Garrett Announces Subcommittee Hearing On Legislative Proposals For Immediate Reforms Of Fannie, Freddie

Subcommittee Chairman Garrett said, “The bailout of Fannie Mae and Freddie Mac stands at $150 billion and counting, and 95% of the U.S. mortgage market is now being financed by the federal government. The status quo is not only unacceptable, it’s unsustainable. This important hearing will explore the steps we can take right now, this very instant, to end the bailout, protect taxpayers and get private capital off the sidelines.”

Financial Services Committee Chairman Spencer Bachus said, “Republicans have long recognized the importance and urgency of ending the bailout of Fannie Mae and Freddie Mac and fundamentally reforming the housing finance system. Inaction is not an option.”

During the hearing the Subcommittee will examine legislative steps that Congress can take to rebuild a stable housing finance system based on private capital. The eight bills that will be discussed during the hearing are:

1. GSE Credit Risk Equitable Treatment Act. This bill would help clarify the risk retention rules required under Section 941 of the Dodd-Frank Act to make clear that Fannie Mae and Freddie Mac will be held to the same standards as any other secondary mortgage market participants. A GSE loan purchase or asset-backed security issuance would not affect the status of the underlying assets. The legislation is sponsored by Capital Markets Subcommittee Chairman Scott Garrett.

2. The Equity In Government Compensation Act. The legislation suspends the compensation packages for executives of Fannie Mae and Freddie Mac and places all other employees on the General Schedule pay scale. Since September 2008 when Fannie Mae and Freddie Mac entered Federal conservatorships, the FHFA has approved multi-million dollar compensation packages for the GSEs’ top executives. In 2010, according to SEC 10-K filings, Fannie Mae paid its top six executives $15.4 million in salaries and bonuses. Fannie Mae CEO Michael Williams earned $5.6 million. Freddie Mac paid its top five executives nearly $18.5 million. Freddie Mac CEO Charles E. Haldeman, Jr. was paid $5.4 million. The legislation is sponsored by Financial Services Committee Chairman Spencer Bachus.

3. The Portfolio Risk Reduction Act. The legislation accelerates and formalizes the reduction in the size of the GSEs’ portfolios. As of January 2011, Fannie Mae retained portfolio was $777.059 billion, and Freddie Mac retained portfolio was $694.846 billion. The legislation would cap the GSEs portfolios to no more than $700 billion in the first year, declining to $600 billion for year two, $475 billion for year three, $350 billion for year four, and finally to $250 billion in year five. The legislation is sponsored by Financial Services Committee Vice Chairman Jeb Hensarling.

4. The GSE Subsidy Elimination Act. The legislation requires that FHFA gradually increases guarantee fees at Fannie Mae and Freddie Mac over the next two years. Under the legislation, the FHFA will consider the market conditions in raising the GSEs’ guarantee fees to ensure that its actions do not disrupt a housing recovery. The legislation is sponsored by Rep. Randy Neugebauer.

5. The GSE Mission Improvement Act. For years, the Federal government used the GSEs to make homeownership available to people who posed a greater credit risk and would not have otherwise been able to obtain mortgage credit. GSE-manufactured demand boosted home prices to artificially high levels and fostered enthusiasm for the wave of exotic mortgage products that began to flood the market. In light of the risks created by requiring the GSEs to promote affordable homeownership, this bill repeals the GSEs’ affordable housing goals. The legislation is sponsored by Rep. Ed Royce.

6. The Fannie Mae and Freddie Mac Accountability And Transparency For Taxpayers Act. The legislation enhances the authority of FHFA’s Inspector General and expands reporting requirements to Congress. The legislation is sponsored by Rep. Judy Biggert.

7. The GSE Risk and Activities Limitation Act. The legislation prohibits the GSEs from offering, undertaking, transacting, conducting or engaging in any new business activities while in conservatorship or receivership. This restriction will reduce Fannie Mae’s and Freddie Mac’s market dominance and limit their size. The legislation is sponsored by Rep. David Schweikert.

8. The GSE Debt Issuance Approval Act. The legislation requires the Treasury Department to approve any new debt issuance by the GSEs. If Treasury approves a debt issuance, it must explain and justify its decision to Congress and the FHFA within 7 days. The legislation limits the amount of GSE risk taking. Rep. Steve Pearce introduced the legislation.

Fannie Mae and Freddie Mac were placed in conservatorship on September 7, 2008. In February 2009, in one of the first acts of the Obama Administration, the Treasury Department increased the amount of Fannie and Freddie’s bailout from $200 billion to $400 billion. On December 24, 2009, the Obama Administration again increased the bailout of Fannie and Freddie—this time to an unlimited amount. As part of this expanded bailout, the Administration also relaxed the limitations on the GSEs’ portfolios and approved multi-million dollar compensation packages for the executives of Fannie Mae and Freddie Mac. The Dodd-Frank Act included no reforms for Fannie Mae and Freddie Mac but merely called for Treasury to study the issue and report to Congress by January 31, 2011. Treasury released its report on February 11th. To date, Fannie and Freddie have drawn on $150 billion in taxpayer support to fund their operations.

Witnesses scheduled to testify:

Ed DeMarco, Acting Director, Federal Housing Finance Agency

John H. Dalton, President, Housing Policy Council, The Financial Services Roundtable

Christopher Papagianis, Managing Director, Economics21

Edward Pinto, Resident Fellow, American Enterprise Institute

Bob Nielsen, Chairman of the Board, National Association of Home Builders

Ronald Phipps, President, National Association of Realtors

Susan M. Wachter, Professor, The Wharton School, University of Pennsylvania