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Washington D.C. Wants to Say Goodbye to Fannie Mae and Freddie Mac

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On Wednesday November 19th, 2014, a Senate Banking Committee hearing was held with the Federal Housing finance Agency Director Mel Watt.  The discussion consisted of updated lending standards, the topic of possible reducing the principal for troubled homeowners, and the future of GSEs Fannie Mae and Freddie Mac.  Senator Tim Johnson in the hearing stated, “Everyone agrees that conservatorship cannot continue forever, so I hope my colleagues will keep working towards a more certain future for the housing market…If Congress cannot agree on a smooth, more certain path forward, I urge you, Director Watt, to engage the Treasury Department in talks to end the conservatorship” (Bloomberg, 2014).  The statement was more of a demand than anything else, and highlights just how badly the want for the conservatorship to come to an end is.

Watt seems to want to wait until Congress (hopefully) pans the issue out.  Bloomberg quotes Watt stating, “Talks on ending the conservatorship could be a possibility if Congressional efforts fail, though Treasury would have to begin the discussions…It wouldn’t be initiated by me.  I’m involved in the things that we’re involved in now, operating these enterprises.  We’ve got to see what the dynamic of future reform is in the committee.  Short-term, I would rule it out.  Long-term, I might not rule it out…Conservatorship should not be a permanent state, and it is the role of Congress to define what the future of the state is” (2014).  It seems as though this is an issue that Watt simply does not want to get involved in if he doesn’t have to, as he is torn as to what he would do in the situation.

Fannie Mae and Freddie Mac received a taxpayer bailout totaling $187.5 billion during the financial crisis.  As a result of the bailout all of their profits are required to be paid back to the United States Treasury.  To date the two companies have paid back $225.5 billion, however, Bloomberg reports that the amount “is counted as a return on the U.S. investment and not as repayment, leaving the government-sponsored enterprises without a legal avenue to exit conservatorship on their own” (2014).  Senator Johnson’s response to this is, “The Enterprises remain trapped in conservatorship.  FHFA continues to perform the dual role of both regulating and running the business of the largest entities in the mortgage market.  This is not sustainable, and there is no consensus in Congress regarding how to move forward.”  It appears that Congress is not putting their action on this matter at the top of their list of priorities as the pressure builds on Mel Watt to come to a final decision on this.

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