GSE debt not sovereign - US Treasury Secy Geithner
WASHINGTON, April 6 |
WASHINGTON, April 6 (Reuters) - The corporate debt of mortgage finance giants Fannie Mae and Freddie Mac should not be considered "sovereign," though the U.S. Treasury is fully committed to backing their debt while they are under government control, U.S. Treasury Timothy Geithner told a key lawmaker.
"The corporate debt of the GSEs is not the same as U.S. Treasuries, nor should it be considered sovereign debt," Geithner said in a letter to Republican Representative Scott Garrett of New Jersey dated March 31. Reuters obtained a copy on Tuesday.
Garrett and Geithner had a lengthy exchange on the issue at a March 23 hearing of the U.S. House Financial Services Committee after panel chair Barney Frank caused a stir in mortgage markets by suggesting that Fannie Mae FNM.N and Freddie Mac FRE.N bondholders do not have the same guarantees as Treasury bondholders.
Frank later backed off those comments after the Treasury Department issued a statement affirming the government's commitment to backing the institutions, which own or guarantee more than half of all U.S. residential mortgages.
At the hearing, Geithner told Garrett the two companies' debt is not sovereign, though "we are going to make sure that these institutions have the resources they need to meet their commitments past and future."
Geithner reiterated that position in his letter, referring to Fannie Mae and Freddie Mac as GSEs, Washington-speak for the two government-sponsored enterprises.
"Treasury is committed to supporting the GSEs while in conservatorship and to ensuring that the GSEs have sufficient capital to meet their debt obligations and honor their guarantees," the Treasury chief wrote.
Government-issued debt is referred to as sovereign debt.
Garrett, the top Republican on the House Financial Services Subcommittee on Capital Markets, wants the White House to end the long-standing practice of excluding the two entities from the federal budget.
But Geithner said their legal status has not changed since the government put them into "conservatorship" in 2008 as mortgage losses mounted, and "as such, they are not subject to nor part of the calculation of the statutory debt ceiling."
This year, Democratic lawmakers on Capitol voted to increase the government's borrowing authority by $1.9 trillion to $14.3 trillion. No Republicans voted for the measure in either the Senate or the House of Representatives.
Fannie Mae and Freddie Mac, which were chartered by Congress to promote homeownership but operated as private, shareholder companies, have been central to the Obama administration's efforts to revive the battered housing market. (Editing by James Dalgleish)
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