Paulson endorses Fannie, Freddie capital moves
WASHINGTON—Treasury Secretary Henry Paulson on Wednesday endorsed moves by Fannie Mae and Freddie Mac to expand their roles in the stricken mortgage market while pressing for greater oversight of the struggling government-sponsored companies.
Paulson acknowledged that Fannie and Freddie, which together issue more than three-quarters of securities backed by home mortgages, have been "stressed" by the crisis in the housing market. But he rejected the view, held by many analysts, that allowing them to buy up additional mortgages poses a threat to their stability and the financial system.
"We in Treasury are appreciative of the role they're playing," Paulson said in an interview with The Associated Press.
Moreover, if investors are willing to pump fresh capital into Fannie and Freddie, the companies should "go get it" Paulson said.
After reporting a $2.2 billion first-quarter loss on Tuesday, Fannie said it plans to raise $6 billion, mostly by selling stock, as it seeks to play a bigger role in making funds available to homeowners. Wall Street showed approval, pushing up Fannie's stock price by 9 percent, and the agency that regulates the company said it would loosen rules intended to limit how much debt the company can take on.
On Wednesday, the notion that the housing slump is hardly over was reinforced by data released by the National Association of Realtors. The industry group reported that pending U.S. home sales tumbled to a new low in March. The report pushed stocks of homebuilders mostly lower; D.R. Horton Inc., one of the largest builders, dropped $1.15, or nearly 7 percent, to $15.70 in late afternoon trading.
Shares of Fannie fell almost 5 percent, or $1.52, to $29.29.
The battered housing market "continues to be the biggest risk to the downside" for the economy, Paulson said during the interview. Even optimists generally expect the dislocation to continue for at least several months, he noted.
Amid the housing distress and the financial turmoil it sparked, the government has increasingly looked to Fannie and Freddie to step up their roles and help restore stability to the market by buying up more mortgages and bundling and selling them as securities.
In March, federal regulators reduced by a third the mandatory cash cushion that must be held by the companies. That was intended to free up an additional $200 billion to finance new mortgages and help existing homeowners refinance into more affordable ones.
At the same time, Paulson said Wednesday that he, like other Bush administration officials, continues to press for legislation to tighten government supervision of Fannie and Freddie.
A measure endowing new powers on a regulator has become a key bargaining chip for congressional Democrats seeking Republican support for a $300 billion housing rescue plan. But President Bush threatened Wednesday to veto the housing package, contending that by having the government insure new mortgages for struggling homeowners, it would open taxpayers to excessive risk while rewarding lenders and speculators.
Bush's opposition clouded prospects for a bipartisan housing plan that would include the regulatory overhaul of Fannie and Freddie.
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