Despite a direct request by six Democratic senators that Fannie Mae and Freddie Mac be allowed to rebuild capital, Treasury Secretary Steven Mnuchin on Thursday did little to clarify the administration's thinking on the issue.
The six senators, including ranking Senate Banking Committee member Sherrod Brown, of Ohio, raised concern in a letter to Mnuchin and Federal Housing Finance Agency Director Mel Watt that the government-sponsored enterprises could have zero capital on Jan. 1. The mortgage giants are still sending Treasury all of their income as required by stock purchase agreements.
But asked about the mortgage giants' capital position at an event hosted by Politico on Thursday, Mnuchin said the administration plans to address housing finance reform in 2018. Until then, he said, "We expect our dividends to be paid."
"We need to fix Fannie and Freddie," Mnuchin said at the Politico Pro Policy Summit. "They're only operating right now from a line with the Treasury."
The Treasury secretary gave a similar response during congressional testimony in May, when he recounted telling Watt "that it was our expectation at Treasury that [the GSEs] would pay us the dividend and we hope they continue to do so, per the agreement.”
The letter from the Democratic senators warned that without a capital improvement, the GSEs may have to make another draw on the Treasury.
Fannie and Freddie currently give all their profits to the U.S. government on a quarterly basis, but this quarter’s payment, scheduled for Sept. 30, may require a draw from the Treasury because the GSEs are prohibited from building capital.
"As soon as there are losses at either GSE, the Treasury Department will need to step in and make up the difference," the senators wrote. "This arrangement is contrary to the government's stated policy toward other large financial institutions."
Despite their support for the building of capital on the GSEs' part, they asserted that the companies should not "be released from conservatorship absent reform."
The Democratic senators also said they were "concerned by ... Mnuchin's statement" in the May Senate hearing "that he is not working with Director Watt to prevent another draw on the Treasury by the GSEs."
But at the Politico event Thursday, Mnuchin countered that characterization.
"I've had lots of conversations with Mel Watt on Fannie and Freddie," Mnuchin said. "When we fix it we want to make sure we never put the taxpayers at risk, and at the same time maintain a 30-year mortgage."