During a hearing today to receive the Financial Stability Oversight Council’s annual report from U.S. Treasury Secretary Steve Mnuchin, U.S. Senator Bob Corker (R-Tenn.), a member of the Senate Banking Committee, questioned the sustainability of government-sponsored enterprises Fannie Mae and Freddie Mac and emphasized the opportunity for congressional action on housing finance reform. Excerpts follow.
“The conservatorship that we now have is unsustainable, is that correct?” asked Corker.
“Yes, I believe so,” replied Mnuchin.
“I assume that if we were able to pass something here that you would want significant private capital in advance of an explicit guarantee,” asked Corker.
“That’s correct,” answered Mnuchin. “So taxpayers would be compensated for any unlikely risk.”
“And I assume if we were to put in place a new [housing finance]regime, we would want to do what we could to end the too-big-to-fail situation that we have today, is that correct?” asked Corker.
“I believe so,” replied Mnuchin.
“As you know, we passed something in years past called ‘Jumpstart’, which said that we could only revise these entities through a process of [Congress] acting. That ended December 31st at midnight. So now, the administration if they so chose – and I think you’ve committed to the fact that you’re not going to leave things as they are – what would be your options if we don’t act? And I hope that we will. What would be your options with these entities?” asked Corker.
“There are certain administrative options that we have,” answered Mnuchin. “These entities are very complicated, and I would just say my strong preference would be to work with Congress on a bipartisan basis to reach a long-term solution.”
“I actually believe that we’ve got an opportunity to do something that’s on this very complex topic that matters,” concluded Corker. “We have an administration that’s willing to work with us, and I think for the first time we have an opportunity because of just all the things that have occurred. We have a lot of interest out there. Let’s face it. We have shareholders in these entities today, and I understand some of the rubs that have existed there. I think we’ve got an opportunity though to really deal with all of the interests in a manner that is fair but also move our nation ahead in a manner that we don’t have these two behemoths that basically are 100 percent, right now, backed by the federal government. And I hope we’ll get there.”