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Community Mortgage Lenders Renew Call to Capitalize GSEs

Housing Wire has an interesting report on the Community Mortgage Lenders of America renewing their call to capitalize Fannie Mae and Freddie Mac. CMLA initially made this statement last year as the GSEs were recording record profits yet are forced to turn it all over the U.S. Treasury under the illegal Third Amendment Sweep. From the article:

“Both GSEs have recorded 12 consecutive profitable quarters while, at the same time, each is approaching zero capital levels. That leaves the GSEs – and in turn, the taxpayers – at risk from market or overall economic declines as well as continued losses from GSE derivatives.

“The CMLA is repeating its call for Treasury to take immediate corrective action to cure the undercapitalization of the GSEs.”

Fannie and Freddie recently issued their fourth quarter earnings reports, which included the total amount of money each will send to Treasury to satisfy their obligations under the sweep. Combined, the two GSEs will have sent $228.2 billion over three years, which is $40.5 billion more than what they originally drew from the Treasury.

But as Fannie Mae CEO Tim Mayopolous said when the company released its Q4 report, the “possibility of needing to take a draw from Treasury increases over time.”

In line with what Mayopolous has said, CMLA Chair Paulina McGrath is quoted as saying the following in the Housing Wire report:

“There is neither a need nor a rational reason to wait on Congress to act, particularly since GSE reform legislation is far from certain,” McGrath said.

McGrath has zeroed in on what we’ve been saying for a long time now: it is not necessary for an act of Congress to end the conservatorship and the Third Amendment Sweep. As the conservator, we know that the power to end the conservatorship lies within the Federal Housing Finance Agency’s authority to end the conservatorship lies with the

We’re glad to see CMLA continue to draw attention to this important issue. Allowing the GSEs to retain their profits is the best way to protect taxpayers and ensure that Fannie and Freddie are operating at their full strength.