Fed’s Jerome Powell calls housing finance system “unsustainable”

Echoes calls for private investment in Fannie and Freddie

Federal Reserve governor Jerome Powell
Federal Reserve governor Jerome Powell

Federal Reserve governor Jerome Powell joined the growing chorus of those who want to see private capital invested in Fannie Mae and Freddie Mac, as lawmakers work to pull the mortgage firms out of government conservatorship.

Powell, the Fed’s point person for regulatory affairs, called the country’s housing finance system “unsustainable” and said it needs an overhaul, the Wall Street Journal reported. He also encouraged private investment into Fannie and Freddie that would help to avoid the kind of taxpayer bailout of 2008, when the government took over the two companies.

“No single housing finance institution should be too big to fail,” Powell said in prepared remarks at the American Enterprise Institute. “We need to move to a system that attracts ample amounts of private capital to stand between housing sector credit risk and taxpayers,”

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The Fed supervises some of the largest lenders that sell loans to Fannie and Freddie.

The Senate Banking panel is trying to get Fannie and Freddie out of conservatorship, including a new backstop if private capital dries up. President Trump has stated his support for overhauling Fannie and Freddie.

Powell said his remarks were not made to back any specific proposal. But he urged that if Congress creates an additional government reserve, the guarantee should apply to securities and not institutions.

Last month, an investor group including Paulson & Co. and the Blackstone Group proposed turning Fannie and Freddie into private companies without passing new laws.  [WSJ]E.B. Solomont