corker: reform of fannie and freddie should have been in the president's budget

WASHINGTON - U.S. Senator Bob Corker, R-Tenn., a member of the Senate Banking Committee, today expressed disappointment in the administration's failure to address reform of Fannie Mae and Freddie Mac in the budget proposal they released.

 "It is hugely disappointing that the administration did not follow through on their commitment to address reform of Fannie Mae and Freddie Mac in the budget proposal they released yesterday," said Corker. "In a January 11 letter to Secretary Geithner I asked about the federal government's honest obligations regarding Fannie and Freddie, the future of these agencies, and the landscape for our mortgage markets as we work our way out from the last few years of excess. I hope he will soon address my concerns. 

 "Throughout the debate on regulatory reform, the future of the mortgage markets in the United States has been off the table as we waited for the administration's proposal.  They were a large part of the problem in the financial crisis and should be a part of any comprehensive reform." 

In January, Corker wrote to U.S. Treasury Secretary Timothy Geithner about Treasury's decision to remove the $200 billion per enterprise cap ($400 billion total) on government-sponsored enterprises Fannie Mae and Freddie Mac, which, in effect, provides a blank check for the amount of "credit" that will be made available to the two mortgage giants. Corker went on to express concern about the lack of understanding and transparency around this arrangement and asked Geithner to respond to a series of questions about the action. In particular, Corker expressed his strong belief that the liabilities of these two firms be reflected on the balance sheet of the U.S. Treasury.

In his January 11 letter to Sec. Geithner, Corker states:

"On December 24, 2009, the United States Department of the Treasury announced amendments to the Preferred Stock Purchase Agreements it has with the government-sponsored enterprises Fannie Mae and Freddie Mac.  Those amendments removed the $200 billion per enterprise cap ($400 billion total) and, in effect, wrote a blank check for the amount of "credit" that will be made available to the two mortgage giants.

"Since the 2008 decision to place the entities into conservatorship and take a 79.9% preferred stock position in the companies in lieu of 80%, a move purposefully intended to not have to show the liabilities of these two companies on the balance sheet of the U.S. Treasury, the implied guarantee has been made effectively explicit.  As a member of the Senate Banking Committee, I remain concerned about the lack of understanding and transparency around this arrangement to the American taxpayer and investors here and abroad.

"The dollar amounts, when looked at in total that are guaranteed in some form or fashion by the U.S. Treasury Department, are in the trillions of dollars, yet this liability will not appear on the balance sheet of the United States government.

"In regard to your December 24 decision, I ask that you respond to the following requests and questions:

1. Could you please provide me with the technicalities you referred to regarding the decision to provide unlimited support to the enterprises and their liabilities? Also, please accompany this with the citing of legal authority giving you the ability to take these actions.

2. Due to the level of support that this Administration and the previous one have created for Fannie Mae and Freddie Mac, would you not consider your latest move an effective nationalization of these two GSEs? If so, then the liabilities of these two firms should absolutely be reflected on the balance sheet of the U.S. Treasury.

3. Please explain the steps taken prior to the December 24 action to guarantee that shareholders and other debt holders are not unfairly benefiting from this largesse. Please outline what has been done to guarantee that the Treasury will recoup all of its investment prior to any shareholder or other debt holder returns.

4. Is it fair to assume that your decision to not appoint someone to head oversight of these agencies is due to the fact that they now function as a direct extension of the Treasury Department?

5. To what degree have Fannie and Freddie been directed to make subprime or other nonprime loans in order to stabilize housing prices? 

6. What are the delinquency rates on the loans Fannie and Freddie have guaranteed or hold in portfolio? What are the delinquency rates on loans acquired since September 2008? In addition, I would like to receive copies of any written reports and summaries of oral reports that Treasury has received from Fannie or Freddie as to anticipated losses in the future.

7. In the August release of the Administration's financial regulatory reform proposal, "A New Foundation:  Rebuilding Financial Supervision and Regulation," it is stated Treasury would be engaging in an initiative to determine the future role of the government-sponsored enterprises and recommendations would be forthcoming in the President's February FY 2011 Budget release.  In light of Treasury's determination to provide continued capital support to Fannie Mae and Freddie Mac, I want to reaffirm your commitment to releasing those recommendations along with the FY 2011 Budget release."