Second Round of Bills Reforming Fannie, Freddie Approved By House Subcommittee

The House of Representatives Capital Markets and Government Sponsored Enterprises Subcommittee has considered and advanced six proposals to protect taxpayers by reforming Fannie Mae and Freddie Mac.

The Subcommittee approved the following bills:

The Fannie Mae and Freddie Mac Taxpayer Payback Act (H.R. 2436).  As part of ensuring Fannie and Freddie would repay taxpayers for the bailout, the two companies are required to make dividend payments on the senior preferred stock held by Treasury. Recent reports, however, have indicated the Obama Administration is considering lowering the dividend payments required.

The Fannie Mae and Freddie Mac Taxpayer Payback Act, sponsored by Rep. Don Manzullo, prevents the Treasury Department from lowering the 10% dividend payment paid to taxpayers on the senior preferred stock on Fannie Mae and Freddie Mac. The legislation was approved by voice vote.

The Housing Trust Fund Elimination Act (H.R. 2441).  At a time when Fannie and Freddie continue to rely on their taxpayer bailout and continue to report losses, the legislation ensures American taxpayers are not on the hook for funding the Affordable Housing Trust Fund. In September 2008, the FHFA suspended the GSEs’ contributions to the Housing Trust Fund in light of their losses and their taxpayer bailout. Many concerns have been raised about the Housing Trust Fund being nothing more than a slush fund for special interest housing groups paid for by a tax on Fannie Mae and Freddie Mac.  The legislation was approved by a vote of 18 to 14.

The proposed legislation: amends the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 to abolish the HOPE Reserve Fund, Housing Trust Fund, and Capital Magnet Fund and make available any amounts in such funds to the Secretary of the Treasury for use in reducing the federal budget deficit; and repeals requirements that the Federal Loan Mortgage Corporation (Freddie Mac) and the Federal National Mortgage Association (Fannie Mae) make allocations for the Housing Trust Fund and the Capital Magnet Fund.

The Fannie Mae and Freddie Mac Transparency Act (H.R. 463).  Rep. Jason Chaffetz’s bill subjects Fannie Mae and Freddie Mac to the Freedom of Information Act (FOIA).  Since Fannie and Freddie were originally chartered by the federal government, but are not technically part of the federal government, they have been exempt from FOIA.

According to the Subcommittee, now that they are under federal government conservatorship, essentially making them government companies, it only makes sense that both companies be subject to the same FOIA standards as the rest of the federal government. Without this legislation the public will not be able to access the GSEs’ records. The legislation was approved by voice vote.

The bill thus seeks to: amend the Federal National Mortgage Association Charter Act and the Federal Home Loan Mortgage Corporation Act to provide that, during any period in which either the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac) is under conservatorship or receivership, it shall be considered an agency subject to the public information disclosure requirements of the Freedom of Information Act.

The Market Transparency and Taxpayer Protection Act (H.R. 2440).  The bill, sponsored by Rep. Robert Hurt, reduces the government’s role in the mortgage market by directing FHFA to require Fannie Mae and Freddie Mac to dispose of all non-mission critical assets.  The legislation was approved by voice vote.

“With more than $150 billion in taxpayer funds already spent propping up Fannie and Freddie and hundreds of billions more a possibility, it is critical that we begin the process of winding down these Government Sponsored Enterprises and increasing the role of the private sector in the secondary mortgage market to strengthen our housing finance system.,” Rep. said in his explanatory note to the bill.

The Cap the GSE Bailout Act (H.R. 2462).  The bill, sponsored by Rep. Michael Fitzpatrick, ends the blank check provided to Fannie Mae and Freddie Mac by the Obama Administration on Christmas Eve 2009.

The Subcommittee explained that the bailout of Fannie and Freddie was limited to $200 billion in 2008. In February 2009, the Obama Administration raised the limit to $400 billion. Then, on Christmas Eve 2009, the Obama Administration announced it was providing unlimited taxpayer funds to Fannie and Freddie. The Cap the GSE Bailout Act sets a limit on the amount of money that the American taxpayers will be charged for the bailout of Fannie Mae and Freddie Mac to the larger of two amounts: the amount Fannie and Freddie have received from 2010 to 2012 or $200 billion.  The legislation was approved by voice vote.

The Removing GSEs Charters During Receivership Act (H.R. 2439).  The bill, sponsored by Rep. Steve Stivers, gives FHFA the power to revoke the charters of Fannie Mae and Freddie Mac and requires FHFA to revoke the charter when a successor, limited-life entity is dissolved.  The legislation, approved by a voice vote, makes certain that the failed Fannie and Freddie model is not recreated.

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