Capital buffers for GSEs are fine. But what they really need is to be set free.
WASHINGTON, DC – The U.S. Treasury Department announced Thursday it will allow Fannie Mae and Freddie Mac to each maintain a $3 billion capital buffer to protect against possible losses. The Federal Housing Finance Agency and the Treasury Department also said the government-sponsored entities (“GSEs”) likely will need additional government funds because of the upcoming drop in the corporate tax rate – a feature of the tax overhaul approved by Congress this week.
In response, John Taylor, President & CEO of the National Community Reinvestment Coalition, made the following statement:
“NCRC is pleased to see the steps taken this week by Secretary Steve Mnuchin and Director Mel Watt to allow Fannie Mae and Freddie Mac to rebuild their capital buffers. Both Fannie and Freddie have done remarkably well financially. If Treasury did not strip the enterprises of all their profits every quarter, they would not need taxpayer bailouts. It is encouraging that even Secretary Mnuchin now agrees that capital reserves at Fannie and Freddie are reasonable and prudent.
Because of the drop in the corporate tax rate, Fannie and Freddie will have to write down the value of their tax-deferred assets. Congress knew that tax reform could create losses at Fannie and Freddie and instead of fixing that problem, they irresponsibly ignored it.
NCRC’s interest here is to have a robust mortgage securitization system that insures all credit-worthy people have access to quality mortgages. The GSE affordable housing goals insure that working-class people, those families working their way up the economic ladder, have access to those mortgages.
Sen. Corker, a lame duck senator taking his cue from the shameful tax overhaul process, is having secret, back-room meetings to craft a bill that will eliminate the affordable housing goals. Under his plan, credit is sure to be less available for low- and moderate-income borrowers and communities and far more expensive. The United States is near a 50-year low in home ownership, and instead of improving access and affordability, his proposals could make it far worse.
We need to set Fannie and Freddie free, not tear them down. Modest reforms of Fannie and Freddie may be needed but a dramatic overhaul is not. Let’s make clearer their responsibilities to securitize loans for low- and moderate-income people. Then end the government conservatorship. Set them free to do what they have done well for millions of people over decades: help working-class Americans move from being renters to homeowners so they can build equity for their families and futures.
Homebuilders, realtors, mortgage lenders, the building and construction trades people, and many others will all benefit from jump-starting people’s access to homes. Our economy as a whole will benefit from Fannie and Freddie being back in the private sector.”