WASHINGTON, DC–In one of his first media appearances since President-elect Donald Trump announced that Steve Mnuchin was the Treasury Secretary-designate, Mnuchin addressed the matter of the GSEs.

Namely, he told Fox Business News that he wanted to return Fannie Mae and Freddie Mac to the private sector, although with stronger controls and safeguards in place.

“We have to get Fannie and Freddie out of government ownership,” he said.

Fannie Mae and Freddie Mac's stock went through the roof in response, posting 40% increases on Wednesday following the interview.

Fast Timing

Mnuchin also said the Trump Administration would move relatively fast to get it done.

While it is unlikely that the Trump Administration will look at the GSEs in its first 100 days — comprehensive tax reform, immigration and health care will be dominating the agenda — Mnunchin's comments do provide a sense about how the Trump Administration may view the GSEs. Indeed many Republicans have been advocating for winding down the GSes completely, which is why the comment was particularly telling.

Rep. Jeb Hensarling (R-Texas), chairman of the House Financial Services Committee, has sponsored a bill called the PATH Act that would to do just that, as one example.

Mnuchin's background explains why he favors privatizing the GSEs instead of letting them wind down: He is a former Goldman Sachs Group partner and hedge-fund manager, among other past roles. Perhaps most significantly, Mnuchin led a group of investors in buying the Pasadena, CA-based IndyMac from the US government, six months after the Office of Thrift Supervision seized it.

The bank was renamed OneWest Bank and is now part of CIT Group.

The Confirmation Process

Mnuchin, of course, must be confirmed by the Senate and it is likely his past business dealings — especially the IndyMac chapter — will come under scrutiny. It was the second-largest bank failure of the crisis, topped only by Washington Mutual, a fact that evoked populist rage when the revitalized bank began foreclosing on delinquent homeowners. Today the bank is under civil investigation by the Department of Housing and Urban Development for loan-servicing practices, according to the Wall Street Journal.

Presumably his views on the GSEs will also be questioned by Senators, some of whom view the GSEs with suspicion, certainly ever since they were placed by the Federal Housing Finance Agency into conservatorship in September 2008 and the US Treasury Department established Preferred Stock Purchase Agreements to make sure they maintained a positive net worth. Many politicians on the Hill blamed the GSEs for fueling the subprime mortgage crisis, although in truth the crisis' origins was far more complicated.

Mnuchin hinted at this tension during his interview on Fox.

Efforts to reform the GSEs have been unsuccessful, he said, in part because of “ideological differences on the role government should play in housing finance.”

Instant Insights /

Treasury Secretary-designate Mnuchin Hopes to End GSE Conservatorship Soon

Related Stories

Recommended For You