Steven Mnuchin’s testimony during his confirmation hearing helped clear up his view of Fannie Mae and Freddie Mac: He views the bailed-out mortgage giants as key to housing markets and wants them reformed, but not eliminated.
If he is confirmed as treasury secretary, he said in Thursday’s hearing, he would seek bipartisan legislation to reform the two government-sponsored enterprises and release them from government control. He wouldn’t, however, rule out seeking such an outcome through administrative action, a possibility that bipartisan members of Congress have warned against.
“These are very important entities to provide the necessary liquidity for housing finance,” Mnuchin said, citing his lengthy experience working in finance.
His comments expand on and clarify his earlier call to re-privatize the two companies.
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With Thursday’s explanation, Mnuchin departed from the view of fiscal conservatives in Congress such as Rep. Jeb Hensarling, the Republican chairman of the House Financial Services Committee, who have called for Fannie and Freddie to be shuttered and to scale back government guarantees of mortgages.
But he is also not on the same page as the bipartisan group of senators who in 2014 advanced legislation to keep the government guarantee for mortgage-backed securities, but replace Fannie and Freddie with a system in which private investors take the first losses on those securities.
Sen. Mark Warner, D-Va., who asked Mnuchin the question, helped author that legislation and has warned the government against trying to free Fannie and Freddie administratively. A law authored by Warner’s partner on that bill, Republican Sen. Bob Corker of Tennessee, temporarily prevents the Treasury from selling its stake in the two companies, blocking any administrative privatization.
One concern that Warner and Corker have voiced is that the government-sponsored enterprises, if reprivatized, would return to the model in which their profits flowed to shareholders but losses were borne by taxpayers.
Mnuchin reassured Warner on that point Thursday.
“I can 100 percent assure you that I have no interest in that, and I think I understand this well enough that — I think — you will find I won’t support any policy” that led to that, he said.