A Treasury official said unequivocally Thursday that bailed-out mortgage buyers Fannie Mae and Freddie Mac cannot leave the government’s control without congressional action.
Michael Stegman, Treasury’s counselor to the secretary for housing finance policy, sought to address lingering questions about whether the administration could return the government-sponsored enterprises to the private sector without legislation.
“They require congressional action,” Stegman said of Fannie and Freddie at an event in Washington. “This last point cannot be overstated, so let me repeat: The only way to responsibly end the conservatorship is through legislation” reforming the overall housing finance system, he said.
Fannie and Freddie have been under government conservatorship since late 2008, when their holdings of underperforming mortgage-backed securities caused them to fail. They ultimately received nearly $200 billion in taxpayer support.
Over the past six years, the two businesses have returned to positive cash flow and have returned an even greater amount to the Treasury.
Congress has been unable to move on legislation during that time. In recent months, some private investors have suggested that the Obama administration has the authority to end the conservatorship and return Fannie and Freddie to the private sector.
Mel Watt, the regulator with oversight of the two companies, said after a hearing in November that he eventually might consider attempting to end the government’s control. “It’s something that would have to be initiated by Treasury, not by me,” he said, according to a Wall Street Journal report. “In the short term I would rule it out, in the long term, I might not rule it out,” he added.
Stegman’s comments Thursday indicate that the Obama administration will not contemplate such a move.
Nevertheless, Stegman also made it clear that the administration wants to see congressional action on the two government-sponsored enterprises, calling housing finance reform the “last piece of unfinished business of broader financial reform.”
“Until Congress passes legislation President Obama can sign into law, many mortgage credit decisions that should be made by private firms in a well-regulated, competitive marketplace will continue to be made by government agencies,” Stegman warned, according to prepared text.
Administration housing officials in recent weeks have called for renewed action on housing finance, but the way forward on legislation is not clear.
The Senate Banking Committee in May approved a bipartisan bill to wind down Fannie and Freddie and replace them with a system of private capital for mortgage-backed securities, with investors on the hook for 10 percent of losses but a government guarantee for the rest.
That bill received favorable comments from President Obama, who has otherwise mostly stayed out of the debate. Nevertheless, it lacked enough support among Senate Democrats to receive a floor vote.
Similarly, a Republican bill approved by the House Financial Services Committee in summer 2013 failed to gain traction in that chamber.
