Freeing Britney, Fannie, and Freddie

As the lines separating money, power, and celebrity become ever more blurred, there may be no better time to revisit the topic of conservatorship – and the freedom from it – as experienced by my old buddies Britney, Fannie, and Freddie.

Toxic – The Year of Conservatorship

As I observed here, 2008 was the year of conservatorship. Following a series of toxic (and very public) behaviors, in February Britney Spears’s father placed the former Mousketeer into conservatorship. Later that year, in the face of a global financial meltdown caused by toxic residential mortgage-backed securities, Richard Lockhart III, then Director of the Federal Housing Finance Agency, similarly placed into conservatorship the government-sponsored enterprises (GSE’s) known colloquially as Fannie Mae and Freddie Mac.

2021 – A Bridge Too Far?

If 2008 was the year of conservatorship, 2021 was the year of fighting for freedom from conservatorship.

I know I shouldn’t be, but I’m always surprised at the ways human emotion can be harnessed, especially when it comes to celebrity spectacle. I’ll confess to feeling a little sad when Robert Redford died a few weeks ago, but that’s mainly because I no longer have any chance of becoming the next Mrs. Redford. (Sorry hubby.) But did I shed a tear? Heavens no, though you’ll need a court order to check my streaming services to see whether I snuck in an emergency re-watch of Three Days of the Condor.

So imagine my astonishment when I learned about the pressure campaign to end Ms. Spears’s conservatorship, complete with two widely-distributed documentaries. Irate fans took to the streets, framing her conservatorship as a human rights issue, and by the end of 2021, Mr. Spears had been removed by the court from his role managing his daughter’s affairs.

Around the same time, during the waning days of the first Trump administration, then-Treasury Security Steven Mnuchin and FHFA Director Mark Calabria unsuccessfully attempted to end the GSEs’ conservatorship. And just as soon as he could, President Biden replaced Mr. Calabria with Sandra Thompson as director of FHFA, who had pretty much zero enthusiasm for ending the conservatorships of the two entities that collectively control more than $6.6 trillion in housing-backed securities – about half of all outstanding U.S. mortgage debt.

The Way They Were – The GSEs’ Long Road Under Federal Control

If there is a fanbase seeking to end the GSEs’ conservatorships, it resides among the GSEs’ shareholders. When conservatorship was established in September of 2008, the common shares, already sliding, plummeted. By its very nature, the Treasury’s Senior Preferred Stock Purchase Agreement blew the regular preferred and common shares into oblivion. Common shares for both GSEs had traded as high as the mid $60s per share in the twelve months prior to conservatorship, but following the weekend takeover of the GSEs, Fannie’s common share price dropped from $7.04 to $0.73, and Freddie’s dropped from $5.10 to $0.88.

After averaging around $1 per share for the next 21 months, the GSEs were delisted from the New York Stock Exchange in June of 2010 and have traded ever since on the OTC Bulletin Board market.

The Sting

When the Senior Preferred Stock Purchase Agreements were amended in 2012, a group of shareholders launched a series of lawsuits against Treasury and FHFA, challenging the government’s right to, well, do what it did. Most of these lawsuits have not been successful, but a handful of victories in the lower courts at various points in time caused occasional spikes in the trading prices. Still, both GSEs’ common shares have averaged less than $2 per share since conservatorship, while averaging less than $1 per share during the Biden administration.

All the President’s Men – Investor Optimism, Speculation, and Return

All that changed with the last presidential election.

The perception that President Trump would revive his attempt to free the GSEs from conservatorship was bolstered by Bill Ackman’s very public support of his presidential campaign. Not lost on investors was the fact that Mr. Ackman’s hedge fund, Pershing Square Capital Management (PSCM), is heavily invested in the GSEs. Bill Pulte, President Trump’s choice to lead FHFA, is an avowed enthusiast for ending conservatorship, and the stars seem to have aligned, with GSE shares now trading above $10 per share.

Oops! I Did it Again

Still, no one has really come up with a credible plan to end the GSEs’ conservatorships, and increase home ownership, especially among underserved communities, while helping Americans build wealth through home ownership, but keeping financial markets stable and liquid, while keeping mortgages affordable and supporting home price growth, and contributing to geographic and social mobility, but keeping 30-year-fixed rate mortgages available as the predominant mortgage choice for homeowners, and promoting competition in the market for home mortgages, while protecting homeowners from predatory lenders in the home mortgage market. All while providing the shareholders a return on their investment.

If I were a more reckless person, I might suspect these large investors such as PSCM had engaged in a highly sophisticated pump and dump scheme. But everyone here knows that I’m not the reckless type, hence my preference for Robert Redford over, say, Robert Downey, Jr.

Hit Me Baby One More Time — The Political Wild Card Ahead

So where does that leave us? And more importantly, how’s Britney doing?

As for Britney, I understand her fans are VERY CONCERNED. It seems that the reckless (and very public) activity has continued despite her freedom from the clutches of conservatorship.

As for the GSEs, Senators Elizabeth Warren, Chuck Schumer, and Cory Booker are very publicly insisting that the Trump administration pause its plans to liberate the GSEs from conservatorship, contending that the move could drive up housing costs. And as is well understood, whenever these three senators speak, President Trump listens to their wise counsel. So stay tuned! As a well-known wealthy (and erstwhile) Trump supporter often asks, are you not entertained?

At Gavin/Solmonese, we help clients navigate complex financial structures during times of crisis and uncertainty. Because whether you’re Britney, Fannie, or Freddie, freedom is never as simple as it sounds.