Federal Reserve Chairman Alan Greenspan has spoken out again
in favor of limits on the multi-million dollar portfolio holdings of the two
biggest players in the mortgage game, Freddie Mac and Fannie Mae.
In remarks prepared for delivery via satellite to a housing conference in Atlanta,
the Chairman restated his belief that Congress should put stringent limits on
the two Government Sponsored Enterprises (GSEs) which together
hold mortgages and mortgage backed securities valued at about $1.5
trillion. Their combined holdings 15 years ago were $132 billion. Greenspan
stated that these holdings were far above that needed to allow the two corporations
to fulfill their respective housing missions.
If Congress were to limit these holdings to the numbers needed for those missions
it would require substantial liquidation on the part of the two GSEs, a task
that Greenspan has repeatedly said could be accomplished with little disruption
to the housing market.
Greenspan has, over the last few months, repeatedly called for portfolio restrictions.
He seems particularly troubled by what he views is a public perception that
Freddie and Fannie are government insured entities. This, he has stated, not
only promotes risk-taking on the part of some investors, but also gives the
corporations a competitive advantage when it comes to mortgage rates.
The two were created by Congress as vehicles to pump money into the housing
market but are both publicly traded stock companies. If Congress
fails to rein in the size of the portfolios, he said Thursday, it might risk
“solidifying investors’ perceptions that the GSE’s are instruments
of the government.” This competitive advantage over other financial companies
is leading to a dangerous concentration of power in the two, he said.
Chairman Greenspan said that the Federal Reserve sees little evidence that
the availability of fixed rate mortgages is tied to the portfolios and that
it is doubtful that the two companies’ portfolios can influence home ownership,
contribute to mortgage liquidity or to the advancement of capital markets. Homeownership,
he said, seems to be increasing because of the growing incomes of households
and generally low borrowing costs.