Fannie, Freddie recapitalization would take 20 years -- official

by Ryan Smith13 Jun 2014
The White House is hitting back against investors who say Fannie Mae and Freddie Mac should be reprivatized.

A Treasury official said today that recapitalizing the GSEs would take 20 years, and that in the meantime taxpayers would be at risk.

“Critics of reform would suggest that we can simply recapitalize the GSEs and avoid difficult decisions around creating a new system,” Treasury Undersecretary Mary Miller said at a housing conference. “Even if truly rehabilitating the GSEs were possible, recapitalizing them adequately would take at least 20 years. … During these 20 years, the taxpayer would remain at risk of having to bail out the GSEs during another downturn.”

Both the White House and Congress want to wind down Fannie and Freddie, but a Senate effort that would replace them with a new federal backstop has stalled, and a House plan that would essentially privatize the mortgage industry entirely has no Democratic support.

Fannie and Freddie went into government conservatorship in 2008 after teetering on the edge of collapse. They received $187.5 billion in taxpayer aid, but have since paid more to the government in dividends than they were lent.

The GSEs’ recent record profits have spurred calls from investors to take the companies out of conservatorship. But Miller said that much of that profit came from legal settlements.