(Bloomberg News) - Fannie Mae (FNMA) and Freddie Mac, the two government-seized mortgage financiers, appear increasingly likely to pay billions of dollars to the U.S. Treasury, focusing attention in Washington on what should replace them.
Edward J. DeMarco, the acting regulator of the two companies, appeared before the House Financial Services Committee today and urged lawmakers to reduce or eliminate the mortgage market’s reliance on taxpayers. At the same time, a Senate panel heard testimony from the authors of an alternate plan for housing-finance reform issued in February by an independent commission.
“I have been observing a developing ‘consensus’ among private-market participants that the conforming conventional mortgage market cannot operate without the American taxpayer providing the ultimate credit guarantee for most of the market,” DeMarco said in testimony at the House hearing. “That clearly is one outcome, but I do not believe it is the only outcome that can give our country a strong housing finance system. I believe that our country, and its financial system, are stronger than that.”
Washington-based Fannie Mae and McLean, Virginia-based Freddie Mac have been under U.S. conservatorship since 2008 and have drawn nearly $190 billion in taxpayer aid to stay afloat during that time. Lawmakers who don’t want the companies to return to their previous status as government-sponsored enterprises, or GSEs, are becoming concerned that political momentum for winding down and replacing them could erode as the housing market rebounds and profits soar.
“I am determined that this hearing will be the last time that Director DeMarco -- or if you believe press reports, his successor -- will testify before this committee before we finally and belatedly markup a true GSE reform legislation,” House Financial Services Committee Chairman Jeb Hensarling, a Republican from Texas, said at the hearing.
One of the potential replacements for DeMarco is North Carolina Congressman Mel Watt, a Democrat, who sits on the Financial Services Committee and said he intended “to listen, not to engage” in today’s hearing.
Fannie Mae, in a regulatory filing on March 14, raised the possibility that it could soon be required to send as much as $62 billion to the U.S. Treasury because, once it is profitable, it may have to start counting potential tax credits as part of its net worth. The company said it would delay filing its earnings report for the quarter ending Dec. 31, 2012 while it studies the accounting issue.