Obama officials resist call to release mortgage giants


A White House official said housing-finance reform is no longer expected in the near term as he dismissed investors’ calls for releasing Fannie Mae and Freddie Mac from government conservatorship.

Michael Stegman, a top adviser to President Barack Obama on housing matters, told a gathering of mortgage bankers on Oct. 19 that the administration is sticking with keeping the mortgage- finance giants under U.S. control. The chief executive officers of Fannie Mae and Freddie Mac also said they don’t see a path out of conservatorship any time soon.

“None of us should be misled by the increasingly noisy chorus of the advocates of recap and release, many of whom have placed big bets against reform so they can make a profit, and are doing everything they can to make sure that those bets pay off,” Stegman said at a Mortgage Bankers Association conference in San Diego. “Nor should their promise that recap and release would generate a pot of money for affordable housing be taken seriously.”

The U.S. owns almost 80 percent of Fannie Mae and Freddie Mac, and investors have been pressing the administration to unwind a 2012 decision to sweep their profits to the Treasury Department. Stegman’s speech followed a Bloomberg View column by Treasury counselor Antonio Weiss in which he said calls to recapitalize the companies and release them from government control are “misguided.”

“Recap and release could raise the cost of mortgages for Americans, and potentially expose taxpayers to another painful bailout,” Weiss wrote.

Only Path

Stegman said Congress-led housing-finance reform is the only path forward to releasing Fannie Mae and Freddie Mac from the conservatorship overseen by the Federal Housing Finance Agency. Fannie Mae CEO Timothy Mayopoulos also called for legislative action.

“The clear direction we have at Fannie under the direction of FHFA is we don’t wait for the big-bank legislative solution but actually try to move forward on things we think are of interest and concern to policy makers,” Mayopoulos said in an interview on Oct. 19. “That includes making sure that lenders can actually originate with certainty and meet the needs of the marketplace and transfer credit risk away from the taxpayer.”

Sens. Bob Corker, a Tennessee Republican, and Mark Warner, a Virginia Democrat, previously tried to pass housing legislation that would’ve replaced the finance companies with a government re-insurer. Their effort was stalled in 2014 after not receiving a full Senate vote. The Obama administration has since given up on any broad housing legislation.

“I talk to a lot of professional observers of Congress, and they say it is highly likely that it will be quite a few years before we get to anything like a big-bank comprehensive reform,” Freddie Mac CEO Donald Layton said in an interview Monday.

The statements by Weiss and Stegman indicate the administration is trying to counter months of investor speculation that Obama would try to cut government ties with Fannie Mae and Freddie Mac before he leaves office in 2017.

Ending Conservatorship

On Oct. 6, a Washington political-intelligence firm published a report that said the White House was in the “very early stages” of weighing its options to end the conservatorship. Hedge-fund manager Bill Ackman is among those who’ve mentioned the report, saying at a Bloomberg Markets conference that the government needs a plan to deal with Fannie Mae and Freddie Mac.

The companies are pivotal to the housing market because they buy about half of new mortgages and package the loans into bonds on which they guarantee payments of principal and interest. Hedge funds that own their stock have sued the government over the decision to sweep all profits rather than allowing the companies to build capital reserves or pay dividends to outside shareholders.

Under a 2012 decision, the companies must turn over their profits to the U.S. Treasury. While Freddie Mac and Fannie Mae were rescued with a $187.5 billion bailout at the height of the financial crisis, they’ve since sent almost $240 billion to the government.

“For all intents and purposes” the companies are ”operating with virtually no capital today,” Mayopoulos said on Monday.

“There is a risk that one or both enterprises might have to take a draw for reasons that are beyond our control,” he said. “We’re working hard to try to mitigate that possibility precisely because we are operating with no capital today.”•

Please enable JavaScript to view this content.

Story Continues Below

Editor's note: You can comment on IBJ stories by signing in to your IBJ account. If you have not registered, please sign up for a free account now. Please note our updated comment policy that will govern how comments are moderated.