Senator Bob Menendez Addresses Dwindling Capital Reserves and Prevent GSES From Requiring Another Draw From Federal Government
Democratic members of the Senate Banking Committee, including Senator Bob Menendez, sent a letter to Treasury Secretary Steven Mnuchin and Federal Housing Finance Agency (FHFA) Director Mel Watt, urging them to address the dwindling capital reserves of mortgage giants, Fannie Mae and Freddie Mac.
The letter urged Mnuchin and Watt to prevent the government sponsored enterprises (GSEs) from requiring another draw from the federal government. Senator Bob Menendez (D-NJ) was one of the senators to sign the letter.
The letter, sent on September 13, 2017 states, “[W]e are concerned about the Department of Treasury and the Federal Housing Finance Agency’s requirement in the Preferred Stock Purchase Agreements (PSPAs) that the GSEs send all their income to the Treasury Department leaving two entities that back more than $5 trillion in mortgage debt with zero retained capital reserves beginning on January 1, 2018. As soon as there are losses at either GSE, the Treasury Department will need to step in and make up the difference. We are simply requesting that the GSEs be permitted to build capital. We do not believe they should be released from conservatorship absent reform.”
The national Housing Trust Fund is funded by a small annual assessment on Fannie and Freddie’s new book of business each year. The HTF’s funding could be jeopardized if, and when one or both of the entities needs an additional draw from Treasury.
The Senate Banking Committee has begun to discuss principles of housing finance reform, and senators have expressed increasing interest in working on a bipartisan housing finance reform bill this year to determine the future of Fannie Mae and Freddie Mac and the broader housing finance system.
The letter requests that Secretary Mnuchin and Director Watt respond by September 29 with an update on actions the administration is pursuing to prevent another Treasury draw by the GSEs.
The letter was also signed by Senators:
- Sherrod Brown (D-OH),
- Jack Reed (D-RI),
- Brian Schatz (D-HI),
- Chris Van Hollen (D-MD), and
- Catherine Cortez Masto (D-NV).
The HTF is the first new housing resource since 1974 targeted to building, rehabilitating, preserving, and operating rental housing for extremely low income people.
In 2016, the first $174 million in HTF dollars were allocated to states. In 2017, $219 million is available. These initial allocations are important steps, but far more resources are needed.