Despite reports to the contrary, Rep. Scott Garrett said Republicans still intend to privatize Fannie Mae and Freddie Mac after a suitable transition.
The New Jersey Republican, who was just appointed chairman of the House Financial Services Committee's capital markets subcommittee, rejected claims that the GOP had softened its attitude toward the government-sponsored enterprises after it took power in the House. "We are not backpedaling at all," Garrett said. "We are still going full ahead."
In an interview, Garrett laid out his priorities, including another push to foster a covered bond market in the United States and his hope that regulators will take their time about writing any regulations required by the Dodd-Frank Act.
But the GSEs remain the overarching priority for Garrett, who said he is awaiting the Obama administration's plan, due this month. "We'll be looking forward to the administration's proposal first," he said.
Though that plan remains unclear, Garrett said the Republicans would probably reject anything that calls for a government mortgage guarantee. "We're certainly not leaning that way."
That includes a push from some within the banking industry to privatize the GSEs but give an explicit government guarantee of the MBS market. Under such a plan, securitizers would pay the government for the guarantee under a system similar to that of deposit insurance. "Any of those proposals still conceivably would facilitate a potential bailout, and we don't want to have that," Garrett said. "Whether you do that straight ways or through the securitization or anything else, you still could potentially put the taxpayer at risk, and we don't want to see that. We also in the larger sense think we need to see whether this is the appropriate role for the government to be subsidizing the housing market through anything of this sort."
To critics who assert that removing any government backing would effectively eliminate the 30-year fixed mortgage, Garrett's response was, "that remains to be seen," and "Is there an alternative?"
"We've had people sitting where you are, and they say, 'well look at Europe, and they don't have this, or look to other countries, and they have a robust housing market without the standard 30-year mortgage' like we have had develop in this country," he said.
He acknowledged that not all Republicans are sold that privatization is the model to support, including Rep. Gary Miller, R-Calif., but he said he intends to win them over by educating them on the alternatives to government guarantees.
"There are probably some on the committee who are engaged but who take a probably slightly contrarian view on this, besides Gary … who will take a concerned view on any significant changes that are made to the GSEs," he said. "What we are going to do in the committee is try to educate and have discussions on where we think we need to go on this."
While Garrett waits for the administration to unveil its GSE plan, he is also working with House Financial Services Committee Chairman Spencer Bachus and other GOP members to assemble a timeline for the most crucial rulemakings triggered by the Dodd-Frank Act.
