New York – June 18, 2015 – (RealEstateRama) — Today, U.S. Representative Ed Royce (R-Calif.) questioned United States Secretary of the Treasury Jack Lew at the House Financial Services Committee hearing entitled “The Annual Report of the Financial Stability Oversight Council” on the current status of the GSEs and the need to reform them.
“The false narrative that is perpetuated is that the taxpayers have been repaid [by the GSEs], it’s time to end conservatorship, and return the GSEs to the control of shareholders,” said Rep. Royce. “From your comment earlier, I assume you disagree with this narrative, and agree with the conclusion of the [New York] Fed that failing to work to wind down the GSEs and give space for private capital to come in would be a ‘colossal missed opportunity to put U.S. residential mortgage finance on a more stable long-term footing.’”
“I totally agree… the risk is being borne by taxpayers on an ongoing basis and the conservatorship is not over,” answered Secretary Lew. “I would only add one additional thing to what I said earlier which is that the damage done to our economy by the housing crisis was far more than the simple amount of money that was put into the GSEs and I think Americans are still healing from the pain of that financial crisis. So I think that the right thing is to do GSE reform and get on to a new restructured system, but it is not the right time to be talking about ending the conservatorship and paying dividends.”
“I think we can move forward together on that GSE reform concept. I’ve publicly endorsed reforms that would increase private sector participation in the secondary housing market, that would decrease taxpayer exposure to future losses, and limit disruption to the housing market. But I think if you look at the particulars, more risk sharing is something that could be done to create a lot of space here; a Common securitization platform is something that works for the GSEs and then brings in private capital to use that platform ; and a common residential mortgage backed security that would be a good start for Congress to pass this year if I have your thought on that,” continued Rep. Royce.
“The items that you’ve just mentioned are the kinds of things we’ve been talking about and thinking about. Obviously there is a Common Securitization Platform being built, it’s something that could be expanded beyond the GSEs and be available more broadly. I think that the more we’re able to lay a foundation that a private securitization market could be built on, the better off we’d be,” replied Secretary Lew.
The section of the March 2015 Federal Reserve Bank of New York Staff Report on “The Rescue of Fannie Mae and Freddie Mac” cited by Rep. Royce in his oral questioning of Secretary Lew can be found here.
Click here or on the image below to watch Rep. Royce’s questioning and Secretary Lew’s answers:
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