ICBA Reflects on Anniversary of GSE Conservatorship
Advocates rebuilding capital, reform for Fannie Mae and Freddie Mac
“Today marks a significant anniversary for the financial services industry—especially for the community banking industry. Nine years ago, the Federal Housing Finance Agency placed both Fannie Mae and Freddie Mac into conservatorship as a time out to help calm the fears of global investors of GSE mortgage-backed securities. After being put into conservatorship—an action that has since been proven to be questionable at best—GSE losses came in far less compared to that of the too-big-to-fail Wall Street banks.
“These two firms support more than 60 percent of the U.S. mortgage market by providing liquidity for mortgage lending by community banks and other lenders in all markets, at all times. ICBA supports GSE reform that, among other things, would end the conservatorship of these institutions and the unjustified sweep of their quarterly profits into government coffers, allow them to rebuild capital, and return them to the market, where they belong.
“The GSEs returned to profitability in 2013 and have been profitable ever since. Further, they have paid into the U.S. Treasury over $80 billion more than their $187 billion capital infusion from the U.S. government during the crisis. As their profits are swept over to the Treasury every quarter, these key supporters of the U.S. housing market have not been allowed to retain their earnings thereby risking the need for a capital call from the U.S. government in the near future unless FHFA acts to end the sweep. This situation was deliberately constructed by the government to drain any and all profits from these two companies.
“Nine years later, the American taxpayer is tired of bailouts, and the possible draw from the Treasury by one or both of the GSEs, which could lead to disruption in the mortgage market, the extent of which cannot be predicted. This pending chaos can easily be avoided.
“Until GSE reform can be accomplished, in the immediate term, ICBA continues to call on FHFA Director Mel Watt and Treasury Secretary Steven Mnuchin to prevent such a self-inflicted crisis and end the destructive sweep of the GSEs net worth and direct them to retain earnings to rebuild their capital buffers. Community banks and the American taxpayer should not have to suffer this self-inflicted crisis.”
To view ICBA’s principles on GSE reform, download our white paper.