WASHINGTON, March 19 The regulator of housing
finance giants Fannie Mae and Freddie Mac
told lawmakers they need to reduce or eliminate the government's
near total support for the mortgage market to open the door for
private capital and lay the groundwork for a healthier market.
The two companies, which help finance about two-thirds of
new U.S. home loans, have been operating under government
control since the credit crisis of 2008. They were bailed out at
a cost to taxpayers of $131 billion.
Republicans and Democrats agree Fannie Mae and Freddie Mac
should eventually be wound down but have yet to concur on what
should replace them.
"The U.S. housing finance system cannot really get going
again until we remove this cloud of uncertainty and it will take
legislation to do it," the regulator, Federal Housing Finance
Agency Acting Director Edward DeMarco, told the House of
Representatives Financial Services Committee on Tuesday.
"While FHFA is doing what it can to encourage private
capital back into the marketplace, so long as there are two
government-supported firms occupying this space, full private
sector competition will be difficult, if not impossible, to
achieve," he said.
Many Democrats believe the government needs to continue
playing some role in the mortgage market to help ensure broad
access to credit, and a number of private proposals also
envision keeping some type of federal backstop in place.
"I have been observing a developing consensus among private
market participants that the conforming conventional mortgage
market cannot operate without the American taxpayer providing
the ultimate credit guarantee for most of the market," DeMarco
"That clearly is one policy outcome, but I do not believe it
is the only outcome," he said. "I believe it is possible to
rebuild a secondary mortgage market that is deep, liquid,
competitive, and operates without an ongoing reliance on
taxpayers or, at least, a greatly reduced reliance on
Fannie Mae and Freddie Mac do not make loans, but they buy
them from lenders to foster a liquid market. They either hold
the loans in their own portfolios or repackage them as
securities for investors, which they issue with a guarantee.
READY FOR CHANGE
The regulator told the panel he is attempting to simplify
Fannie Mae and Freddie Mac's combined book of business, in which
the companies own or guarantee about $5 trillion in mortgages.
He said a gradual reduction of the government's overall
footprint in the market would be a multi-year venture.
Representative Jeb Hensarling, the panel's Republican
chairman, said the committee intends to move forward on
legislation to coax private capital back into the market and
reform the housing finance system.
"I am determined this hearing will be the last time that
Director DeMarco ... will testify before this committee before
we finally and belatedly mark-up a true GSE reform legislation,"
GSE stands for government-sponsored enterprise, a financial
services company chartered by Congress to boost the flow of
credit to targeted sectors of the economy, while reducing risk
The ranking Democrat, Representative Maxine Waters, echoed
the call for action, saying lawmakers should begin carefully
studying the many bi-partisan industry proposals on the table.
A group of senators introduced a bill last week that aims to
jump-start housing finance reform. It would prevent Congress
from raising the "guarantee fee" the two firms charge lenders
and using the funds generated to cover federal spending.
In the absence of action by Congress and the White House,
DeMarco assured the committee, he was working to shrink the
dominance of Fannie Mae and Freddie Mac while ensuring taxpayers
are repaid for keeping the firms afloat.
He said it was time to "start moving the dial away" from
almost 90 percent reliance on the government for all U.S. new
home loans, and time for taxpayers to start "seeing more of a
return on the support that has been provided."
After years of losses, both of the GSEs have returned to
profitability and are now set to return earnings to the U.S.
Treasury, which could dampen the political impetus for reform.
In a filing with the Securities and Exchange Commission last
week, Fannie Mae said it would miss its March 18 deadline for
posting quarterly results as it analyzes how to account for
certain deferred tax assets, which are unused credits and
deductions that can be used to cover future tax bills.
The filing raised the possibility the company could soon be
required to send as much as $62 billion to the U.S. Treasury if
it begins to account for the assets as part of its net worth.
In the filing, Fannie Mae said the deferred tax assets may
have a "material impact" on its 2012 financial statements and
result "in a significant dividend payment" to the Treasury.