WASHINGTON, DC-Barely a week ago Fairholme Capital Management LLCA proposed acquiring Fannie Mae and Freddie Mac's operations. In short order, it was effectively dismissed by the Obama Administration as not viable because it wouldn't address their central role in mortgage finance.

Whether or not Fairholme makes another run at the GSEs, or opts to follow Pershing Square's lead of acquiring a share in the companies remains to be seen.

Over at Federal Housing Finance Agency, though, it is business as usual--cut, snip and hack.

Right now the regulator evaluating by how much it will scale back financing of apartment-building loans in 2014, according to a Bloomberg report. These reductions will add to the 10% haircut the FHFA announced multifamily lending would take in 2013 at the beginning of the year in its Conservator's Scorecard.

The agency reached out to borrowers about how further cuts should be applied next year, and according to Bloomberg almost uniformly received the same answer: as little as possible to none at all.

If they held out hope that maybe the FHFA might heed their pleas it was understandable. Earlier this fall rumors were circulating that with the GSEs' return to profitability, Fannie Mae and Freddie Mac might survive their conservatorship unscathed.

That is not going to happen, Edward J. DeMarco, acting director of the agency, has made clear on numerous occasions, most recently in a speech last month.

"In this next phase of conservatorship, we intend to build upon the accomplishments of the past two years while accelerating progress towards achieving each strategic goal," he said.

According to DeMarco, FHFA will soon establish multi-year targets for Fannie Mae and Freddie Mac's multifamily operations to further achieve the three strategic goals of building for the future, contracting the footprint, and maintaining market liquidity and borrower assistance.

"Without a clear legislative path forward on what FHFA is repositioning to, we will continue to take gradual steps to reduce the Enterprises' exposure in this market, while maintaining a market presence."

Oh, and that return to profitability? Much of it has been related to one-time adjustments, such as the reversal of the valuation allowance against the deferred tax asset, or releases of loan loss reserves related to improved housing market conditions, DeMarco noted—not to mention the GSEs' continued access to capital markets at close to Treasury rates, and their ability to operate without any capital.

"As Fannie Mae and Freddie Mac have begun to report positive net income there may be a growing perception that the problems that led to conservatorship have been fixed," DeMarco said. "That is not the case."

It is also business as usual in another corner of Washington. Around the same time the Fairholme proposal was hitting the airwaves, Fannie Mae priced its tenth Multifamily DUS REMIC in 2013 totaling $1.28 billion.

It was a routine transaction save for the announcement that Fannie Mae DUS REMICs would be eligible for inclusion in Barclays' U.S. Aggregate and Global Aggregate indices. That put the agency CMBS sector in the spotlight that week, according to Josh Seiff, Fannie Mae Director of Multifamily Capital Markets. "That buzz helped drive strong demand for our most recent deal, which had something for everyone - short bonds, a floater/inverse IO and solid 10-year cashflows," he says in a prepared statement.

Instant Insights /

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