Asked whether freeing the GSEs from conservatorship might enrich hedge funds, FHFA Director Mark Calabria said he would be willing to zero out their interests.

Fannie and Freddie once again posted strong earnings but the results would have been even better if not for large hedging charges. (Includes data chart.)

The case hinges on whether the single-director structure of FHFA is unconstitutional.

Based on current earnings, it will take until 4Q20 or 1Q21 for Fannie to accumulate its statutory minimum capital requirement. For Freddie, the wait will be a little longer — until the 2Q21.

Even though the two companies have paid Treasury about $250 billion over seven years, most of that was interest. They may still owe nearly $118 billion in principal.

A lawsuit claimed Fannie is “governmental body” because it was created by Congress and is currently under conservatorship.

FHFA Director Mark Calabria hopes to hire an advisor by next month. He said Fannie and Freddie will need to hire advisors too to help through the recap-and-release process or any possible public offering.

The auction includes six pools, ranging in size from $394.5 million to $665.2 million. The loans are serviced by Wells Fargo.

Fannie and Freddie will be able to retain all their second-quarter profits, rather than forward them to Treasury. Combined, the GSEs will add $5.2 billion to their net worth this month.

SOFR-linked debt is vulnerable to much higher rate volatility than those referencing LIBOR. This risk was highlighted last month when surging repo rates sent SOFR briefly to a record 5.25%.