Fannie-Freddie Overseer Urged to Seek Exit From Conservatorships

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The U.S. Treasury and the federal overseer for Fannie Mae and Freddie Mac should consider ending government control of the two companies if Congress fails to reform the housing-finance system, Sen. Tim Johnson said.

“Everyone agrees that conservatorship cannot continue forever, so I hope my colleagues will keep working towards a more certain future for the housing market,” Johnson said today in remarks prepared for a Senate Banking Committee hearing with Federal Housing Finance Agency Director Mel Watt. “If Congress cannot agree on a smooth, more certain path forward, I urge you, Director Watt, to engage the Treasury Department in talks to end the conservatorship.”

Johnson, the South Dakota Democrat who leads the banking panel, co-wrote a bipartisan bill to wind down the companies that stalled in the Senate. His comments mark the first time a lawmaker has called for regulators to restore Fannie Mae and Freddie Mac to independence if Congress continues to dither.

Fannie Mae and Freddie Mac were seized by regulators in 2008 after defaults on risky loans pushed them to the brink of insolvency.

After a $187.5 billion taxpayer bailout, they’ve rebounded and are now required to send the Treasury all of their profits. They’ve paid a combined $225.5 billion, which is counted as a return on the U.S. investment and not as repayment, leaving the government-sponsored enterprises without a legal avenue to exit conservatorship on their own.

“The enterprises remain trapped in conservatorship,” Johnson said. “FHFA continues to perform the dual role of both regulating and running the businesses of the largest entities in the mortgage market. This is not sustainable, and there is no consensus in Congress regarding how to move forward.”

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