Steve Mnuchin’s Comments Drive Shares Of Fannie Mae Downwards

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These comments by Steve Mnuchin moved Fannie Mae and Freddie Mac equities today – downwards – see below for the dialogue between Mnuchin and Mark Warner about the GSEs.

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WARNER: Let’s – let’s move to another area. One area that I’ve had a huge amount of concern and interest in, and I know Senator Crapo and a number of us on this panel is on Fannie and Freddie. And I know that there were some people that potentially interpreted some of your comments about recap and release which would in a sense say, even though the American taxpayer was paid back the $188 billion that we invested in those failing institutions at a moment of crisis.

Fannie Mae

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I think both of us would perhaps look from our business stand point and say that was high risk capital and we got a better return, but somehow those who simply say let’s refloat these two entities and basically ignore some of the underlying challenges. Do you support that position of recap and release that some have advocated?

MNUCHIN: So, let me first be clear, I did make some comments about this. My comments were never that there should be recap and release. My comments were and first of all, I’ve been around the mortgage industry for 30 years. I’ve seen this for a long period of time so this is an area where I do believe I have expertise in. for very long periods of time, I think, that Fannie and Freddie, have been well run without creating risk to the government as well as they’ve had an important role…

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WARNER: I know you’re running out of time, but just bear with me, Mr. Chairman can I get an extra 30 seconds?

(UNKNOWN): Go ahead.

MNUCHIN: Can I just answer this so you get more time? I believe these are very important entities to provide the necessary equinity (ph) for housing finance and what I’ve committed to is I will work with both the democrats and republicans. What I’ve said and I believe we need housing reform so we shouldn’t just leave Fannie and Freddie as is for the next four or eight years under government control without a fix. That I believe we can find a bipartisan fix for these; so on the one hand, we don’t end up with a giant bailout; on the other hand, we don’t run the risk of completely limiting housing finance.

WARNER: I appreciate those comments; I look forward to working with you.

MNUCHIN: Thank you.

WARNER: Two — since I took most of 30 seconds on your statement, I’ve got two quick questions. I hope that you can answer them with yes or no answers. One is, in light of those comments about recap and release, you commit not to support any kind of administrative effort that would bypass the Congress in terms of efforts to recap and release?

MNUCHIN: So, again, I don’t want to make any commitments to legislative or not. What I will commit because it’s my responsibility in Treasury, as it relates to certain issues with Fannie and Freddie. What I will commit to, it is that it is my objective to find a bipartisan solution to it. And I would welcome the opportunity to sit down with you on that.

WARNER: And your hope would be that the bipartisan consensus that the banking committee in particularly arrived at was that that solution, and we can argue or discuss about how we get there, should end up with a housing finance system that preserves things like the 30-year mortgage but also makes sure there is not the current status which has — when things are going well, private sector gain, but when things get — stuff (ph) hits the fan, taxpayer holding the bag. So, we would agree…

MNUCHIN: I can 100 percent assure you that I have no interest in that and I think I understand this well enough that you will find that I won’t support any policy that has that case.

WARNER: Thank you, Mr. Mnuchin.

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