Department of the Treasury Secretary Jacob Lew was questioned about the future of housing finance reform, as well as the federal government’s sweep of Fannie Mae’s and Freddie Mac’s profits into the U.S. Treasury, during a hearing held on June 18 by the House Committee on Financial Services.
Representative Michael Capuano (D-MA) made the point that Fannie Mae and Freddie Mac have paid more into the U.S. Treasury than the amount they were allocated by the federal government during the housing crisis when they were taken into conservatorship. Mr. Capuano has introduced a bill that would end the Treasury sweep and allow the GSEs to recapitalize (See Memo, 3/16).
Secretary Lew responded that Fannie and Freddie’s profits are swept into the Treasury because they are in conservatorship, and therefore have a clear government backstop that did not exist prior to the housing crisis. Consequently, if the companies fail in the future, taxpayers will be the first to take a hit. Secretary Lew added, “I think that we’ve seen over the last several years that the estimates of the potential risk of a problem (at Fannie and Freddie) is still quite large.”
Secretary Lew seemed to doubt that there would be legislative reform of the housing finance system. He said, “I'd have to say (housing finance) reform is [an] area we haven't addressed. And it would be a good thing if we would. I'm not sitting here today optimistic that that's going to happen legislatively. But it's why we engaged so much in the Senate, in the bipartisan discussion to try and work through an approach to (housing finance) reform. I think that the right thing is to do (housing finance) reform and to get onto a new restructured system. But it is not the right time to be talking about ending the conservatorship or paying dividends.”
Advocates for the National Housing Trust Fund (NHTF) and the Capital Magnet Fund (CMF) are monitoring all legislative and regulatory activities related to Fannie Mae and Freddie Mac in order to protect the current NHTF and CMF funding and to ensure that the two programs are treated favorably in any housing finance reform that advances in the 114th Congress.
The hearing webcast is at http://financialservices.house.gov/calendar/eventsingle.aspx?EventID=399221