Lawmakers Urge GSE Recapitalization

Representative Mike Capuano (D-MA) and 31 other Democrats sent a letter to Treasury Secretary Jack Lew and Federal Housing Finance Agency (FHFA) Director Mel Watt urging them to reassess the Obama Administration’s policy that prevents the government sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, from building up their capital reserves, which are expected to run out by 2018. Specifically, the lawmakers are concerned that the GSEs lack of adequate capital buffers could put funding for the national Housing Trust Fund (HTF) and the Capital Magnet Fund (CMF) at risk.

Mr. Watt had previously stated that if Fannie Mae or Freddie Mac have to make another draw from Treasury, their obligation to fund the HTF and CMF could be suspended again.

The June 2 letter states, “[T]he investments [the GSEs] are authorized to make, most notably to the National Housing Trust Fund and Capital Magnet Fund, could be suspended under your policy that suspension occurs in the event that either GSE is forced to make a draw or it appears as though an investment would cause a draw. The GSEs are finally contributing to these important funding vehicles, including for extremely low income families, eight years after they were first authorized in the [Housing and Economic Recovery Act of 2008 (HERA)]. We sincerely hope that they will not once again be put on hold as a result of capital concerns that your agencies have the power to correct.”

The lawmakers point out that HERA requires Mr. Watt to ensure the companies are adequately capitalized, which is jeopardized by the agreement between FHFA and the Treasury Department to sweep all of the GSEs’ profits into the Treasury rather than being put towards their capital reserves.

Read the lawmakers’ letter encouraging GSE recapitalization at: