On March 1, 2011, the House Financial Services Committee held its first full committee hearing on GSE reform in the new Congress; prior hearings have been held by two subcommittees. Treasury Secretary Timothy Geithner was the sole witness at the hearing, which focused on the Obama Administration's recently released white paper on winding down Fannie Mae and Freddie Mac.
Although Secretary Geithner did not express a preference for any of the three options identified in the Administration’s report-(1) a fully privatized market, (2) a catastrophic reinsurance model or (3) a limited federal guarantee-he repeatedly reminded the committee of the unintended consequences associated with a privatized market and stated that “the government would be left with limited tools to help the economy in times of crisis.” He also echoed NMHC/NAA's concerns about an "emergency-only" federal guarantee scenario, noting that it is difficult to scale those programs up quickly and design them carefully in a crisis.
In his testimony, Secretary Geithner called on Congress to pass legislation within the next two years but to undertake the actual wind-down at a "careful and deliberate" pace. Treasury has previously said it would take five to seven years to transition to a new system.
In contrast to earlier hearings, which focused almost exclusively on the single-family sector, there was considerable discussion about the importance of rental housing in this week's hearing. In his opening remarks, Rep. David Scott (D-GA) noted that while the Administration's report rightly concludes that any future system must also include support for the rental housing sector, it does not identify a specific proposal for dealing with the GSEs' multifamily programs.
Rep. Nydia Velazquez (D-NY) pointed out that the GSEs' multifamily programs actually produced a profit for the government and could serve as a model for broader housing finance reform. In response, Secretary Geithner said "in any reform proposal we have to make sure we have a well-designed capacity for the government to help support multifamily housing....Fannie Mae and Freddie Mac gave us a model on how to do that well and prudently." He went on to say that FHA would have to expand to take on some of the work the GSEs have been doing in multifamily.
Secretary Geithner reiterated the Administration’s report's call for a more balanced housing policy, noting that providing housing support "does not mean that our goal can be for all Americans to be homeowners. We need to provide a broader range of affordable options near good schools and good jobs for the hundred million Americans who rent, whether they do so by choice or financial necessity."
Later, in response to comments by the committee’s Ranking Member Barney Frank (D-MA) that the U.S. has historically overemphasized homeownership, Secretary Geithner concurred, saying "we very much support the emphasis on rental multifamily...too much of the support we provided went to homeownership instead of rental." He repeated the point several times during questioning.
He also affirmed that the majority of the losses incurred by the GSEs are concentrated in their single-family business, not multifamily, a point NMHC/NAA have helped educate lawmakers on in our advocacy efforts.
A webcast of the hearing and Secretary Geithner’s written testimony are available at http://bit.ly/gNL8PJ.