Financial Regulatory Forum

US to focus on housing stability in reform of Fannie Mae, Freddie Mac – Barr

By Reuters Staff
February 1, 2010

(Adds background, comment)

By Al Yoon

WASHINGTON, Feb 1 (Reuters) – The Obama administration must ensure U.S. housing market stability is retained as it reforms the nation’s two largest providers of home mortgage credit, a top Treasury Department official said on Monday.

The administration will further outline principles that will guide the reforms of Fannie Mae and Freddie Mac, two government-sponsored enterprises, said Michael Barr, the Treasury’s assistant secretary for financial institutions.

“We want to be sure, that as we move to reform the GSEs, we are focused on retaining strong market stability in our housing sector,” Barr told a conference of the American Securitization Forum, a group that promotes interest in the public and private bond markets.

Barr’s comments came after Obama’s fiscal 2011 budget proposal was short on details of how it would rework the GSEs, which have incurred billions of dollars in taxpayer losses under a model that accepts government support but rewards private shareholders.

Speaking to the ASF, Barr also said that private sources of credit must also do more to win investor confidence and reform their markets that created some of the riskiest mortgages and fueled the worst financial crisis since the Great Depression.

“We cannot rebuild securitization markets on the old infrastructure,” he said. “We look forward to seeing further reform efforts by this industry.”

The government’s role in stabilizing the housing and mortgage markets has seen some success, but more must be done with a benchmark program for easing payments on loans to borrowers facing foreclosure, he said.

The administration’s program to modify second-lien residential loans is making headway, with major loan servicers expected to sign up soon, he said. The program will “ameliorate” the negative equity problem that has dogged the housing market where prices have fallen more than 30 percent since the 2006 peak, he said.

Bank of America Corp as the first servicer to sign up for the second-lien program, which was first laid out in April 2009.

(Editing by Padraic Cassidy)

((albert.yoon@thomsonreuters.com; +1 646-223-6347; Reuters Messaging: albert.yoon.reuters.com@reuters.net))

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