Senators Urge Administration to Shore Up Fannie Mae and Freddie Mac’s Capital Reserves

Some Democratic members of the Senate Banking Committee sent a letter to Treasury Secretary Steven Mnuchin and Federal Housing Finance Agency (FHFA) Director Mel Watt, urging them to address the dwindling capital reserves of mortgage giants, Fannie Mae and Freddie Mac, to prevent the government sponsored enterprises (GSEs) from requiring another draw from the federal government.

The letter, sent on September 13, states, “[W]e are concerned about the Department of Treasury and the Federal Housing Finance Agency’s requirement in the Preferred Stock Purchase Agreements (PSPAs) that the GSEs send all their income to the Treasury Department leaving two entities that back more than $5 trillion in mortgage debt with zero retained capital reserves beginning on January 1, 2018. As soon as there are losses at either GSE, the Treasury Department will need to step in and make up the difference. We are simply requesting that the GSEs be permitted to build capital. We do not believe they should be released from conservatorship absent reform.”

The national Housing Trust Fund is funded by a small annual assessment on Fannie and Freddie’s new book of business each year. The HTF’s funding could be jeopardized if and when one or both of the entities needs an additional draw from Treasury.

The Senate Banking Committee has begun to discuss principles of housing finance reform, and senators have expressed increasing interest in working on a bipartisan housing finance reform bill this year to determine the future of Fannie Mae and Freddie Mac and the broader housing finance system.

The letter requests Secretary Mnuchin and Director Watt respond by September 29 with an update on actions the administration is pursuing to prevent another Treasury draw by the GSEs.

The letter was signed by Senators Sherrod Brown (D-OH), Jack Reed (D-RI), Bob Menendez (D-NJ), Brian Schatz (D-HI), Chris Van Hollen (D-MD), and Catherine Cortez Masto (D-NV).

Read the letter at: