U.S. Treasury Secretary John Snow said Tuesday that stronger regulation of mortgage giants Fannie Mae and Freddie Mac will have no impact on their ability to provide housing finance and may improve their efficiency.
Speaking to reporters after testifying to a Senate Appropriations subcommittee, Snow said there should be no negative impact from stronger regulation for the two government-sponsored enterprises despite their warnings that tougher rules might limit them.
"Setting up the regulator as we have proposed will have no adverse effect on interest rates for the mortgage market, will have no adverse effects on the ability of the GSEs to carry on their statutory function," Snow said. "In fact, by limiting them to holdings that are necessary to carry on their statutory function and not more, it will focus their efforts on their statutory mission."
At a hearing last week, top executives of Fannie Mae and Freddie Mac suggested that while they did not object to a stronger regulator, they did not want one with unfettered power.
Freddie Mac's chief executive officer, Richard Syron, told the Senate Banking Committee that "regulatory reform has ballooned into a referendum on the entire GSE system of housing finance."
Snow has advocated that a new regulator should have power to limit the GSEs' portfolios and he said on Tuesday that would not hinder the GSEs.
"The contention that in any way our proposal would undermine the ability of the GSEs to carry on their statutory purpose is simply contrary to what we've said, contrary to the facts; and their assertion that setting up a strong regulator would adversely affect the mortgage markets, causing higher mortgage interest rates, is without any evidentiary basis whatever," Snow said.
Fannie Mae and Freddie Mac are shareholder-owned companies, charged by Congress to boost homeownership by ensuring liquidity in the mortgage market. They buy mortgages from originators and repackage them as mortgage-backed securities for sale to investors.
They also keep some of those loans and securities in their portfolios. Those holdings total about $1.5 trillion and Federal Reserve Chairman Alan Greenspan has argued they are so large as to pose a risk to the U.S. financial system by concentrating so much interest rate risk within the two companies.
