Magazine article Mortgage Banking

Greenspan Responds to Gse Subcommittee

Magazine article Mortgage Banking

Greenspan Responds to Gse Subcommittee

Article excerpt

IN A LETTER ADDRESSED TO REP . RICHARD Baker, chairman of the Subcommittee on Capital Markets, Securities and Government-Sponsored Enterprises, Federal Reserve Chairman Alan Greenspan responded to inquiries regarding potential risks that the housing-related GSEs might pose to the economy. Greenspan wrote: "On the broader issues, these GSEs--the Federal Home Loan Banks (FHLBs), the Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (Freddie Mac)--collectively dominate the United States residential housing markets. They clearly benefit from government sponsorship--particularly from their ability to borrow funds at a lower cost than comparably situated private sector borrowers. This benefit has been studied by many, including CBO, GAO, and the Department of the Treasury, and all have concluded that the benefits of GSE status are substantial. For example, the CBO concluded that in 1995 the subsidy was worth $6.5 billion per year to Fannie Mae and Freddie Mac togethe r, of which $2.1 billion was retained by the shareholders of these institutions, rather than passed through to home-buyers."

Greenspan added: "The lower borrowing costs of these institutions, of course, reflect the belief of purchasers of their debt that the government is unlikely to let a GSE fail. …

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