So much for Congress and the Administration saying that they want to return mortgage giants Fannie Mae and Freddie Mac to the private sector or shut then down. Now Treasury’s Michael Stegman is proclaiming that unlike banks, Fannie and Freddie don’t need to retain capital since US taxpayers are backing them. In other words, there are different rules for the government than there are for the private sector.
(Bloomberg) -by Clea Benson- Fannie Mae and Freddie Mac don’t need to retain capital because they have U.S. taxpayers backstopping them, the Treasury Department’s senior adviser on housing policy says in New York speech.
Agreements in which U.S. takes all of companies’ profits also “protect the solvency” of GSEs, Michael Stegman says Thursday at Goldman Sachs housing finance conference.
Sales of illiquid assets on GSE balance sheets, especially nonperforming loans, should be accelerated: Stegman
Fannie, Freddie also should increase credit-risk transfers to private-sector on new loan originations and open the common securitization platform to private-label securitizers, he says.
Congress needs to pass a law creating a new housing-finance system, Stegman says.
“Simply returning these entities to the way they were before is not practical nor is it a realistic consideration.”
I knew this was going to happen all along. Fannie Mae and Freddie Mac are too important to politicians trying to buy votes. And Fannie and Freddie are important to lenders who want to dump their 30 year mortgage originations on to the government (and taxpayers).
The United States has the heaviest concentration of long-term fixed-rate mortgages in the world. And largely because Fannie Mae and Freddie Mac will buy them.
Why doesn’t the US move to more adjustable-rate mortgages (ARMs)? Michael Lea and I discuss the merits of ARMs in this paper.
Here is Fannie Mae and Freddie Mac equity price versus Lehman Brothers, another financial entity with very little capital backing it. All three took a big plunge during 2007 and 2008. Fannie Mae and Freddie Mac were placed into conservatorship while Lehman Brothers declared bankruptcy.
Treasury’s Stegmen: “They don’t need no stinking capital.”