September 14, 2017

Senate Dems call for recapitalization of GSEs

Six Democratic members of the Senate Banking Committee want to allow government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac to rebuild their capital reserves, however, the senators believe the GSEs should remain in conservatorship until housing finance reforms are made.

The recommendation came in a letter sent Wednesday to Treasury Secretary Steven Mnuchin and Federal Housing Finance Agency (FHFA) Director Mel Watt. The senators argued that the GSEs are on the edge of needing another taxpayer bailout.

"As soon as there are losses at either GSE, the Treasury Department will need to step in and make up the difference," the senators wrote. "This arrangement is contrary to the government's stated policy toward other large financial institutions … we urge you to take action to protect taxpayers and prevent a draw on the Treasury."

The GSEs were placed into conservatorship following the 2008 financial crisis. As part of an agreement between the Treasury Department and the FHFA, the GSEs are required to send all of their income to the Treasury, but this obligation will leave the GSEs with no money in their reserves at the start of 2018.

At an event yesterday, Mnuchin said "we expect our dividends to be paid," which indicates the GSEs' capital sweep will continue and they will not begin rebuilding their capital buffers anytime soon.

The letter, signed by Senate Banking Ranking Member Sherrod Brown, D-Ohio, and Sens. Jack Reed, D-R.I., Bob Menendez, D-N.J., Brian Schatz, D-Hawaii, Chris Van Hollen, D-Md., and Catherine Cortez Masto, D-Nev., comes a month after the Republican National Committee announced support in an adopted resolution to recapitalize the GSEs.

NAFCU continues to advocate for housing reform that guarantees access for credit unions to the secondary mortgage market, and fair prices based on loan quality rather than volume.