Mnuchin: Fannie, Freddie overhaul key for future of housing

U.S. Treasury Secretary Steven Mnuchin told FOX Business Monday that he expects a deal on mortgage finance giants Fannie Mae and Freddie Mac – which have been under conservatorship for the past 11 years – very soon.

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“I think we're going to work with Congress on the first part of this. I'd hope that if we're going to get congressional support it'll be in the next three to six months. And if we can't do that we'll move on the administrative front,” he told Maria Bartiromo in an exclusive interview on “Mornings with Maria”.

“We think now is the time to recapitalize them, make them stronger and make sure that taxpayers aren't at risk and eventually raise third-party capital so that we restructure them and that in another housing downturn taxpayers are not at risk,” he said.

Mnuchin said the first steps are negotiating with the Federal Housing Financing Agency (FHFA).

“We expect in the near term we'll have an agreement where we will allow both Fannie Mae and Freddie Mac to retain their earnings which will be a significant increase in capital and a step in the right direction to us ultimately raising third-party capital,” he explained.

Mnuchin said the other issue he “looks forward" to testifying about at the Senate on Tuesday will be bipartisan legislation to get approval to put a full faith in credit on the securities.

“We think that the government should be paid for that wrap and we think there should be significant private capital in front of it – so something similar to the FDIC model or the Ginnie Mae [Government National Mortgage Association] wrap,” he explained.

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Taking the two government-sponsored enterprises out from under government control could be a win for some investors, as companies could begin to turn a profit.

When Bartiromo asked about the federal appeals court ruling in New Orleans that concluded the FHFA structure is unconstitutional and backed the government’s rights to take all of the mortgage giants’ profits, Mnuchin said, “we’re not going to let this stand in the way of housing reform.”

“So as I say, there is an investor issue here which will continue to go through the legal process. But the most important issue is, regardless of that case, we will restructure Fannie Mae and Freddie Mac so that they have private capital in front of any taxpayer risk,” he explained.

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Bartiromo also asked: “One investor wants to know, given the ruling that the net worth sweep that we now know was illegal, is the September sweep going to be halted? Are we going to see money go back to the investors?”

“The money wouldn't go back to the investors, the money would stay in the companies and then obviously the legal process will go forward and obviously the Treasury has very significant claims for the money that we've outlaid,” he replied. “But, you know, I expect we're… in the process of working with the FHFA and we're going to try to see if we can do it in September. If not, it'll be very soon after that.”