Stegman doubles down: White House will not recapitalize Fannie, Freddie

Says ending conservatorship wouldn't help affordable housing

For the second time in less than a fortnight, a senior official from the Obama administration has said, unequivocally, that the White House will not support ending the conservatorship of Fannie Mae and Freddie Mac by recapitalizing the government-sponsored enterprises.

During last week’s Mortgage Bankers Association’s Annual Convention and Expo in San Diego, California, Michael Stegman, senior policy advisor for housing for the White House, said that the administration is not in favor of returning Fannie and Freddie to their pre-bailout status, despite growing calls to release the GSEs.

Stegman reiterated those sentiments Thursday while speaking at the Annual Conference of the National Association of Affordable Housing Lenders.

“(Y)ou should be aware that last week the administration made clear its opposition to taking any action in support of what has become known as ‘recap and release,’” Stegman said Thursdsay, according to his prepared remarks.

“We believe that recapitalizing the GSEs with taxpayer funds and administratively or legislatively releasing them from conservatorship with a business model that conflicts with their public mission – in essence turning back the clock to the run up to the crisis – would be both bad policy and poor stewardship of the taxpayers’ interest; willfully recreating the very system that helped do this nation so much harm,” Stegman said.

Stegman referenced the speech he gave at the MBA conference, where he said, “None of us should be misled by the increasingly noisy advocates of GSE release.”

Stegman was speaking about the investors who “made a big bet on recap and release,” but earlier Thursday, several of the country’s largest civil rights groups announced a push to end the conservatorship of Fannie and Freddie, stating that an independent and fully capitalized Fannie Mae and Freddie Mac can better serve the country’s housing needs.

In a letter sent Thursday to President Barack Obama, as well as many other senior members of the federal government with housing ties, the National Community Reinvestment Coalition, the National Association for the Advancement of Colored People, and the League of United Latin American Citizens say they urge the Obama administration to reconsider its position on recapitalizing the government-sponsored enterprises.

Stegman argued Thursday that releasing the GSEs would not “generate a pot of money for affordable housing,” as some in the recap and release crowd have suggested.

“Despite claims to the contrary, recapitalizing the GSEs would not itself provide any resources for affordable housing,” Stegman said. “Nor can a related – or even unrelated – sale of Treasury’s investment in the GSEs provide any resources for affordable housing.”

Stegman said that the proceeds of any sale of GSE obligations acquired by the Treasury must, by law, be dedicated for “the sole purpose of deficit reduction.”

Stegman said that instead of releasing the GSEs with their “flawed charters intact,” the administration favors a legislative solution.

“We should pursue more comprehensive approaches to reform such as those that members of Congress have introduced over the past two years including mutualizing Fannie and Freddie, or build on bipartisan agreements on the features of a future secondary market system that were hammered out in the Senate Banking Committee last year,” Stegman said.

Among those features, Stegman identified several as key to the administration’s view of the future of the GSEs, including the preservation of the To Be Announced market; an explicit, paid-for government guarantee of catastrophic losses for investors in qualifying mortgage-backed securities; ensuring the flow of mortgage credit in both good times and bad; separating the securitization plumbing from private credit risk taking; ensuring that community lenders have the same access to the secondary market as big banks; and making the benefits of government guaranteed MBS available to all households – both those who choose to rent and those with the ability and desire to own.

Stegman’s remarks can be read in full here.

 (h/t Joe Light)

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