Investments Lending

Treasury Secretary Mnuchin: Expect GSEs to continue paying dividend

Says second half of the year will focus on GSE reform

Thursday, U.S. Department of the Treasury Secretary Steven Mnuchin addressed the Senate Committee on Banking, Housing and Urban Affairs.

During the hearing, Domestic International Policy Update, Mnuchin explained his thoughts on housing and reforming the government-sponsored enterprises. The secretary explained while GSE reform has yet to be a priority for the administration, that would change in the second half of the year.

When asked what key compromises he thought would be necessary for GSE reform, Mnuchin answered he would be open to working with the committee.

“During the second half of this year, I will focus on housing reform,” he said.

However, he avoided specifics about what the reform would look like. When asked about the necessity of a government guarantee, Mnuchin explained it is too early to make a conclusion.

Previously, Melvin Watt, Federal Housing Finance Agency director, stood before the same committee and testified that now is the time for GSE reform, insisting that tax payers would soon carry the burden of conservatorship.

During Watt’s testimony, he mentioned wanting to suspend Fannie Mae and Freddie Mac dividend policy by mutual agreement with the Treasury.

However, Mnuchin stated he does not plan on going forward with that.

“It is our expectation at Treasury that they [the GSEs] continue to pay us the dividend,” he told the committee.

This statement could have extensive implications for GSE reform, according to Jim Vogel, Interest Rate Strategies Group executive president and manager.

“It seems too early to dismiss Watt’s idea this spring, so a firm ‘no’ presents a different story,” Vogel stated in a note Tuesday. “Our conclusion would be GSE reform ideas take a back seat to garnering the political support necessary to pursue meaningful tax reform.”

Meanwhile, Watt continued to call for GSE reform Thursday in a speech at the American Mortgage Conference before the North Carolina Bankers Association in Raleigh, North Carolina.

“As I'm sure you know, FHFA's role as conservator of the Enterprises has been unprecedented in duration, now approaching nine years, and in scope and complexity, considering that the Enterprises support over $5 trillion in mortgage loans and guarantees,” Watt stated in his prepared remarks.    

Mnuchin agrees that now is the time to act on housing reform. He told the committee he is committed to finding a solution that brings proper liquidity to the housing market, provides ample credit for the middle class and ensures taxpayers are not at risk.

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