WASHINGTON — More than a month after the administration released a report asking Congress to approve legislation to eventually dissolve mortgage giants Fannie Mae and Freddie Mac, Treasury Secretary Timothy Geithner is still addressing the issue at hearings.
Geithner and Housing and Urban Development Secretary Shaun Donovan testified in front of the Senate Banking, Housing and Urban Affairs Committee on Tuesday. Geithner said that the legislation needed to be “separated from political influence” and that “without new legislation, there is a substantial risk of recapitalizing.”
With the knowledge that partisan divisions will heighten during next years presidential campaign, Chairman Tim Johnson, D-S.D. asked “Do you think the president will put this off until after the next election?”
Geithner responded: “It would be better for the country to come together sooner—with multiple reforms it will be easier.”
Fannie and Freddie have been kept alive so far with $134 billion of taxpayer money. The Treasury Department forecasts that cost will drop to $73 billion within 10 years as the companies pay back a portion of their bailout money. With the housing market still unstable and the future of Fannie and Freddie debated, private banks and lenders have been reluctant to give out loans for housing.
“Hometown Kansas bankers continue to talk to me and they are no longer making real estate loans,” said Jerry Moran, R-Kan. “ I think it would be a really sad day were hometown bankers are not able to make home loans.”
Keeping the two companies afloat has cost taxpayers $134 billion so far.
While the foreclosure rate is still high for Florida, the Southwest and other areas, Donovan points out that “One of the often forgotten aspects of this crisis, is we have not seen multi- family financing contribute to their (Fannie and Freddie’s) failure.
There is also a difference in rent versus ownership.
“We have in fact seen rents come down at the top end of the market, at the lower end of the market, rents have actually increased to the point where from 2007-2009 we saw an increase in the worst-case housing needs,” Donovan said. “Affordable rental housing,–we have not done enough to meet those needs.”
While there may be multiple problems with housing, deciding the fate of Fannie and Freddie is a task Geithner hopes Congress takes on.
The administration laid out three potential options in their report. One would be financed by lenders and investors and have a limited government role, the second would be complimented by a government backstop, and the third would provide a greater form of government reassurance said Geithner.
Rep. Bob Corker, R-Tenn. thanked Geither and Donovan for their leadership and asked for advice, There are “535 folks trying to grasp something with no supervision, which one of the three do you like the most? –We’d like some adult supervision.”
While Geithner didn’t offer an answer he did speak about two groups who are influencing the fate of Fannie and Freddie: The Bureau of Consumer Financial Protection (CFPB) and community activist groups.
“Under the Dodd Frank Wall Street Reform and Consumer Act, the CFPB, does not have the authority to administer penalties, under the same law … they will be able to set standard,” Geithner said “For this reason the CFPB, has been invited to advise the other organizations.”
Specifically Elizabeth Warren, Assistant to the President and Special Advisor to the Secretary of the Treasury on the CFPB has she been involved according to Geithner.
While the committee didn’t raise many questions about Warren, they did ask why an activist group like Association of Community Organizations for Reform Now (ACORN) which filed for bankruptcy in November 2010.
Geithner said it would still be important to “hear from a broad range of people. “I imagine that you’ll want to talk to people who are caught up in this crisis every day.”
Amongst the discussion, Sen. Charles “Chuck” Schumer, D- N.Y. brought a firm attitude to the discussion.
“When you look at the facts, you can’t just blame Fannie and Freddie. The housing bubble was international,” Schumer said. “Blaming Fannie and Freddie is ideological.”
