Treasury Chief Rules out GSEs as Buyers of MBS

Fannie Mae and Freddie Mac will not be buyers -- or active sellers -- of mortgage-backed securities while they remain in conservatorship, Treasury secretary Timothy Geithner declared Tuesday. During this conservatorship period, the secretary said Treasury will continue to provide capital for the GSEs, allowing them to support the primary and secondary mortgage markets. The Federal Reserve is slated to stop buying agency MBS at month's end and there had been speculation that the GSEs might become buyers -- if necessary -- to keep rates from spiking. At the same time, Treasury wants to reduce their giant investment portfolios. "Treasury remains firmly committed to ensuring that the GSEs' retained portfolios are substantially reduced," Geithner told the House Financial Services Committee. The secretary also said it would be "irresponsible" to abolish the GSEs today but he favors a redesign of the nation's housing finance system. At the beginning of Tuesday's hearing, committee chairman Barney Frank raised the issue of whether FHA, GNMA, and the FHLBs should be restructured too. Mortgage Bankers Association president Michael Berman told the panel the Obama administration should begin to wind down the GSEs as the housing finance system transfers to a new model. "Measures such as focusing the GSEs on a narrow range of mortgages and winding down their portfolios can be undertaken now," Mr. Berman said. "Additionally, the use of good/back bank strategy would help retain the best people, processes and infrastructure from the GSEs," the MBA president testified.