Get Rid of Non Performing Loans
According to Reuters - U.S. government officials on Thursday said the nation's biggest mortgage finance companies need to hurry up the sale of their non-performing loans. Michael Stegman, the counselor to the Treasury's secretary for housing finance policy, favored programmatic sales of non-performing loans at Fannie Mae and Freddie Mac and for a faster reduction in the most non-liquidable assets held by the two government-sponsored enterprises.
"The closer the GSEs can come to transferring the majority of risk to private market participants, the better," Stegman told a Goldman Sachs conference. He said the only way to repair the government-controlled mortgage finance firms was through reform through legislation. Fannie Mae, is the nation's largest source of mortgage funds, and its sister firm Freddie Mac were bailed out by the government in 2008. Speaking at the same conference, Federal Housing Finance Agency Director Mel Watt said Fannie Mae and Freddie Mac have been directed "to make significant efforts in 2015 to reduce the number of severely delinquent loans they hold and to do so in a responsible way."
Stegman spoke about what he called a cutting-edge project to develop a common securitization platform (CSP), which he said would modernize the GSEs' securitization infrastructure. But he said the best way for the initiative to succeed was by opening it up to include other stakeholders. "Expanded governance of the CSP joint venture to include non-GSE stakeholders are all in the interests of moving towards a more sustainable future housing finance system," Stegman said.
Since becoming a part of the conservatorship in 2008, Fannie and Freddie's investment portfolios have been nearly halved, and they are required to shrink further to less than $500 billion in total by year-end 2018, the Treasury official pointed out. But without a legislative overhaul, the GSEs still act as a risk that needs to be fixed now, and not in the middle of the next crisis, he said. Watt said the agency has gathered feedback into its Single Security initiative and will give more details into the structure of the plan in the second quarter of this year.
"We believe this update report will be a significant milestone in defining the structure and processes necessary to successfully transition to a Single Security in the future," Watt said. The Single Security initiative was launched as a way to improve the overall liquidity of Fannie and Freddie's securities, which currently are not interchangeable with one another.
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