Industry Groups To Weigh In On Fannie, Freddie Future Role
03 Juni 2009 - 6:34PM
Dow Jones News
The National Association of Home Builders will advocate that
Fannie Mae (FNM) and Freddie Mac (FRE) not be revived as private
shareholder-owned companies with a public mission, in testimony
before a U.S. House panel Wednesday.
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 argues in prepared testimony before the Financial Services
Subcommittee on Capital Markets.
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 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.
Citing the conclusions of an NAHB task force, Robson says 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 in prepared remarks.
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."
-By Jessica Holzer, Dow Jones Newswires; 202-862-9228;
jessica.holzer@dowjones.com