Watt: Private sector unready to replace Fannie and Freddie

by Ryan Smith19 May 2014
The head of the Federal Housing Finance Agency said Sunday that private lenders aren’t ready to replace Fannie Mae and Freddie Mac.

FHFA Director Mel Watt told C-SPAN’s “Newsmakers” program that Fannie and Freddie, which own or guarantee about 60% of all US mortgages, needed to stay in the market to ensure its liquidity. That comes after a speech last week in which Watt said that while he didn’t want to shrink the mortgage giants’ footprint, he wouldn’t inject himself into the current congressional debate on their overhaul.

“It’s not that I’m opposed to it and we will certainly allow it to happen,” he said. “But if the private sector is not ready to step into the space and you shrink what Fannie and Freddie are doing, you do damage to housing finance in this country. And that does damage to the economy, and that does damage to the possibility of affordable housing and home ownership.”

Congress is currently attempting to pass legislation that would dismantle Fannie and Freddie. A Senate bill that would wind the companies down over five years and replace them with a new federal mortgage insurer suffered a blow last week when several key Democrats withdrew their support. Meanwhile, a House bill lacks any Democratic support at all, and both plans have drawn fire from industry groups and housing advocates, who worry that either one will drive up costs for homeowners.

Fannie and Freddie, meanwhile, continue to rake in record profits – all of which, under their conservatorship agreement with the government, are paid over to the Treasury. Watt, however, warned that the money train wouldn’t last forever.

“The record level of profits that Fannie and Freddie have had over the last couple of years certainly are not sustainable, because they result in large part from large settlements of litigation,” he said


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