GSEs Get Tongue-Lashing from Geithner

In a blistering rebuke to government-sponsored entities Fannie Mae and Freddie Mac at this week's Obama-administration hosted conference on the future of housing finance, Geithner blasted the two for lowering their underwriting standards to provide unbacked guarantees for riskier mortgages while simultaneously accumulating portfolios of mortgage-backed securities that at their greatest reached more than $1.6 trillion.

Treasury Secretary Timothy Geithner is mad as hell and he’s not going to take it any more. In a blistering rebuke to government-sponsored entities Fannie Mae and Freddie Mac at this week’s Obama-administration hosted conference on the future of housing finance, Geithner blasted the two for lowering their underwriting standards to provide unbacked guarantees for riskier mortgages while simultaneously accumulating portfolios of mortgage-backed securities that at their greatest reached more than $1.6 trillion.

Geithner also declared the need for a process by which the markets back away from their reliance on government programs, thereby letting the private sector retake the business of issuing mortgages.

“It is important to note that reform,” he said, “is about more than designing an elegant funeral for Fannie and Freddie. It requires a broader reassessment of how much support the government should provide for housing finance. … The stakes are high. For many Americans, their home is their largest financial asset and the housing industry supports millions of jobs.”

Geithner’s anger is understandable. Last week Fannie Mae came to the U.S. Treasury to ask for $1.5 billion after having incurred a net loss of $3.1 billion, or 55 cents per share, during the second quarter. This comes atop last quarter’s request for $8.4 billion in funding. Even after this quarter’s bailout is repaid, the total paid from the Treasury to Fannie Mae will be $86.1 billion.

Will the GSE ever be able to pay that money back? Only time will tell. In the meantime, expect more harsh words from Geithner and colleagues as they try to get the economy back on track.