House Financial Services Committee Republicans today unveiled their plan to reform government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac.
Rep. Scott Garrett (R-NJ), Chairman of the House Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises, issued the following statement:
"Today marks the start of a process -- a process to begin winding down Fannie Mae and Freddie Mac. Beginning today, and over the course of the next few months, my colleagues and I on the Financial Services Committee will introduce multiple rounds of very specific, very targeted bills to end the bailouts, protect the taxpayers and get private capital off the sidelines. The culmination of our efforts will formally wind down the GSEs and return our housing finance system to the private marketplace.
"With the American taxpayers on the hook for $150 billion and counting, the bailout of Fannie and Freddie is already the most expensive component of the federal government's intervention into the financial system. Americans are tired of the ongoing bailout of the failed government-backed mortgage giants, and they are tired of Democrats' refusals to address the driving force behind the financial collapse. While Democrats chose to ignore the problem last Congress, House Republicans stand ready to end the bailout and protect American taxpayers from further losses."
As part of the first round of legislation to reform the GSEs, Financial Services Committee Republicans will introduce the following eight bills. The Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises will hold a legislative hearing on the eight bills Thursday, March 31st and then a markup on Tuesday, April 5th.
The Equity in Government Compensation Act:
Rep. Spencer Bachus (R-AL), Chairman of the House Financial Services Committee, is the lead sponsor of legislation to establish a compensation system for employees of Fannie Mae and Freddie Mac that is consistent with other federal government employees.
"The taxpayer-funded bailout of Fannie Mae and Freddie Mac is the biggest bailout in history," said Bachus. "Adding insult to injury, the top executives of these failed companies receive multi-million dollar pay packages, all courtesy of hard-working American taxpayers who are having a difficult time making ends meet these days. It's unfair and unreasonable to the taxpayers to reward these executives with such high salaries when their companies have received $150 billion of taxpayers' money."
Bachus' bill suspends the current compensation packages for all employees at Fannie Mae and Freddie Mac and establishes a compensation system that is consistent with that of the Executive Schedule and the Senior Executive Service of the Federal Government. Now that Fannie and Freddie are owned by the government, there is no reason that employees of Fannie and Freddie should not be paid like government employees. In addition, the bill expresses the sense of the Congress that the 2010 pay packages for Fannie and Freddie senior executives were excessive and that the money should be returned to taxpayers.
The GSE Mission Improvement Act:
Rep. Ed Royce (R-CA) is the lead sponsor of legislation to permanently abolish the affordable housing goals of Fannie Mae and Freddie Mac.
"The passage of legislation in the early nineties required the government-sponsored enterprises to devote a significant portion of their business to specific affordable housing goals," said Royce. "To meet these goals, the GSEs purchased more than $1 trillion in "junk loans.' These loans accounted for a large portion of the mortgage giants' losses -- losses that were later loaded onto the backs of American taxpayers. With a price tag that could reach $360 billion, the GSE bailout is the most expensive bailout in history, and it could have been avoided. It's time the American taxpayers stopped paying for Washington's mistakes."
Royce's bill permanently abolishes the GSEs' affordable housing goals, which were a central cause behind the collapse of the GSEs. The ongoing goal of the GSEs should be to reduce risk to taxpayers, not expose them to further losses. By eliminating these requirements and ending the mandate that Fannie and Freddie buy riskier loans in the name of affordable housing in the United States, Royce's bill will protect American taxpayers going forward
The Fannie Mae and Freddie Mac Accountability and Transparency for Taxpayers Act:
Rep. Judy Biggert (R-IL), Chairman of the House Financial Services Subcommittee on Insurance, Housing and Community Opportunity, has introduced H.R. 31, the Fannie Mae and Freddie Mac Accountability and Transparency for Taxpayers Act.
"Fannie Mae and Freddie Mac played a central role in the housing collapse, and continue to function only because of federal support," said Biggert. "Taxpayers deserve to know where their dollars are going, what risks they are being exposed to, and how these institutions are being managed or mismanaged. My bill will ensure that effective oversight tools are in place to rein-in the GSEs in a safe and orderly fashion."
Biggert's bill ramps up oversight of Fannie Mae and Freddie Mac by establishing in statute an Inspector General (IG) within FHFA and providing the IG with additional law enforcement and personnel-hiring authority. The bill also requires the GSE Inspector General to submit regular reports to Congress outlining taxpayer liabilities, investment decisions, and management details of Fannie and Freddie. Finally, the bill requires that these reports, along with a system to report waste, fraud, or abuse, be made publically available.
