UPDATE: Industry Groups Weigh In On Fannie, Freddie Future Role
03 Juni 2009 - 7:11PM
Dow Jones News
The National Association of Home Builders believes Fannie Mae
(FNM) and Freddie Mac (FRE) should not be revived as private
shareholder-owned companies with a public mission.
However, the mortgage finance companies also shouldn't be recast
as fully private companies "because such companies could not be
counted on to provide liquidity in times of crisis or to
consistently address affordable housing needs," NAHB Chairman Joe
Robson will tell the Capital Markets subcommittee of the U.S. House
of Representatives Financial Services Committee when it meets
Wednesday afternoon.
The mortgage finance giants were thrown into the conservatorship
of their regulator last fall after their mounting losses raised
concerns they would collapse, sending financial shock waves around
the globe. The U.S. government has agreed to pump $200 billion into
each firm to keep them solvent. So far, it has provided, or
committed to provide, $87 billion combined to the firms.
Policy makers are beginning to mull the future role for the
firms once they emerge from conservatorship, which could take
years. Critics blame the companies' hybrid private-public structure
for their downfall, saying it encouraged them to take excessive
risks because investors believed the government would bail them
out.
New York University Stern School of Business Professor Lawrence
J. White says in his prepared testimony that Fannie and Freddie
should be spun off as purely private companies and the government
should ramp up its assistance to low- and moderate-income borrowers
who want to buy homes.
Citing the conclusions of an NAHB task force, Robson says in his
prepared testimony that Fannie and Freddie shouldn't be converted
into purely government entities. Rather, they should retain federal
backing for providing guarantees of mortgage-backed securities.
Robson seemed to envision a cooperative-like structure, in which
mortgage and real-estate sector companies own shares in Fannie and
Freddie.
"The task force concluded that a significant portion of the
credit risk and interest risk should be shared by the private
sector institutions that benefit from the government's secondary
market support," Robson says.
The Mortgage Bankers Association also believes the mortgage
market requires government support, according to the written
testimony of the group's vice chairman, Michael C. Berman. However,
the group argues such support should be limited in scope and made
transparent to investors.
"MBA recommends channeling this support through an explicit
government guarantee against credit risks associated with certain
mortgage investments," Berman says. "The cost to the government for
providing this credit guarantee could be offset by risk-based
premiums paid by investors."
On behalf of the National Association of Realtors, Frances
Martinez Myers argues in its testimony against privatizing Fannie
and Freddie, saying "it would incent them to act as current private
investors and flee the market during an economic downturn."
Martinez also says that removing the government's support of the
mortgage market will take away lenders' incentives to serve
lower-income borrowers.
-By Jessica Holzer, Dow Jones Newswires; 202-862-9228;
jessica.holzer@dowjones.com