Trump administration will move on GSE plans if Congress doesn't: Mnuchin

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WASHINGTON — Treasury Secretary Steven Mnuchin signaled Monday that the Trump administration could take action on housing finance reform within just a few months if Congress does not make progress on overhauling Fannie Mae and Freddie Mac.

Mnuchin's comments during a Fox Business television interview followed Treasury's report last week on reforming the government-sponsored enterprises, which expressed a preference for legislative action but said the administration was prepared to use existing authority if Congress continues to stall.

“We’re going to work with Congress on the first part of this. I’d hope that if we’re going to get congressional support, it would be in the next three to six months," Mnuchin said. "And if we can’t do that, we’ll move on the administrative front.”

Movement on a preliminary step could come even sooner. Mnuchin said the administration is set to act as early as September to revise an agreement between Treasury and the Federal Housing Finance Agency to allow Fannie and Freddie to hold on to more of their earnings.

“We expect a near-term agreement to retain their earnings” in September or shortly after, Mnuchin said.

The deal would allow Fannie and Freddie to rebuild some capital, which is seen as a key step before they exit their 11-year-old federal conservatorships.

“Now is the time to recapitalize them, make them stronger, make sure that taxpayers aren’t at risk,” Mnuchin said. An imminent deal on retained earnings would mean a "significant increase in capital and a step in the right direction to us ultimately raising third-party capital,” he added.

A new retained-earnings agreement would allow the GSEs to expand capital cushions that are now limited to $3 billion per company.

Mnuchin's comments on a potential legislative timeline could draw attention from members of the Senate Banking Committee at GSE reform hearing scheduled for Tuesday. Lawmakers have stalled on several reform proposals for years, shifting emphasis to what the FHFA can do to overhaul the mortgage companies under existing authority.

His comments also come on the heels of a federal appellate court ruling in New Orleans Friday siding with Fannie and Freddie investors who argue the government's sweep of GSE profits into the Treasury is illegal. The judges also ruled that the FHFA's single-director leadership structure is unconstitutional.

Mnuchin said the court decision will not impede reform efforts.

“We’re reviewing the decision. We’re not going to let this stand in the way one way or another with housing reform," he said. "There is an investor issue here, which will continue to go through the legal process, but the most important issue is regardless of that case we will restructure Fannie Mae and Freddie Mac so they have private capital in front of any taxpayer risk.”

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Housing finance reform GSE reform GSEs Finance, investment and tax-related legislation Steven Mnuchin Treasury Department FHFA Fannie Mae Freddie Mac