and Freddie as negative.  Well that’s obviously true, but it also raises the question of why they are still in conservatorship, as the law requires them to be taken into receivership once they’ve reached negative equity.  Then perhaps OMB and Treasury have different definitions of net equity.