Comment Detail

Comment

Dear Honorable Watt,
Fannie Mae and Freddie Mac have always been a great system at the center of housing as well as liquidity in the market. Where things went wrong was political goals, deregulation and same from the banking industry pushing mortgages through that should have never been approved. The fix for the economic crash in 2008 was even more unethical than the events that lead up to the crash. There was a better way, and the GSEs would have been key. The sudden crash was completely avoidable. It was well known going into 2008, even as far back as 2003 that something had to be done. Regulation and mortgage adjustments could have been started back then but bad ethics got in the way of that. Even with that aside, how to move on from here. The GSE system has proven to be an excellent system and should be improved upon. You have done a good job of fixing the GSEs internal problems, so much in fact that I wonder why they have not been released from conservatorship already. The only things left have more to do with regulation than GSE system. Congress is supposed to work on housing reform. Housing reform does not have much to do with GSEs. The GSEs are already reformed and regulated more than any other industry. Congress needs to reform the banks. banking reform in mortgage market is key, although your reform of GSEs has in fact helped a great deal in reforming the banks. No longer so easy for the banks to fool the liquidity system. All that is left to do with GSEs is release them in a responsible way from conservatorship so bond market investors can get back the confidence in the system. Right now the single most concern the investors have is that the system might get dumped by Congress. Congress is disturbing the market by threats of dismantling the GSEs. How would any investor feel if they are buying into a unknown security. A security from a system subject to complete change in one political move. When the attempts by Congress goes away and they realize the great system we have, that is when investors confidence will return.

There are multiple ways to recap and release the GSEs. I hope that it will be done in a fully legal manner. The use of warrants is unjustified, not legal by normal means and will disturb confidence of investors. US Treasury took far more money from GSEs using the sweep than the GSEs had in bailouts. Did the GSEs even receive the bailouts anyway? The money from suing the banks for fraud should have gone to the GSEs, not the Treasury. US Treasury should recap the GSEs. If politically impossible, then using the GSEs to issue Treasury equity options with a strike price over $60 and build a capital buffer of 45 billion. During that time, release GSEs from conservatorship and relist on major stock exchange. Allow the companies to build up their own buffer higher if they deem needed due to market conditions. US Treasury should support them during the recap and release. Investors confidence will return fully on GSE markets except for threats from Congress to disturb the system.