NEW YORK (Reuters) - The Treasury will not launch its revamp of housing finance until next year as it concentrates first on swift implementation of financial reform legislation, the Treasury's number two official said on Thursday.
U.S.-backed housing finance giants Fannie Mae and Freddie Mac, with their broken business models, are notoriously absent from the U.S. financial rules overhaul close to becoming law.
The Treasury says inclusion of housing finance reform would bog down the broadest Wall Street reform since the Great Depression and delay needed rule changes on consumer protection, systemic risks and derivatives markets.
"Early next year, we will put forward a paper outlining our proposals and recommendations" to reform government-controlled mortgage finance providers Fannie Mae and Freddie Mac , Deputy Treasury Secretary Neal Wolin told the Securities Industry and Financial Markets Association (SIFMA) conference in New York.
"We will undertake this work in parallel with the work of implementing the financial reform bill," Wolin added. "It is obvious that the housing finance system cannot continue to operate as it has in the past. We have already begun a broad review of the housing finance system,"
Due to the high stakes in reforming Fannie and Freddie, whose mortgage losses have cost U.S. taxpayers more than $145 billion since late 2008, Wolin said the Treasury is "wide open to ideas, to discussion and to collaboration from all corners.".
"We aim to have as inclusive of a process as we can," he said.
Treasury has already begun a "rigorous" implementation planning process for the sweeping financial reform legislation now under consideration by the U.S. Senate and wants to move swiftly once it becomes law, Wolin said.
"That work cannot be done overnight. It will take time. But we are prepared to move on to the next stage with speed, with a strong sense of purpose and with a commitment to ensuring that our financial system is both safe and vibrant," he said.
The U.S. Senate is expected to take a final vote on the legislation later on Thursday or early Friday.
ALWAYS NEXT YEAR?
Lawmakers for at least a decade have been trying to overhaul Fannie Mae and Freddie Mac, which expanded rapidly under a business model that answered to shareholders yet enjoyed implicit government backing.
"It's always been next year," Randall Guynn, a partner at Davis Polk & Wardwell, said on a panel of the SIFMA banking and investment group, in regards to again kicking Fannie and Freddie reforms down the road.
Congress has been concerned that fiddling with the housing finance companies could upset the economic recovery as they and the Federal Housing Administration support the lion's share of all funding for U.S. homebuyers. Investors have yet to return in any significant numbers to the private market for residential home loans.
Housing finance reform could also have overloaded the wider Wall Street bill, which has been a sensitive topic for the SIFMA group, which includes Wall Street's biggest banks and investors whose profitability is threatened should they be forced to tie up capital, or reduce trading. Its president applauded parts of the legislation but warned members of a "complicated multiyear process" where more than a dozen regulators will implement over 250 rulemakings.
Among concerns of some financial firms is a situation where the U.S. rules are far more onerous than elsewhere in the world, putting American businesses at a disadvantage. Wolin said "there is a very substantial overlap" in views between U.S. regulators and their global counterparts on the core issues such as capital and derivatives.
This means there will be little space for an investment bank or other firm to gain an advantage by incorporating in places where reforms may be more business-friendly, he said.
"I don't see any reason to think that that will happen," he said in response to a question about U.S. businesses leaving because of new regulations.
(Reporting by David Lawder and Al Yoon; Editing by Andrew Hay)
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