Senator Tim Johnson says end Conservatorship for Federal Home Loan Mortgage Corp (FMCC), Federal National Mortgage Assctn Fnni Me (FNMA)

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Senator Tim Johnson says end Conservatorship for Federal Home Loan Mortgage Corp (OTCBB:FMCC), Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA)

Today, Senator Tim Johnson held a Federal Housing Finance Agency (FHFA) hearing titled “The Federal Housing Finance Agency: Balancing Stability, Growth, and Affordability in the Mortgage Market.” Senator Johnson is the Chairman of the Senate Banking Committee.

“I call this hearing to order. Welcome back to the Committee, Director Watt.  Since this is likely my last hearing regarding the GSEs, I would like to urge my colleagues to continue our hard work to move past the housing crisis.  Over the past few years, we and our staffs have spent countless hours wrestling with possible solutions and pitfalls.  Some options are not practical while others are too ideological, but we still need to find a solution.
“The Enterprises remain trapped in conservatorship today.  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.
“All the while the credit box remains extremely narrow, locking out many potential borrowers with good credit, including first-time homebuyers who are needed to expand and sustain our recovery.  While I oppose returning to exotic products with confusing terms, we need to find a way to bring the pendulum back to rational underwriting.  Unfortunately, the tight credit conditions will remain a challenge while the future structure of the mortgage market is uncertain.
“FHFA, under Director Watt’s guidance, is taking steps to provide more certainty to the market and expand access for borrowers.  These initiatives include expanding the loan-to-value requirements from 95 LTV to 97 LTV, updating reps-and-warrants frameworks, and developing Neighborhood Stabilization Initiative pilot programs in Detroit and Chicago.
“I applaud Director Watt and his team at FHFA for taking steps to stabilize the Enterprises and the housing market.  Focusing the common securitization platform on the Enterprises, exploring a single security to increase liquidity, and developing stronger counterparty oversight are all efforts that will help stabilize the market for the future.  However, there is only so much that can be accomplished while the Enterprises are in limbo.
“Everyone agrees that conservatorship cannot continue forever, so I hope my colleagues will keep working towards a more certain future for the housing market.  However, 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.
“Before I finish, I want to thank my colleagues on this Committee, as well as their staffs and my staff, for all their hard work on housing finance reform.  I especially want to thank Ranking Member Crapo and his staff for their faithful partnership.”

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  • Brian Deisenroth

    Conservatorship shall be, and was intended to be, temporary. The time has come for the gov’t to be a man and honor their end of the contract.

    • Schlac Ter

      What do you think that would mean for investors of FMCC and FNMA? There’s been talk for years about dumping them and starting up something new that Congress is supposed to come up with to make it all perfect. Congress is not very bright, they are lazy, I can’t imagine them pulling anything out of a hat that suddenly does away with all the ills of the two mortgage assctns that are there already. And why start from scratch anyway? Waste of money and time. My personal hope is that they should pull out like they said they would and then leave things as is. They’ve made billions off the two; just pocket the money and leave it be. But Congress frequently doesn’t do as I want.

      • Brian Deisenroth

        Good thought process here, Schlac. And I think you’re right.

        In the opinion of many analysts, long shareholders have much to gain from a release of the gov’t conservatorship. Fannie/Freddie own over $5 trillion in mortgages and have paid back the majority share in their bailout costs. Far more than any bank during the bailout. I am no expert here, but the evidence points to only one thing: Fannie/Freddie cannot be purged because they are just too big to fail.

  • John Q Public

    I believe FMMC and FNMA are absolute STEALS at this price.

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