Comprehensive housing finance reform, including a winding down of Fannie Mae and Freddie Mac, remains a top priority for the Obama administration, a Treasury Department official said.

"The GSEs in conservatorship have done an exceptional job of maintaining a deep and liquid secondary market in and following the recent crisis," Michael Stegman, a counselor to the Treasury Secretary on housing finance, told attendees at the ABS Vegas 2014 Conference.  "However, we believe that continued uncertainty about their political future will continue to be a headwind impeding access to credit especially for average families with less than pristine credit."

Stegman said the GSEs' recent profitability was misleading and does not lessen the need for housing finance reform.

"It is good news that the GSEs have generated record earnings over the past several quarters," Stegman said. "It reflects positive trends in the housing market, and that is good for American families, taxpayers, and the economy. But we believe that their recent financial results may significantly overstate the true financial condition of the enterprises, especially on a go-forward basis."

He noted that $75 billion of combined GSE net income through the third quarter of 2013 was in one-time tax reversals; another $11 billion in comprehensive income was due to the release of loan loss reserves; and $10 billion came from one-time settlements of legacy MBS litigation. 

"Excluding these one-time gains, in the first nine months of 2013, more than 60% of the rest of the GSEs’ combined income was generated through their retained investment portfolios, which are required to shrink by 15% per year on a go-forward basis under Treasury’s Preferred Stock Purchase Agreements."

Recent financial results at the enterprises have also benefited significantly from strong home-price appreciation and low interest rates, both of which may moderate in future periods, Steman said.

Stegman also said that the planned increase in guarantee fees charged by Fannie and Freddie, was not enough to attract private capital to the mortgage market. He called for more leadership in addressing standards in private label residential mortgage backed securities, particularly around reps and warranties, trustee obligations, data and disclosure, loss mitigation, and related issues. 

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