Senator Corners Geithner On GSEs

Posted by Orb Staff on January 12, 2010 No Comments
Categories : Residential Mortgage

Treasury Secretary Tim Geithner has been asked by a member of the Senate Banking Committee to explain the Christmas Eve decision to uncap federal support for Fannie Mae and Freddie Mac.

In a letter to Geithner Monday, Sen. Bob Corker, R-Tenn., expressed 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 belief that the liabilities of these two firms should be reflected on the balance sheet of the U.S. Treasury.

"Since the 2008 decision to place the entities into conservatorship and take a 79.9 percent preferred stock position in the companies in lieu of 80 percent, 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," Corker wrote.

Noting the unprecedented level of support that both the Bush and Obama administrations have created for the government-sponsored enterprises (GSEs), Corker asked if Geithner would consider the Dec. 24 decision an effective nationalization of the GSEs.

"If so, then the liabilities of these two firms should absolutely be reflected on the balance sheet of the U.S. Treasury," he added.

Corker additionally asked about GSE portfolio performance, the extent to which the Treasury can guarantee it will recoup its investment prior to shareholder returns, and whether Fannie and Freddie now function as a "direct extension" of the Treasury.

When it released its financial regulatory reform proposal in August 2009, the Obama administration intimated that the Treasury, as part President Obama's fiscal-year 2011 budget release, would issue recommendations regarding the GSEs' structures. The budget's due out in February.

"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," Corker wrote.

SOURCE: Office of Sen. Bob Corker

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