The GSE Subsidy Elimination Act:
Rep. Randy Neugebauer (R-TX), Chairman of the House Financial Services Subcommittee on Oversight, is the lead sponsor of legislation to direct the Federal Housing Finance Agency (FHFA) to increase the guarantee fees (g-fees).
"Slowly raising the guarantee fee of Fannie and Freddie to eliminate their imbedded subsidies will finally bring pricing parity between the private market and the GSEs," said Neugebauer. "This will allow more private market participation in the housing finance market, which is critical for the long-term health of the housing market and overall economy. From my reading of the Treasury Department's report on Housing Finance reform, I would expect to have the full support of the Obama Administration for this bill."
Neugebauer's bill directs the FHFA to phase in an increase of the g-fees over two years so Fannie Mae and Freddie Mac price their guarantees as if they were held to the same capital standards as private banks or financial institutions. By gradually increasing their g-fees, the playing field will be leveled so that private capital to re-emerge -- all of which will decrease the government's exposure to the housing market, thus protecting taxpayers from further losses.
GSE Portfolio Reduction Act:
Rep. Jeb Hensarling (R-TX), Vice Chairman of the House Financial Services Committee, is the lead sponsor of legislation to cap the current portfolios of Fannie Mae and Freddie Mac and increase their annual attrition rate.
"The GSEs are on track to be the nation's biggest bailout, more than AIG and GM and all the big banks combined," said Hensarling. "It's time to enact fundamental reform of Fannie and Freddie before these companies go from "too big to fail' to "too late to fix.'"
Hensarling's bill accelerates and formalizes the reductions in the size of the GSEs' portfolios by setting annual limits on the maximum size of each GSE's retained portfolio and ratcheting the limits down over five years until they have reached a sustainable level. In the first year, the GSEs would have their portfolios capped at no more than $700 billion, declining to $600 billion for year two, $475 billion for year three, $350 billion for year four, and finally $250 billion in year five.
GSE Risk and Activities Limitation Act:
Rep. David Schweikert (R-AZ), Vice Chairman of the House Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises, is the lead sponsor of legislation to prohibit Fannie Mae and Freddie Mac from engaging in any new activities or businesses.
"This legislation cuts to the heart of the reckless bailout culture Washington has developed during past decades," said Schweikert. "This bill will put restrictions on where GSEs can invest their money and thus protect American taxpayers from future failed bailouts, unsuccessful government programs, and wasteful spending. It is of utmost importance that we make these fundamental changes to get our fiscal house in order. We have no choice."
Schweikert's bill prohibits Fannie and Freddie from engaging in any new activities or businesses. Currently, FHFA is preventing the entities from engaging in new activities, and we want to ensure that stays that way by codifying that current practice. That will prevent taxpayers from taking on additional risk and allowing the GSEs to spread into other areas.
The GSE Debt Issuance Approval Act:
Rep. Steve Pearce (R-NM) is the lead sponsor of legislation to require formal approval by the Department of Treasury for any new debt issuance by the GSEs.
"The United States faces an alarming national debt that is growing daily. We are placing the futures of our children and grandchildren at risk unless we act now," said Pearce. "Today the committee is taking an important step in the process of reducing taxpayers' cost by restoring an essential tool to control their debt obligations. I am glad to be working to address the problems with Fannie and Freddie, and I look forward to pursuing the necessary changes to restore fiscal responsibility to the United States."
Pearce's bill requires the Department of Treasury to formally sign off on any new debt issuance by the GSEs. This will help protect taxpayers by requiring the formal legal authority of U.S. debt issuance to approve the issuing of agency debt, which is roughly the same as U.S. debt.
GSE Credit Risk Equitable Treatment Act:
Rep. Scott Garrett (R-NJ), Chairman of the House Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises, is the lead sponsor of legislation to prohibit the exemption of GSE securities from the risk-retention requirements of Dodd-Frank.
"To get more private capital flowing in our mortgage market, we have to make certain that government policies do not continue to crowd out the private sector," said Garrett. "This bill will ensure that the GSEs are not exempt from new risk-retention rules mandated by Dodd-Frank and that they face the same retention standards as private market participants."
Garrett's bill will make clear that Fannie Mae and Freddie Mac will be held to the same standards as any other secondary mortgage market participants. Under Dodd-Frank, Fannie and Freddie could still be able to purchase a mortgage from a financial institution that falls outside of the Qualified Residential Mortgage (QRM) definition and issue asset-backed securities backed by non-QRM assets. Garrett's bill would clarify that a GSE loan purchase or asset-backed security issuance would not affect the status of the underlying assets. If the GSEs purchase a non-QRM loan, all lender risk-retention requirements will still apply, and if the GSEs issue a non-QRM security, all securitization risk retention rules will still apply.