Reforms of Fannie Mae, Freddie Mac Continue Making Progress

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Cmte Financial Services (R)
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Reforms of Fannie Mae, Freddie Mac Continue Making Progress

Washington, Jul 8 -

Subcommittee to Vote on 7 Bills Next Week That Protect Taxpayers From Bailout

WASHINGTON -The Financial Services Committee will continue moving forward next week with needed reforms of Fannie Mae and Freddie Mac to end the taxpayer-funded bailout of the government sponsored enterprises.

The Capital Markets and Government Sponsored Enterprises Subcommittee will meet on Tuesday, July 12 to consider seven new reform bills. The Subcommittee has already approved eight other bills reforming the two mortgage giants.

Financial Services Committee Chairman Spencer Bachus said, “We are continuing to make progress on our pledge to end the bailout of Fannie Mae and Freddie Mac. It’s time to cut up the taxpayer-funded credit card these two companies have been using to the tune of $150 billion so far.”

Capital Markets Subcommittee Chairman Scott Garrett said, “This markup is just another step in our ongoing efforts to level the playing field so that Fannie Mae and Freddie Mac can no longer crowd out private investment in the secondary mortgage market. We all agree that in order to place our economy back on firm footing, we can no longer allow the ongoing taxpayer bailout of these failed institutions to continue. I appreciate all the hard work the sponsors have put into their legislation and I look forward to helping advance them through the subcommittee next Tuesday.”

The Subcommittee will consider the following bills:

The Market Transparency and Taxpayer Protection Act. The bill, sponsored by Rep. Robert Hurt, incrementally reduces the government’s role in the mortgage market. The legislation achieves this by directing the Federal Housing Finance Agency (FHFA) Director to require Fannie Mae and Freddie Mac to dispose of all non-mission critical assets. This would go a long way reducing the unprecedented role Fannie and Freddie play in the mortgage market.

The Cap the GSE Bailout Act, sponsored by Rep. Michael Fitzpatrick. The legislation ends the blank check provided to Fannie Mae and Freddie Mac by the Obama Administration on Christmas Eve 2009. 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. A cap on Fannie and Freddie’s liabilities will not only protect taxpayers, but will ensure that the bailout of these entities does not continue to be limitless as is currently the case.

The Removing GSEs Charters During Receivership Act, sponsored by Rep. Steve Stivers. The bill 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 makes certain that the failed Fannie and Freddie model is not recreated.

The Fannie Mae and Freddie Mac Taxpayer Payback Act. The legislation, 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 dividend payment was designed to guarantee taxpayers would be repaid for this bailout. Yet, recent press reports have indicated that Fannie and Freddie have been lobbying the Treasury Department to lower the dividend payment.

The Housing Trust Fund Elimination Act, sponsored by Rep. Ed Royce, abolishes the Affordable Housing Trust Fund. The Housing Trust Fund, established by the Housing and Economic Recovery Act (HERA), would be funded through a tax on the mortgage portfolios held by Fannie Mae and Freddie Mac. 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. At a time when Fannie and Freddie continue to rely on their taxpayer bailout and continue to report losses, the Royce legislation ensures American taxpayers are not on the hook for funding the Affordable Housing Trust Fund.

The Fannie Mae and Freddie Mac Transparency Act. Rep. Jason Chaffetz’s bill subjects Fannie Mae and Freddie Mac to the Freedom of Information Act (FOIA). Since Fannie and Freddie were originally charted by the federal government, and therefore not actually part of the federal government, they have been exempt from FOIA. 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 GSE Legal Fee Reduction Act. The bill, sponsored by Rep. Randy Neugebauer, protects taxpayers from the mounting legal expenses of former Fannie Mae and Freddie Mac executives. According to the FHFA, since 2008 American taxpayers have spent more than $162 million defending Fannie, Freddie and their former top executives in civil lawsuits accusing them of fraud. This includes tens of millions of dollars for former executives who, according to their regulator, “knowingly and purposely manipulated earnings to increase their own compensation.”

The GSE Legal Fee Reduction Act minimizes taxpayer liability to GSE legal fees by limiting indemnification of former GSE executives and sets standards for advancing indemnification payments.