WASHINGTON (Reuters) - A senior U.S. Treasury official on Friday rejected calls to recapitalize Fannie Mae and Freddie Mac, saying it would take at least 20 years to make sure they were adequately funded and that in the meantime taxpayers would be on the hook.
In remarks to a housing conference, Treasury Undersecretary Mary Miller repeated the Obama administration’s call that the two so-called government-sponsored enterprises be wound down.
“Critics of reform would suggest that we can simply recapitalize the GSEs and avoid difficult decisions around creating a new system,” she said. “Even if truly rehabilitating the GSEs were possible, recapitalizing them adequately would take at least 20 years.”
“During these 20 years, the taxpayer would remain at risk of having to bail out the GSEs during another downturn,” Miller added
Fannie Mae and Freddie Mac, which buy mortgages from lenders and repackage them into securities they sell to investors with a guarantee, were seized by the government in 2008 as loan losses threatened their solvency.
They were propped up with $187.5 billion in taxpayer aid, but they have since returned to profitability and have paid more in dividends to the government than they received in support.
Efforts to wind down the two entities, the largest sources of mortgage finance, have foundered on Capitol Hill, spurring the hopes of investors who would like to see them reprivatized.
Miller noted that their recent profits have been driven largely by one-time, tax-related adjustments and legal settlements. She also noted they are required to shrink their loan portfolios, which are also helping drive income, by 15 percent a year.
“The GSEs will not be able to replicate the levels of revenue they achieved over the past two years,” she said.
In her remarks, Miller also called for a greater effort to ensure financing was available for affordable rental housing, noting that the financial crisis and recession had led many Americans to choose renting over buying.
She repeated the administration’s call on Congress to allow Ginnie Mae, another GSE, to securitize loans made under a program in which the Federal Housing Administration, a government mortgage insurer, shares risks with state and local housing finance agencies or other qualified lenders.
But Miller said the administration was not waiting for congressional action. Instead, it was exploring whether funding might be available from other governmental sources for loans already guaranteed through FHA’s risk-sharing program, she said.
“This could present a viable interim solution and we hope to say more in the near future,” Miller said.
Reporting by Timothy Ahmann; Editing by Chizu Nomiyama, Steve Orlofsky and Jonathan Oatis