U.S. Treasury nominee Steven Mnuchin appeared to back away from a plan to end government control over housing lenders Fannie Mae and Freddie Mac during his confirmation hearing.
Share of Fannie Mae FNMA, -4.30% and Freddie Mac FMCC, -4.71% sank as Steven Mnuchin, President-elect Donald Trump’s pick for the top Treasury spot, said he did not support a plan to recapitalize and release the two companies from government control.
Fannie and Freddie, companies which provide liquidity to the mortgage market by buying home loans from banks and other lenders, fell into government conservatorship during the 2008 financial crisis. They’ve lingered there ever since.
In 2012, the Obama administration began to capture all the quarterly profits from the two companies, a move that shareholders have fought vigorously in court.
The share prices surged after the election as investors bet the incoming Trump administration would be more friendly to shareholders. Several administration officials, including Mnuchin, have close ties to investors in the two enterprises.
On Thursday, Mnuchin told the Senate Finance Committee that comments he made after the election were not intended to signal support for “recap and release,” but he did not specify what he intended to do to accomplish housing finance reform.
Most housing analysts believe Fannie and Freddie, or some entity that functions in the same way, are necessary for the housing market to function smoothly. It’s just too difficult for individual lenders to offer loans for 30 year periods at fixed rates, most analysts believe.
Dr. Ben Carson, Trump’s nominee as head of the Department of Housing and Urban Development, waffled on the importance of the 30-year fixed-rate mortgage at his hearing. He said he wasn’t sure it required government backing.
Shares in the two companies recovered in the afternoon but remained well below their opening price.