Dole Releases Greenspan Letter Regarding Need to Refocus Fannie Mae and Freddie Mac on Public Mission
DOLE RELEASES GREENSPAN LETTER REGARDING NEED TO REFOCUS FANNIE MAE AND FREDDIE MAC ON PUBLIC MISSION
Federal Reserve Chairman notes importance of GSE reform legislation
U.S. Senators John Sununu (R-NH), Chuck Hagel (R-NE), and Elizabeth Dole (R-NC) today released a letter from Federal Reserve System Chairman Alan Greenspan in which the Chairman expresses the need to pass legislation providing strong guidance for regulating Fannie Mae's and Freddie Mac's large investment portfolios and refocus the housing-finance government sponsored enterprises (GSEs) on their federally chartered mission.
Sununu, Hagel, and Dole, all members of the Senate Banking Committee, co-authored the Federal Housing Enterprise Regulatory Reform Act (S. 190). The legislation passed the committee on July 28, 2005 and awaits consideration by the full Senate. Sununu, Hagel, and Dole sought Greenspan's views on GSE's in a December 15th letter to the Chairman.
"Chairman Greenspan has been a consistent advocate for reform of GSE regulation, and I share his interest in seeing Fannie Mae and Freddie Mac refocused on their mission to provide access to housing-finance by maintaining liquidity in the secondary market through the securitization of home mortgages," said Sununu. "There has been no convincing evidence to suggest that Fannie and Freddie need to hold massive amounts of their own mortgage backed securities in portfolio to meet their Congressionally-chartered mission."
Sununu, who has strongly urged the Senate to take up and pass the GSE reform bill this year, continued, "The committee-passed bill will provide the appropriate level of oversight and supervision for these two financial giants. Fannie Mae and Freddie Mac are highly leveraged institutions, and the portfolio guidance included in the legislation not only guards the entire financial system against the concentrated risk at Fannie and Freddie, but also refocuses the GSEs on their housing mission."
Senator Hagel stated, "The GSEs were chartered by Congress to promote affordable housing and stability in the housing finance market, not to enrich shareholder value. The GSEs have strayed from their housing mission. Chairman Greenspan has repeatedly warned that Fannie Mae and Freddie Mac have used their quasi-government status to profit from their large portfolios of mortgage backed securities. This is a risk to the long-term stability of the housing finance market and an issue that affects all American taxpayers. I urge my colleagues in the Senate to come together and pass S. 190 this year."
Senator Dole stated, "Chairman Greenspan again hits the mark in underscoring the dangers associated with Fannie and Freddie's huge portfolios. Specific and unambiguous congressional guidance on the GSEs' portfolios is absolutely essential."
In his January 3, 2006, letter to Senators Sununu, Hagel and Dole, Greenspan stated, "...the GSEs and their government regulator need specific and unambiguous Congressional guidance about the intended purpose and functions of Fannie's and Freddie's investment portfolios The purpose of this guidance," Greenspan noted, "[is] to firmly anchor the GSEs' investment portfolios to their public purpose."
Referring to the GSEs as "an unusual government intervention", Greenspan said that Fannie's and Freddie's business of securitization of mortgages provides "substantial benefits for affordable housing through the process of using credit guarantees to turn mortgages into marketable securities that trade in public debt markets." However, the Fed Chairman also explained that the GSEs' practice of purchasing their own mortgage-backed securities "creates substantial systemic risk while yielding negligible additional benefits for homeowners, renters, or mortgage originators."
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