#FANNIEGATE $FNMA Lew, Weiss push back on floating Fannie, Freddie

Lew, Weiss push back on floating Fannie, Freddie

Published: Oct 19, 2015 10:47 a.m. ET

1 Fannie Mae, Freddie Mac shares lower after Weiss op-ed

By STEVE GOLDSTEIN D.C. BUREAU CHIEF

Getty Images Not for private hands, says U.S. Treasury Secretary Jack Lew. WASHINGTON (MarketWatch) — Treasury Secretary Jack Lew and one his top deputies pushed back Monday against the idea of privatizing Fannie Mae and Freddie Mac, the giant mortgage buyers controlled by the government.

“The right answer is to get real reform — housing finance reform — where we get to the new system, where we define risk that’s being taken, not have that open-ended risk that we still have today,” Lew said in an interview with CNBC.

Antonio Weiss, counselor to the secretary, said in an op-ed published in Bloomberg View that such a move would be “misguided.” Recap and release could raise the cost of mortgages for Americans, and potentially expose taxpayers to another painful bailout, Weiss wrote.

Some hedge funds, as well as private investors, have argued that Fannie and Freddie have already repaid more than the $188 billion that the U.S. Treasury injected in capital.

Weiss said those payments — coming directly from Fannie and Freddie profits — don’t compensate for the continuing risk the public is bearing, as well as the risk taken on. Weiss also disagreed with the idea that Fannie and Freddie could retain their earnings to build capital, saying it would take “decades” for the giants to build up enough capital.

Weiss said the Treasury favors a system where taxpayer exposure would be explicit.

Fannie Mae and Freddie Mac were brought under federal government conservatorship in 2008, and under a disputed 2012 ruling, all their profits get swept to the U.S. Treasury. Various reform efforts to replace Fannie and Freddie have stalled in both chambers of Congress.

Shares of Fannie Mae FNMA, -4.40% and Freddie Mac FMCC, -4.08% both traded lower on Monday, but both are up about 20% from August lows.