Bernanke Says Status of GSEs in "No-Man’s Land". Discussing Reform, Reorganization, Reassurance

by devteam February 25th, 2010 | Share

We've been discussing the fate of the GSEs quite often over the past few months. The broad majority of conversation has focused on their “up in the air” political status.

Yesterday, speaking before the House Budget Committee, Treasury Secretary Tim Geithner said the Treasury will lay out broad principles for Fannie and Freddie later this year while legislative proposals would come next year. Geithner also informed us that he did not believe it was necessary to consolidate the obligations of Fannie Mae and Freddie Mac onto the federal budget.

Geithner's words were: “We do not think it is necessary to consolidate the full obligations of Fannie and Freddie onto the nation's budget but we do think it's very important … that we make it clear to investors around the world that we will make sure that we will take the actions necessary” to ensure their stability”


Today, during the Q&A session of his annual report to Congress, Chairman of the Federal Reserve Ben Bernanke said we are in “no-man's land” with Fannie and Freddie. He indicated that reform options include privatization or making them a government utility.(HA re:privatization)

He also said the sooner Congress can provide clarity on the future of the GSE's, the better.

The Treasury Secretary's extended timeline for Enterprise political developments and the Fed Chairman's sentiment that the GSE's are in “no-man's land” implies we should not be expecting significant reform progress any time soon.

I believe the Collingwood Group has approached this topic from the right perspective.

From The Voice of Housing:

The US Housing Finance Industry is like a stool with 3 legs. One of those legs is the “government”-sector leg existing primarily through FHA and Ginnie Mae; the second leg is the “private”-sector leg and functions through large diversified financial institutions such as Bank of America, Citi, Chase, and Wells Fargo; and the third leg of that stool is the “quasi-qovernmental”-sector and functions through Fannie Mae and Freddie Mac.

Today, two of those legs – the “private” and “quasi-governmental”-sectors – are broken.  And the third leg, the “governmental”-sector, is straining mightily under the weight of the burden that has been placed upon it to carry the load during these historic housing crises. To be sure, FHA and Ginnie Mae – and most importantly the many professionals that fill their ranks, have performed heroically during this crises.  Without the success of both organizations in taking up the slack left by the void created in the failure of the other industry sectors, the damage to this nation's economy would have been even more profound and far longer lasting.

It is precisely this interdependence, though, that demands that any plan to recast the nation's housing finance industry be done holistically – with the proper analysis and understanding of the implications and impacts of decisions relating to one of these three critical sectors on the other. 

In other words, action to reform the GSEs can't effectively take place without proper consideration being given to the impacts on FHA and Ginnie Mae, and visa versa.  To do otherwise would be like stitching a cut on a patient without giving any consideration to the risk of infection – the bleeding may stop, but the patient may still die.

Concerning the future form of the US housing finance industry, lets begin by focusing on the three “Rs”: reform, reorganize and reassure


Until these steps are taken, we are just kicking the can down the road.

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About the Author


Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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