House Financial Services Chairman Barney Frank on Friday said he agrees with the Obama administration's decision to fully back Fannie Mae and Freddie Mac bondholders to provide stability to the housing market and broader financial system.
At the same time, the powerful committee chairman said it would be a mistake to give Fannie and Freddie bondholders the same legal status as holder of U.S. government debt by putting their obligations on the federal books.
"Specifically, I support the intention of the Treasury to stand fully behind the terms of its December 24 statement with regard to Fannie and Freddie debt," Frank said in a statement.
The comments come just hours after Frank said bondholders of major mortgage finance sources Fannie Mae and Freddie Mac should not assume the federal government will guarantee the debt of these government-sponsored enterprises at 100 cents on the dollar and they could theoretically suffer losses.
"It is also the case in going forward, as we restructure housing finance, we will make sure that there are no implicit guarantees, hints, suggestions, or winks and nods," Frank said in the prepared statement.
"We will be explicit about what is and is not an obligation of the federal government," he added.
Frank's statement followed a statement from the Treasury Department that it was standing behind Fannie and Freddie.
Margaret Kerins of RBS Securities said any suggestion that so-called agency debt is not fully backed by the government is incorrect.
"Regardless of the ultimate outcome for the GSEs, we expect all agency debt outstanding and issued under GSE status to remain related to the government. Reducing support is contrary to all of the actions takes by the administration and Treasury," Kerins said in a research note.
Asked about Frank's comments, Treasury Department spokeswoman Meg Reilly repeated the administration's position of backing the companies.
"As we said in December, there should be no uncertainty about Treasury's commitment to support Fannie Mae and Freddie Mac as they continue to play a vital role in the housing market during this current crisis," the Treasury statement said.
The comments come as Republicans on Frank's committee are pushing the Obama administration to put the trillions of dollars in debt obligations on to the federal budget.
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