Snow is trying to instill confidence in the housing markets again!
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Fannie, Freddie not guaranteed: Snow
Market mistaken if it thinks U.S. would bail out giants
By Corbett B. Daly, CBS Marketwatch
Last Update: 2:31 PM ET March 9, 2004
WASHINGTON (CBS.MW) -- Mortgage giants Fannie Mae and Freddie Mac are not backed by the U.S. government, as many investors apparently believe, Treasury Secretary John Snow said Tuesday.
The two companies are not "too big to fail," he said, adding that "investments in Fannie and Freddie are uninsured investments."
"We've tried to make it clear and I think they have as well that there is no guarantee, but the marketplace appears to perceive a guarantee," Snow said.
"The reality is that the market treats the paper as if the government is backing it," Snow said. "We strongly resist that notion."
"It's not a healthy perception and we need to disabuse people of that perception," Snow said.
Homeownership plays such a fundamental role in the U.S. economy that Fannie Mae and Freddie Mac need to have a strong regulator to ensure the system doesn't break down, Snow said.
"The American system of homeownership is a pillar of our economy, symbolic of our national identity and character, the envy of the world," Snow said in prepared remarks to America's Community Bankers Association.
"That's why it's so very important to have a solid regulatory structure and a credible regulator for the government entities: Fannie Mae, Freddie Mac and the Federal Home Loan Banks," Snow said.
The move was first proposed last fall after Freddie Mac (FRE: news, chart, profile) revealed it had understated earnings to meet Wall Street's expectations.
Shares of the two government-sponsored enterprises, or GSEs, were lower in recent trading, with Freddie Mac down 76 cents to $62.82 and Fannie Mae (FNM: news, chart, profile) off $1.02 to $77.26.
The accounting scandal at Freddie Mac led to a management shakeup there and questions about the effectiveness of the current GSE regulator, the Office of Federal Housing Enterprise Oversight. It's part of the Department of Housing and Urban Development.
Snow wants the new agency to be housed within the Treasury Department so it can "review rules and regulations, policy statements and the regulator's budget."
"Anything less than what I've outlined here today as the essential elements of authority for the new supervisor would be inadequate, not credible reform," Snow said.
Snow added that the new regulator should keep a close eye on any potential expansion of services from Fannie, Freddie and the Federal Home Loan Banks, saying: "It's awfully important that these entities, with those borrowing advantages that they have stick their to their knitting.
"Stay focused on their congressionally mandated activities and that their entry into new activities be closely watched and only permitted if they are consistent with the housing objectives and with the soundness and safety of housing finance and consistent with the soundness and safety of the financial system as a whole so that we avoid systemic risks to the entire financial system," Snow said.
The Treasury chief said the Bush administration has grown more insistent the new agency should oversee the Federal Home Loan Banks as well as Fannie and Freddie.
When new regulator was initially proposed last fall, Snow told the bankers the administration supported including oversight of the Federal Home Loan Banks in the new regulator's portfolio.
"We're now a little stronger, we think it's better than advantageous, it's really important that they be in there," he said.
Corbett B. Daly covers the White House and the Treasury Department for CBS MarketWatch in Washington. |
