The Treasury's point man on GSE reform said Wednesday that the Obama White House will not propose any changes to government guarantees backing Fannie Mae and Freddie Mac MBS for fear of hurting the liquidity and functionality of the U.S. mortgage market.

In prepared testimony on Capitol Hill, Michael Barr, assistant secretary for financial institutions, said the administration is "committed to ensuring that the GSEs have sufficient capital to perform under any guarantees issued now or in the future and the ability to meet any debt obligations."
Barr noted that Fannie, Freddie, and Ginnie Mae today play an "outsized role" in housing finance, but said, "This situation is neither sustainable or desirable."

Early next year, the White House will unveil its blueprint on the future of the nation's residential finance system with many mortgage executives believing there will be some type of government guarantee involved — but are unsure what form it might take.

One trade group official told National Mortgage News that, "Our members are capitalists and believe in free markets," but jokingly added: "But not when it comes to mortgages. Everyone agrees some government guarantees are needed."

Barr did offer some glimmer of hope for Fannie and Freddie, noting that the GSEs' new book of business is excellent, accounting for less than 1% of post conservatorship credit losses.

He said low credit score mortgages where the FICO grade is less than 620 account for less than 1% of Fannie and Freddie's loan purchases in the secondary market. To date, the government has given the two GSEs $155 billion in cash to keep their capital positions in the black.

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.