Geithner Homes in on Fannie, Freddie as Part of ‘Broader Failures’
- Aug 17, 2010
August 17, 2010
By Allison Landa, News Editor
Treasury Secretary Timothy Geithner didn’t hold back on Tuesday when addressing the role of government-sponsored enterprises Fannie Mae and Freddie Mac in the U.S. financial crisis.
When addressing an Obama-administration hosted conference on the future of housing finance, Geithner said of the two GSEs: “Alongside the broader failures that contributed to this financial crisis, there are several that directly involved the government-sponsored entities, Fannie Mae and Freddie Mac.”
Geithner went on to say that Fannie and Freddie lowered their underwriting standards, providing guarantees for riskier mortgages without charging enough to cover that risk, while at the same time being allowed to accumulate portfolios of mortgage-backed securities that at their greatest reached more than $1.6 trillion dollars, even as they lacked the resources to cover potential losses.
“They were not the sole causes of the crisis,” he said, “but they made the financial crisis worse. And they resulted in huge losses for the taxpayer. Now, these failures in our housing finance system were avoidable. And it is our responsibility to make sure that we create a system that is not vulnerable to these same failures happening again.”
He also called for a process by which the markets’ reliance on government programs is decreased, giving leeway for the private sector to take on the responsibility of providing mortgages.
Geithner’s remarks came on the heels of Fannie Mae’s return to the U.S. Treasury last week, asking for $1.5 billion in the wake of its net loss of $3.1 billion, or 55 cents a share, during the second quarter.