More than a year ago, the Obama administration promised to lay out the future for Fannie Mae and Freddie Mac, the two mortgage finance enterprises the U.S. government took over in 2008, after massive losses and a shareholder stampede to sell left them insolvent. Today, Treasury Secretary Timothy Geithner came to Capitol Hill today to unveil that future.
What will Geithner do, nearly two years after the financial system crumbled, leaving the two hobbled agencies to prop up the mortgage markets? Will Treasury get rid of the agencies entirely, and get government out of the mortgage business, as some conservatives have demanded? Or maybe follow the National Association of Realtors' proposal and the keep the two giants going as government agencies, since along with Ginnie Mae they're really the only reason it's possible to get a mortgage right now? Something in between?
The Treasury Secretary started out nervous and guarded. But as members of Congress pressed him, Geithner revealed plenty of details of the administration's agenda for the future of Fannie and Freddie, and gained confidence as he went on. The rougher committee Republicans got with Geithner, the more relaxed he seemed to get, and by the one sternly demanded to know why Treasury hadn't gotten around to dealing with Fannie and Freddie sooner, Geithner could barely keep from laughing.
Bottom line: the Obama administration has no plans to exit the mortgage business. And in some important ways, it wants the mission of Fannie Mae and Freddie Mac to live on.
The administration wants to keep government in play to make sure mortgages are widely available, in good times and bad. "This is the central existential question as we contemplate reform," Geithner said. "There is a quite strong economic case and public policy case to have some kind of guarantee" -- in other words, some role for the U.S. Treasury in backing home mortgages that otherwise wouldn't be available.
Geithner kept his opening remarks to a bare minimum – pledging a "more stable funding source to help Americans buy a home," "broad access to mortgage credit," to "finance rental housing," and to make sure in the process that taxpayers don't finance shareholders' excessive profits.
As for simply getting rid of Fannie Mae and Freddie Mac, "I don't think there's a credible argument that we should abolish these institutions today," Geithner told Rep. Maxine Waters (D-CA) "That would not be responsible."
Instead, Geithner promised, a new mortgage finance system would keep what worked about Fannie and Freddie – the support for stable, inexpensive mortgages for a large number of home buyers, which he said helped make the U.S. mortgage system "in many ways the envy of the world" until the late 1990s, when private competitors and Congress pressured the agencies to lower their standards. At the same time, he wants to ditch the failed model of having the U.S. government sponsor profit-making companies.
"We need to end this awkward combination of private shareholders with implicit government support," said Geithner. "It was a big mistake."
House Republicans piled on to ask whether the U.S. needs government in the mortgage business at all, though Kansas Rep. Dennis Moore did their cause no favor by holding up Ireland and Portugal as examples of nations with strong homeownership despite not having government backing for mortgages.
Massachusetts Democrat Michael Capuano raised the stakes on them, taking a page from abortion politics. "I might be tempted to scream that some group of people are homeownership killers," said a theatrically emotional Capuano, "if they get rid of Fannie and Freddie."