Mnuchin rebukes Fannie and Freddie, aims for reform next year

Treasury Secretary Steven Mnuchin told Congress Thursday that he now aims to reform the bailed-out government-sponsored enterprises next Congress, and delivered a message to the companies’ government caretaker to stop allowing them to expand their missions.

“We need GSE reform,” Mnuchin said during testimony before the House Financial Services Committee Thursday. “This is something that I am determined, in the next Congress, should be a major focus of ours — hopefully on a bipartisan basis. But we can’t just leave these things sitting the way they are as they have been.”

Mnuchin, a former banker involved in housing finance, came into office pledging to end the government’s conservatorship of Fannie and Freddie, ongoing since 2008.

But Congress barely got going on reform. Mnuchin said Thursday that he would consider administrative options if Congress does not act next session.

In absence of reforms, Fannie and Freddie have continued evolving while in the government’s hands. Recently, they’ve raised eyebrows in Congress by experimenting with new lines of business, including deals that involve mortgage servicing rights and private mortgage insurance.

At Thursday’s hearing, Mnuchin said they shouldn’t be involved in those activities.

“I think they should stay to their core business,” he said.

Fannie and Freddie are overseen by Federal Housing Finance Agency director Mel Watt, an Obama appointee. His term expires next year.

In May testimony, Watt defended allowing Fannie and Freddie to grow their lines of business in order to pursue the goal of affordable housing.

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