Freddie and Fannie Respond to Greenspan Testimony

Mortgage Banking, April 2004 | Go to article overview

Freddie and Fannie Respond to Greenspan Testimony


IN RESPONSE TO FEDERAL RESERVE CHAIR-man Alan Greenspan's testimony on the government-sponsored enterprises (GSEs) before the U.S. Senate Committee on Banking, Housing and Urban Affairs in February, Freddie Mac issued a statement against privatizing the GSEs.

"... [P]rivatizing the housing GSEs would seriously damage the finest housing finance system in the world and, ultimately, the U.S. economy," Freddie Mac stated. "Privatization would reduce liquidity and stability, raise mortgage costs and limit consumer choice in mortgages. The United States remains the only nation where a 30-year, pre-payable mortgage is broadly available, and this is in large measure because of Freddie Mac and Fannie Mae. It is incorrect to assume that this instrument would be replicated by the private sector. In addition, [Richard Syron, Freddie Mac's chairman and chief executive officer] is convinced that the funding of mortgages through the issuance of debt is absolutely critical to fulfilling our housing mission. Reducing our ability to raise capital in the world markets though the issuance of capital market financing would reduce availability and increase the cost of mortgages for America's homebuyers.

"It is unfortunate that the debate has moved from a discussion of the importance of legislation to strengthen the regulatory structure of the housing GSEs to a more theoretical discussion," Freddie Mac stated. "Mr. Syron is hopeful that the focus can return to enacting legislation. Freddie Mac strongly supports legislation that provides strong, credible regulatory oversight."

Fannie Mae, in response to Greenspan's testimony, stated that it disagreed with most of Greenspan's conclusions, but appreciated that he had made his views public. Jayne Shontell, Fannie Mae's senior vice president of investor relations, indicated she was puzzled by Greenspan's comments about fixed-rate mortgages, which were based on a Federal Reserve working paper that Shontell maintained was flawed.

"The theoretical study attempted by the Federal Reserve staff member cannot overcome the simple fact that any borrower with good credit can usually save 25 to 50 basis points by obtaining a mortgage Fannie Mae can buy versus one above our loan limit," Shontell stated. …

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