DJ Greenspan Condemns House GSE Bill -3-
Greenspan said the Senate bill - originally sponsored by Republican Sens. Sununu, Elizabeth Dole of North Carolina and Chuck Hagel of Nebraska - also appropriately strengthens the capital authority of the regulator and establishes a "clear and credible" bankruptcy process for handling a failing GSE.
The House bill fails on both fronts, Greenspan said in the letter to Sununu dated Jan. 3, the day Congress returned to work from its winter break.
"But, more importantly, the House bill fails to comprehensively address the problem of systemic risks presented by the GSEs' investment portfolios," he said. "Improved regulation by itself may be insufficient and could exacerbate the potential systemic problems associated with the GSEs' large portfolios if financial markets infer from such regulation that the government is more strongly backing GSE debt."
Sununu said in a statement that Fannie and Freddie "have strayed from their housing mission.
"Chairman Greenspan has repeatedly warned that Fannie Mae and Freddie Mac have used their quasi-government status to profit from their large portfolios of mortgage backed securities. This is a risk to the long-term stability of the housing finance market and an issue that affects all American taxpayers," Sununu said.
The House bill, which passed with an overwhelming bipartisan majority in October, also faces opposition from the White House. The full Senate still has to debate its GSE bill, which passed the Senate Banking Committee on a party line vote in July.
-By Dawn Kopecki, Dow Jones Newswires; 202-862-6637; Dawn.Kopecki@dowjones.com
(END) Dow Jones Newswires
DJ Greenspan Condemns House GSE Bill As Failing On All Fronts
By Dawn Kopecki
Of DOW JONES NEWSWIRES
WASHINGTON (Dow Jones)--Outgoing Federal Reserve Chairman Alan Greenspan condemned a U.S. House bill that would overhaul Fannie Mae (FNM) and Freddie Mac's (FRE) oversight, saying that the legislation doesn't create an effective regulator nor does it minimize the broader risks the companies pose to the U.S. financial system.
"The bill that passed the House of Representatives in October 2005 neither takes the steps needed to create an effective GSE regulator nor addresses the systemic risks posed by Fannie's and Freddie's investment portfolios," Greenspan said in a letter to Sen. John Sununu, R-N.H., that the lawmaker released Thursday.
In the letter, Greenspan reiterated his and the administration's concerns that the government-sponsored enterprises' vast mortgage holdings add systemic risk to the U.S. financial system which, he said, "normal market forces are unable to resolve."
"These large portfolios, while enriching GSE shareholders, do not meaningfully benefit homeowners and do not facilitate secondary market liquidity," Greenspan said in the letter.
Greenspan, who retires at the end of this month, backed Sununu's bill in the Senate. The legislation, which was rewritten by Senate Banking Chairman Richard Shelby, R-Ala., would significantly restrict the companies' operations by requiring the new regulator to pare back their portfolio holdings to only what was needed to accomplish their mission.
Greenspan said the Senate bill provides what he called a much-needed anchor that would refocus Fannie and Freddie on their publicly chartered mission of promoting affordable housing.
Greenspan, whose views are largely shared by prospective Fed Chairman Ben Bernanke, called for "specific and unambiguous congressional guidance" on the GSEs' portfolios.
"Strong portfolio guidance by Congress is needed because GSEs are an unusual government intervention in private markets; such institutions lack the typical financial market discipline that is commonplace for other publicly traded firms," he said.
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