A bipartisan group of senators warned the government caretaker of Fannie Mae and Freddie Mac Thursday not to allow the two bailed-out mortgage giants to move any closer to rejoining the private market, saying that allowing the companies to operate the way they did before the financial crisis would be “counterproductive.”
Six senators, including Bob Corker, R-Tenn., and Mark Warner, D-Va., wrote to Federal Housing Finance Agency Director Mel Watt to warn him against re-privatizing the two companies, as that would “perpetuate the pre-crisis practice of socializing losses and privatizing gains.”
Fannie and Freddie ran up massive losses during the 2008 subprime crisis and were taken into government custody, under a legal arrangement known as a conservatorship.
They have remained in that status since, after requiring $187 billion in funds from the Treasury. In recent years, however, they have returned to positive cash flow and returned $247 billion to the Treasury. Some of their private shareholders and some housing groups have sought to gain their release from the government.
In that time, Congress has failed to reform the housing finance system. Corker and Warner were the two co-sponsors of one of the efforts that failed to gain traction, passing the Senate Banking Committee in 2014 but failing to get a vote in the broader chamber.
“Housing finance reform remains the last major piece of unfinished business of the financial crisis, and recapping and releasing Fannie and Freddie without reform would keep taxpayers on the hook for future bailouts,” Corker said in a statement provided by his office.
The senators expressed hope for passage of housing finance reform in 2017. In the meantime, they want the agency to increase the risk-sharing deals for Fannie- and Freddie-guaranteed mortgage-backed securities, in which the government-sponsored enterprises contract with private-sector companies to offload the risk that the mortgages fail.
In December, Corker and Warner, with other senators, succeeded in passing legislation preventing the Treasury from selling its stake in Fannie and Freddie until after the current Congress, a measure that ensures that they will not be fully reprivatized.
