The Obama administration should speed up the sale of Fannie Mae and Freddie Mac's mortgage portfolios to reduce taxpayer risk and capture "unrealized gains" in the assets, according to Rep. Scott Garrett, R-N.J.
The new chairman of the House Financial Services subcommittee on capital markets and GSEs noted that Fannie and Freddie own roughly $1.5 trillion in whole loans and mortgage-backed securities. "As we begin to eventually head into a more volatile interest rate environment, it will become increasingly difficult to hedge a book that size against those movements," Rep. Garrett told an American Securitization Forum conference in Orlando, Fla.
"I also believe there are significant unrealized gains in the portfolios that could be realized," he said.
The subcommittee chairman stressed that the U.S. needs a securitization market to ensure a "viable and sustainable" housing finance system. However, he wants the housing market to transition to a "purely private U.S. mortgage market over time - free of government guarantees and subsidies."
The New Jersey congressman also talked about the controversy over the inclusion of servicing standards in a risk retention rule. Congress approved risk retention as part of the Dodd-Frank Act last year without "mortgage servicing standards being mentioned," Garrett said. "I believe this is a very important topic but one that regulators should not unilaterally address without proper authority from, and discussion by, Congress," he said.
