Henry Paulson, Secretary of the United States Treasury under the administration of former President George W. Bush, recently shared his thoughts to the press with regard to Fannie Mae and Freddie Mac’s return to profitability. Appearing in an interview with Bloomberg TV, Paulson remarked that he could not believe the good news; he also mentioned that he believes the two mortgage investment giants should still undergo comprehensive reform.
Prior to his post as Treasury Secretary, Paulson was Chief Executive Officer of investment banking firm Goldman Sachs. As Treasury Secretary, he was instrumental in bailing out Fannie Mae and Freddie Mac with an unprecedented $187.5 billion from American taxpayers in 2008. Under his watch, major banks and his old employer were also bailed out.
Dismantlement Should Remain an Option
Paulson believes that the status quo of making Fannie and Freddie the overwhelming guarantors of more than three quarters of all mortgages originated in the United States is unsustainable. Since the two government-sponsored entities (GSEs) are currently under federal conservatorship, their profits are going back to the government as dividends. During his Bloomberg interview, Paulson explained that should Fannie and Freddie continue to play their present roles, the housing market could regain bubble status.
Among some of the proposals that have been presented with regard to the overhaul of the two GSEs, a complete unwinding of their operations and allowing private capital to guarantee mortgage has been considered. Paulson seems to support such dismantlement, although he acknowledged that Fannie and Freddie profits will help to alleviate the government alleviate the pesky issue of the U.S. budget deficit.
Paulson also offered his opinion on an ongoing effort by the White House to find a way to relax the strict mortgage lending requirements and guidelines in place today. This is a measure that President Obama’s economic advisors are prepared to present to the nation’s largest mortgage lenders. Paulson does not think this is a good idea; he mentioned hearing about such measures back in 2005 and 2006, although he did not say whether he spoke against subprime lending back then.