Fannie Mae Advocacy Ban Doesn't Stop Lawyer From Pushing Views
(Bloomberg) -- For nearly a decade, a top U.S. housing regulator has restricted Fannie Mae and Freddie Mac from trying to influence the raging debate over whether they should live or die.
But despite those limits, a top Fannie Mae executive has done just that over the past few months, quietly meeting with people inside and outside President Donald Trump’s administration, according to people familiar with the matter.
Brian Brooks, Fannie’s general counsel, has a specific goal, the people said: Build a groundswell among housing-finance stakeholders that the best outcome for Fannie and Freddie is for Trump and their regulator to release the companies from government control. Brooks, who has ties to Treasury Secretary Steven Mnuchin, wants this done without the involvement of Congress, which has failed since the 2008 financial crisis to come up with a legislative fix for the mortgage giants.
Fannie spokesman Pete Bakel said the company and its executives merely provide factual information on policy proposals and do not advocate for one position over another.
Some Republican lawmakers want to wind down Fannie and Freddie, while severely constraining the government’s involvement in backstopping home loans. But Brooks argues the companies should largely be preserved as they are through agencies including the Treasury Department, said the people who asked not to be named because his comments weren’t public.
The meetings could touch a sensitive chord with regulators and policy makers. The Federal Housing Finance Agency forbade Fannie and Freddie from lobbying in 2008 after the cratering housing market prompted the government to take over the companies and prop them up with a taxpayer rescue.
In announcing the ban, former FHFA Director James Lockhart said they would be prohibited from “all political activities - including all lobbying.” However, the specific restrictions haven’t been made public, and it’s unclear what activities would run afoul of them.
“Fannie Mae does not lobby and has not advocated for any specific policy outcomes on housing finance reform,” Bakel, the company spokesman, wrote in a statement. “As part of our normal course of business, we analyze policy proposals and existing law. We answer questions from customers, industry groups, and similar stakeholders and provide information about potential implications of the proposals on the market. It is up to Congress, not Fannie Mae, to determine the future of housing finance reform legislation.”
Brooks in an email referred a request for comment to Bakel’s statement. An FHFA spokeswoman declined to comment.
Before the crisis, Fannie and Freddie commanded two of the most well-funded lobbying apparatuses in Washington. In addition to employing dozens of lobbyists, the companies funneled contributions to nonprofits and think tanks and pressured policy makers to abandon potential regulations or laws the companies thought would constrain them.
Adding to the intrigue over Brooks: He might have the ear of Mnuchin, who would be a vital player in any plans the administration has for Fannie and Freddie. Before joining Fannie, Brooks was vice chairman at OneWest Bank, the bank Mnuchin founded during the foreclosure crisis.
Brooks’s effort comes as some shareholders and other advocates of preserving the companies are also urging the Trump administration to take action on its own. Such a move would likely keep Fannie and Freddie at the center of the U.S. mortgage market and could spur a payoff for firms such as Paulson & Co., Blackstone Group and Fairholme Funds that have bought millions of dollars of the companies’ stock.
FHFA Director Mel Watt in multiple hearings in Congress has said he believes Congress, rather than he or the administration, needs to determine the companies’ futures. Watt is scheduled to testify before the Senate Banking Committee on Fannie and Freddie’s conservatorships May 23.
In response to lawmakers’ queries, Watt in January sent them the FHFA’s own proposal on what the housing-finance system should look like. It said Fannie, Freddie or other entities should be shareholder-owned utilities with regulated rates of return and an explicit government backstop of mortgage bonds. Fannie and Freddie don’t issue mortgages. Instead, they buy loans from lenders, wrap them into securities and make guarantees to bond investors in case borrowers default.
Brooks in the meetings said he believes that many of the FHFA’s goals can be achieved without Congress through modifications to the companies’ bailout contracts with the Treasury, the people said. Some of the goals, including the establishment of an explicit guarantee on the companies’ mortgage bonds, would likely need legislation.
Shortly after Trump picked Mnuchin in 2016 to lead Treasury, Mnuchin said ending government control of Fannie and Freddie would be one of his priorities. However, he’s pushed back the time line for action more than once. In an April interview with Fox Business Network, Mnuchin acknowledged that Congress was unlikely to pass a bill this year, adding that reform “will be a big focus of mine post the elections.”
It’s unclear whether an administrative plan would benefit shareholders. Brooks’ recommendations closely mirrored the plan proposed by Watt in January for regulated utilities, the people said. However, Watt’s plan did not address shareholder claims directly.
A separate person said Brooks about a year ago pitched to some government officials an administrative plan to release Fannie from federal control that would have included putting the companies through a bankruptcy-like process. Such a move could have hurt shareholders. The plan never gained traction, the person said.
Fannie Chief Executive Officer Timothy J. Mayopoulos said in an interview earlier this month that he didn’t believe it’s Fannie’s job to advocate for its future. “We’re not trying to influence the outcome,” he said.
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