(Bloomberg) — Common shares of Fannie Mae and Freddie Mac pared double-digit percentage losses in Tuesday trading as Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell discussed the government’s control over the mortgage giants.
Powell and Mnuchin testified before the Senate Banking Committee
In response to a question from South Dakota Republican Mike Rounds on when the government can end FNMA, FMCC conservatorship, Mnuchin said it’s something that should be done but it takes time, while Powell agreed it’s something that needs to be done “carefully”
Mnuchin said he didn’t think FNMA, FMCC should be let out from conservatorship without appropriate capital
“I would certainly like to see the GSEs return to private hands over time,” Powell said “with a lot of private capital behind it”
Yes Jerome, if there were that much private capital available, we wouldn’t be having this discussion in the first place.
The cure (which no one in the US Senate is really interested in) is for Fannie Mae and Freddie Mac to focus on purchasing 5/1 ARMs (adjustable-rate mortgages) rather than the dreadnought 30Y Fixed-rate mortgage that the affordable housing community is obsessed with. Generally, the 5/1 ARM rate is lower than the 30Y FRM rate.
Or Quicken’s push for 15 year mortgages that enable borrowers to pay down their mortgages much more rapidly. And 50 basis points less expensive the 30Y FRM.
But what does Congress insist on F&F doing? Buying the riskiest mortgage product, the 30Y FRM.