White House: No GSE Recap and Release
SAN DIEGO–The American people deserve a better, more responsive mortgage finance system, said White House Senior Policy Advisor Michael Stegman. But, he added, that will not come from recapitalizing and releasing Fannie Mae and Freddie Mac from conservatorship.
“This administration does not support recapitalizing the GSEs with taxpayer funds and releasing them from conservatorship,” Stegman said here at the Mortgage Bankers Association’s 102nd Annual Convention and Expo. “Turning back the clock would be an exercise of bad policy judgement and not in the taxpayers’ interest. None of us should be misled by an increasingly noisy chorus of advocates of recapitalize and release.”
Stegman said the premise that recapitalizing the government-sponsored enterprises and releasing them from conservatorship would generate “a pot of money” for affordable housing should not be taken seriously. “Recapitalizing the GSEs would not in itself generate funds for affordable housing,” he said. “Rather than freely recapitalize the GSEs from conservatorship with their flawed charters intact, we should pursue more comprehensive measures to reform.”
Fannie Mae and Freddie Mac entered conservancy in 2008. “We can’t forget the actions taken early in the financial crisis to stabilize the capital market supported the broader economy, but as I’ve said many times, the status quo is unsustainable,” Stegman said. “The administration is not alone in having concerns about returning to a flawed model. It is considering more responsible alternatives.”
One change since the financial crisis is the source of the GSE’s revenue, said Fannie Mae President and CEO Timothy Mayopoulos. “Ten years ago, Fannie Mae’s primary revenue driver was its portfolio of mortgage holdings,” he said. “Today, the main driver is guaranty fees, which is a more reliable, predictable and stable source of revenue.”
Mayopoulos said this means less risk for taxpayers. “We have reduced the size of the retained portfolio. If you remove the loans we bought out of trust the investment portfolio is down from about $900 billion at its peak to less than $200 billion today.”
In addition, in the past Fannie Mae acquired credit risk and held it through the life of the asset, Mayopoulos said. “Today, we are not only holding credit risk, but also moving some of that risk away from taxpayers to private capital.” He said Fannie Mae developed a “substantial” new market to share credit risk over the last two years that reinvigorated private capital investment in mortgage credit.
“By the end of the year, we anticipate that we will have transferred a significant portion of the credit risk on more than half a trillion dollars of loans,” Mayopoulos said. “As we experiment in this space, we are committed to a level playing field for all lenders.”
