GOP's Garrett: "We Are Not Backpedaling" on GSE Privatization

WASHINGTON — Despite reports to the contrary, Rep. Scott Garrett says Republicans still intend to privatize Fannie Mae and Freddie Mac after a suitable transition.

The New Jersey Republican, who was just appointed chairman of the House Financial Services Committee's capital markets subcommittee, rejected claims that the GOP had softened its attitude toward the government-sponsored enterprises after it took power in the House. "We are not backpedaling at all," Garrett said. "We are still going full ahead."

In an interview, Garrett laid out his priorities, including another push to foster a covered bond market in the United States and his hope that regulators will take their time about writing any regulations required by the Dodd-Frank Act.

But the GSEs remain the overarching priority for Garrett, who said he is awaiting the Obama administration's plan, due this month. "We'll be looking forward to the administration's proposal first," he said.

Though that plan remains unclear, Garrett said the Republicans would probably reject anything that calls for a government mortgage guarantee. "We're certainly not leaning that way."

That includes a push from some within the banking industry to privatize the GSEs but give an explicit government guarantee of the mortgage-backed securities market. Under such a plan, securitizers would pay the government for the guarantee under a system similar to that of deposit insurance. "Any of those proposals still conceivably would facilitate a potential bailout, and we don't want to have that," Garrett said. "Whether you do that straight ways or through the securitization or anything else, you still could potentially put the taxpayer at risk, and we don't want to see that. We also in the larger sense think we need to see whether this is the appropriate role for the government to be subsidizing the housing market through anything of this sort."

To critics who assert that removing any government backing would effectively eliminate the 30-year fixed mortgage, Garrett's response was, "that remains to be seen," and "Is there an alternative?"

"We've had people sitting where you are, and they say, 'well look at Europe, and they don't have this, or look to other countries, and they have a robust housing market without the standard 30-year mortgage' like we have had develop in this country," he said.

He acknowledged that not all Republicans are sold that privatization is the model to support, including Rep. Gary Miller, R-Calif., but he said he intends to win them over by educating them on the alternatives to government guarantees.

"There are probably some on the committee who are engaged but who take a probably slightly contrarian view on this, besides Gary … who will take a concerned view on any significant changes that are made to the GSEs," he said. "What we are going to do in the committee is try to educate and have discussions on where we think we need to go on this." While Garrett waits for the administration to unveil its GSE plan, he is also working with House Financial Services Committee Chairman Spencer Bachus and other GOP members to assemble a timeline for the most crucial rulemakings triggered by the Dodd-Frank Act.

Garrett said Republicans are hoping to hold hearings on each crucial rule while it is still in the formative stage so that lawmakers have a chance to influence the final text. Despite stringent timelines, Garrett, who opposed the Dodd-Frank Act, said regulators should take their time with the rules rather than trying to hurry them along.

"The bill may say that rulemaking has to be done by such and such a date," Garrett said. "The reality of Washington is that people don't necessarily have to comply with that. Many times, historically, dates come and go quite easily with no final action; … we see this all the time. So if agencies out there are thinking, 'Oh, my gosh, I have a deadline in five months or six months from now, I have to get this done because the rule says I do,' we're saying it's better to get it right than just to get it done."

The rules are so important, he said, that regulators cannot afford to be hasty. "We need the regulators to do their job," Garrett said. "It's incumbent upon the regulators to do the right thing, and if that means taking an extra amount of time to get it right, then we would encourage the regulators to do so."

Garrett said an immediate area of concern is the rapid spate of derivatives proposals from the Commodity Futures Trading Commission.

"What we have been doing is trying to prioritize with regard to a timeline … one of the initial ones, of course, would be in the area of the activities that are going on by the CFTC and the rush to judgment over there by rulemaking," Garrett said.

One idea Republicans have considered is drafting legislation that would freeze or prolong the implementation periods for the most controversial portions of Dodd-Frank. Garrett said such a strategy could help to lay down a marker and ferret out which areas of concern have the most bipartisan support. Still, he acknowledged that Republicans are realistic that not much legislation can become law.

"There's a reality as to exactly what you are going to be able to pass in legislation to undo things," he said. "So what we are looking at is to see whether there are specific or narrow portions of the bill where we might actually get bipartisan support."