As the Fed approaches the end of its purchases of mortgage backed securities, Fannie and Freddie, the mortgage giants now under government conservatorship, are again raising the eyebrows of some within the Fed and congress.
The latest comments, fast on the heels of those of Ben Bernanke last week, come from Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, and Republican representatives Darrell Issa and Jim Jordan.
From Mr Lacker:
I have said elsewhere that it would be a mistake to try to build this expansion on another housing boom and that over time we should wean our economy off dependence on housing subsidies. Too many houses were built over the last decade, and what we’ve been through the last three years should teach us that subsidising housing mortgage debt was a dangerous policy that was carried too far. But whatever society decides about the bias toward housing, real regulatory reform would be incomplete without addressing the fate of the government-sponsored housing finance enterprises.
Separately today, responding to Tim Geithner’s testimony before the House Budget Committee that the post-conservatorship plan for the troubled mortgage giants wouldn’t be released until next year, Mr Issa and Mr Jordan called for a hearing into the administration’s treatment of the GSEs. Read more
It’s been a bad day for Fannie Mae and Freddie Mac. First, Hank Paulson, former Treasury secretary, says that Russia tried to spur China to sell the GSE’s securities to spark a crisis.
Then, Donald Kohn, Vice Chairman of the Federal Reserve, warns that community banks are particularly vulnerable to interest rate risk because of their holdings of Fannie Mae, Freddie Mac and Ginnie Mae mortgage securitites. Read more
Harry Reid, US Senate majority leader, met with Ben Bernanke today to urge him to do more to fight the housing crisis in Nevada, one of the states which saw the greatest run-up in housing prices, and has since seen one of the biggest collapses. The Nevada Senator’s petition to Mr Bernanke comes at a time the Fed chair has it in his interest to listen: it’s still unclear if the Senate will call a vote on the re-confirmation of the “very good firefighter” (Mr Reid’s term).
Meantime, Republicans are looking to spread Main Street’s pain to Wisconsin Ave and Jones Branch Drive. (Alright, so addresses aren’t a metonymy that likely to catch on for GSEs). Spencer Bachus, ranking member of the House financial services committee, and the committee’s Republican leadership have introduced a bill that would slash the $6m in compensation allotted late last year for Fannie and Freddie chief executives to a federal employees. (It would also cut compensation of other executives to similar levels). It’s worth noting that neither of the CEOs were leading the groups during the government takeovers, though Michael J. Williams, Fannie’s chief, had worked at the GSE since 1991.
The Republicans statement is a fun populist read, so here it is. Enjoy. Read more