February 7, 2011 / 8:48 PM / 8 years ago

Key Republican urges faster Fannie, Freddie sell-off

ORLANDO (Reuters) - An influential Republican lawmaker on Monday pressed for a faster sell-off of home loans held by mortgage finance giants Fannie Mae and Freddie Mac.

The two firms, known as government-sponsored enterprises, or GSEs, were taken over by the Bush administration in late 2008 amid mounting losses from mortgage loans gone bad.

They guarantee mortgage loans underwritten to certain standards. Some are sold to investors and some are held in the GSEs’ own portfolios.

“Through the conservatorship agreement, the portfolios are set to decrease by a small percentage each year until they reach a certain set level. I believe this could happen faster,” Representative Scott Garrett, a New Jersey Republican, said at a conference sponsored by the American Securitization Forum.

Fannie Mae holds about $789 billion in its portfolio and Freddie Mac holds about $697 billion.

Under the rules of the conservatorship, their holdings should be no larger than $729 billion each by the end of 2011. The limit would drop by 10 percent a year thereafter, reducing the support they provide to the mortgage market.

“The GSEs own different assets and there are specific markets for each of these assets. We need to more closely look at each of the portfolio components and figure out how to wind them down sooner to protect taxpayers,” Garrett said, noting that a rapid sell-off could push down their values.

“I also realize that the Treasury and the (Federal Reserve) own a number of these assets. But almost every market participant I talk to says it can happen faster and if it does, that it will reduce taxpayer risk,” Garrett said.

The debate over the future of Fannie Mae and Freddie Mac is set to take center stage. The Obama administration is expected later this week to unveil its proposals for the future of U.S. housing finance.

Treasury Secretary Timothy Geithner’s spokesman said on Friday the administration wants to move slowly to a system in which the private sector plays “the dominant role” in the U.S. mortgage market.

That would be a dramatic shift from the current system, with more than 85 percent of all new U.S. residential mortgages, including refinancings, backed by the government in some form.

Geithner has said, however, that there is a good case for some government support in times of economic distress, though he has been guarded with his vision of precisely how that would work.

The House Financial Services Committee has scheduled a series of hearings, starting on Wednesday, on what to do about Fannie and Freddie.

Garrett and other House Republicans have repeatedly stressed they want to eliminate them over time.

“Let me stress and be very clear that, going forward, I am firmly committed to a purely private U.S. mortgage market over time — free of government guarantees and subsidies,” Garrett told the conference.

Garrett also said he would like to see the government take the “painful” but “honest and transparent” step of putting Fannie Mae and Freddie Mac back on official government books, a move that would increase the already stressed budget deficit.

“Currently, the federal government explicitly stands behind all of their securities and debt issuances - let’s properly account for it,” he said.

President Lyndon Johnson took Fannie Mae off the books by privatizing it in the late 1960s amid mounting deficits during the Vietnam war. Freddie Mac was created later to compete with Fannie Mae.

Reporting by Al Yoon; Writing by Corbett B. Daly; Editing by Dan Grebler

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