Treasury Pick Mnuchin Clarifies GSE Stance: No 'Recap and Release'

WASHINGTON – President-elect Donald Trump’s pick for Treasury secretary said he did not support a plan – known as “recap and release” – for returning Fannie Mae and Freddie Mac to the private sector, clarifying earlier remarks that had caused confusion about the incoming administration’s housing finance agenda.

In his confirmation hearing Thursday, Mnuchin said he was “never [supportive] of recap and release” for the government-sponsored enterprises. Mnuchin suggested his comments from December, made in a television interview shortly after his nomination was announced, were misread.

“What I’ve committed to is that I will work with both the Democrats and Republicans. We need housing reform, so we shouldn’t just leave Fannie and Freddie as-is for the next four or eight years under government control without a fix,” Mnuchin said in his confirmation hearing before the Senate Finance Committee.

To date, the legislative reform proposals for Fannie and Freddie have ranged from unwinding them while retaining a government backstop for mortgages, to getting the government out of the housing finance system entirely.

But some read Mnuchin’s December interview on Fox Business as supporting a proposal, backed by Fannie and Freddie investors, to recapitalize the mortgage giants and preserve them in some form. “We gotta get Fannie and Freddie out of government ownership,” he said on the cable news channel. “We'll make sure that when they're restructured, they're absolutely safe and they don't get taken over again.”

He struck a more cautious tone in his confirmation hearing. While he said he wanted to work with lawmakers on a long-term reform plan for the GSEs, it was unclear which reform approach he or the new administration would support.

“I believe we can find a bipartisan fix for these, so on the one hand we don’t end up with a giant bailout, [and] on the other hand we don’t run the risk of completely eliminating housing finance,” he told the committee.

He noted that “for very long periods of time, I think, Fannie and Freddie have been well-run without creating risks to the government.”

“I believe that these are very important entities for creating necessary liquidity for housing finance,” Mnuchin said.