U.S. Senator Richard Shelby, ranking Republican on the Senate Committee on Banking, Housing and Urban Affairs, today made the following statement at a Committee hearing on oversight of the Federal Housing Finance Agency (FHFA).
Statement of Senator Richard C. Shelby
Committee on Banking, Housing and Urban Affairs
November 15, 2011
"Thank you, Mr. Chairman.
"Today, the Committee will hear from FHFA's Acting Director, Ed DeMarco. The FHFA is the regulator of Fannie Mae, Freddie Mac, and the Federal Home Loan Banks.
"Since 2008, the FHFA has served as the conservator for Fannie and Freddie. It has been more than two years since this Committee has heard from Director DeMarco on the conservatorships of Fannie and Freddie and the future of the GSEs.
"Since then, the taxpayer has lost an additional $84.1 billion, bringing the total cost of these conservatorships to $169 billion. Worse yet, Fannie and Freddie have already stated that they will need another $14 billion for last quarter's losses. These conservatorships were never intended to last for three years. Yet, because Congress has failed to address the future of the GSEs, the conservatorships go on with no end in sight.
"This has cast a cloud of regulatory uncertainty over our mortgage market, while taxpayers have had to continue to inject money into Fannie and Freddie to keep them afloat.
"If at any point during the last three years, the Administration or the majority party had done more than talk about the need for reform, we might be looking at a very different picture in the housing market.
"If Congress had acted, Fannie and Freddie could have been prevented from crowding out the private sector by backing 71 percent of mortgage originations.
"If Congress had acted, a comprehensive solution could have been devised to deal with foreclosures and struggling homeowners.
"If Congress had acted, taxpayers would not be subsidizing the pay of Fannie and Freddie executives.
"Instead, there has been no action, despite the fact that the GSEs were a significant player in the financial crisis.
"In calling for this hearing, the Chairman has focused on the over $12 million in bonuses paid to senior officers at Fannie and Freddie. I hope today that Director DeMarco will tell us exactly how these compensation packages were designed and which officials were involved.
"The American taxpayer should not have to subsidize million dollar compensation packages for Fannie and Freddie executives. This is just another example of the flawed structure of the GSEs. Their public-private structure has always meant that taxpayers were effectively subsidizing the pay of their CEOs. This is one of the many reasons I have long advocated reforming the GSEs.
"Mr. Chairman, last week I asked that a representative of the Department of the Treasury be present at today's hearing. I am disappointed that Secretary Geithner or his representative was not asked to participate. The U.S. Treasury Department played an important role in creating the bonus structure in question.
"The Treasury and the FHFA are both parties to the Preferred Stock Purchase Agreement (PSPA), which is the contract that governs how the U.S. taxpayer will support Fannie Mae and Freddie Mac. Section 5.10 of that contract requires that FHFA consult with the Treasury Secretary before allowing Fannie and Freddie to enter into any new compensation arrangements. I understand that Treasury was actively consulted by FHFA on these compensation arrangements and never disapproved them.
"Furthermore, while the Treasury Secretary has no authority to direct the FHFA in matters involving the conservatorship, the Purchase Agreement prevents the FHFA from taking a variety of actions without the "prior written consent" of the Treasury Department. These matters include permitting Fannie Mae and Freddie Mac to issue stock, transfer assets and incur certain indebtedness. Given his ability to veto these and other actions, the Treasury Secretary has a lot of authority in matters dealing with the conservatorship.
"Finally, the Administration has been actively involved with the FHFA in making changes to the Home Affordable Refinance Program (HARP). The President has stated that he "directed (his) economic team to work with the Federal Housing Finance Agency" in the lead up to the recently announced changes and has referred to "executive actions" he took in this matter. These changes to HARP could have a significant impact on the financial health of the GSEs and could impact housing finance reform.
"Accordingly, if the Treasury Secretary were here today, we could have had a discussion on the future of Fannie and Freddie that included the two officials with the most knowledge and responsibility for the GSEs. Apparently, that discussion will now have to wait for another day.
"Thank you, Mr. Chairman."