Senators Warn Watt on Future of GSEs

A bipartisan group of senators have written to Federal Housing Finance Agency (FHFA) Director Mel Watt with a warning over unilaterally releasing the government-sponsored enterprises (GSEs) from conservatorship without enacting reforms on how Fannie Mae and Freddie Mac operate.

“Over the long run, we all agree changes will be needed to the existing structure. However, we firmly believe those changes should come through housing finance reform legislation, not unilateral action by this or any future Administration,” the senators wrote. “That is why Congress included a provision in the 2016 omnibus legislation which restricted the release of Treasury’s shares in the GSEs. The passage of this provision reasserted the desire of Congress to have a say in determining the fate of Fannie and Freddie.”

The senators stated that efforts to recreate the pre-2008 operational model for the GSEs would be a major mistake, adding that it was crucial for Watt’s agency to continue on the path to upgrade the GSE model to avoid taxpayer risks.

“Those changes include laying off additional mortgage credit risk into the private market with a greater focus on front-end risk transfers and continuing to wind-down the investment portfolios, which were used by the GSEs as hedge funds generating large profits,” the senators added. “These two steps both lessen the risks posed by the GSEs and will help facilitate housing finance reform down the road.”

The letter was authored by Sens. Bob Corker (R-TN), Mike Crapo (R-ID), Heidi Heitkamp (D-ND), Dean Heller (R-NV), Jon Tester (D-MT) and Mark Warner (D-VA).