GSEs Top Agenda For September

House Financial Services Committee Chairman Barney Frank and Capital Markets, Insurance and Government Sponsored Enterprises Subcommittee Chairman Paul E. Kanjorski have formally announced that the committee will continue its series of hearings on the future of housing finance in September. Kanjorski will conduct an oversight hearing of the GSEs, and the full committee will continue its examination of policy options for restructuring the nation's housing finance system.

In a statement, Frank portrayed passage of the Dodd-Frank Wall Street Reform Act as an initial step in efforts to protect the housing market.

‘We will continue our efforts as we move to the next phase – a complete restructuring of the tangle of housing finance tools – so that we move forward in a way that protects taxpayers, prevents economic turmoil and appropriately serves all aspects of the housing market,’ Frank said.

Kanjorski said his subcommittee will ‘examine taxpayer-protection issues in greater depth’ in September.

‘In particular, we intend to explore the Federal Housing Finance Agency's recent efforts to recoup funds from the issuers of the underwater securities purchased by Fannie Mae and Freddie Mac,’ he said. ‘We also will examine the present policies related to calculating guarantee fees, including whether these charges are appropriately priced to cover risks and provide a reasonable return. Moreover, as our housing markets begin to stabilize, we will begin to consider innovative ideas for recovering the costs resulting from the decision to place Fannie Mae and Freddie Mac into conservatorship.’

While Obama administration officials have previously stated that the administration will not look to reform the GSEs until 2011 at the earliest, it was announced this week that the U.S. Treasury Department and the Department of Housing and Urban Development will hold a conference on housing finance next month in Washington, D.C. Treasury Secretary Tim Geithner on Sunday told NBC's David Gregory that there's ‘a good case‘ for the government to act as a backstop for the housing market and added that the reformed GSEs will bear little resemblance to their current forms.

In an op-ed published Friday in The Washington Post, former Treasury Secretary Henry Paulson wrote that the best way to address the systemic risk posed by the GSEs is to eliminate their investment portfolios. He also called for policy that reduces government subsidies for homeownership.

‘I would recommend limiting the availability of the subsidy to smaller mortgages or lower-income buyers, or both,’ Paulson wrote. ‘And the price the government charges this new private-sector entity for its credit guarantee must be high enough to leave room for a robust private-sector mortgage market that serves taxpayers and homeowners equally.’

In an interview with The Wall Street Journal's Dyan Machan this week, White House economic advisory and former Federal Reserve Chairman Paul Volcker said, ‘It's clear Fannie Mae and Freddie Mac need to go.’

‘We don't need these hybrid institutions,’ Volcker said. ‘You don't know whether they should be responsible to the government or to stockholders. It's an unfortunate invention.’

SOURCES: House Financial Services Committee, Washington Post, Wall Street Journal


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