FHFA's Lockhart To Lay Out Options For Fannie, Freddie
03 Juni 2009 - 5:14PM
Dow Jones News
The regulator for Fannie Mae (FNM) and Freddie Mac (FRE) will
lay out three potential roles for the future of the mortgage
finance giants Wednesday in testimony before a House panel.
Federal Housing Finance Agency Director James B. Lockhart said
the government-controlled companies could be reconstituted as
liquidity providers of last resort for the secondary market for
mortgage-backed securities, or MBS. They could be cast as guarantor
or catastrophic risk insurer of MBS. Or they could direct subsidies
to decrease the cost of mortgage credit for certain borrowers.
"It can be argued that three specific roles remain for the
government or a special government-linked entity," Lockhart will
say, according to prepared testimony he will give before the House
Financial Services Subcommittee on Capital Markets. "Ultimately,
the roles chosen for any government-linked entities going forward
will have implications for their range of activities and
institutional structure."
Lockhart doesn't favor any particular model or structure for the
companies, but does advocate that policy makers adhere to certain
principles. For example, he argues there should be a clear
delineation between the federal and private sector roles in the
secondary mortgage market. Any federal risk should be explicitly
stated and quantified actuarially.
"The old hybrid model of private, for-profit ownership
underwritten by an implicit government guarantee allowed the
enterprises to become so leveraged that they posed a large systemic
risk to the U.S. economy," Lockhart says, according to his prepared
testimony.
Lockhart said he was opposed to nationalizing the firms "because
government insurance programs are particularly high-risk and rife
with moral hazard."
-Jessica Holzer, Dow Jones Newswires; 202-862-9228;
jessica.holzer@dowjones.com