February 26, 2014
The Honorable Mel Watt
Federal Housing Finance Agency
400 7th St., SW
Washington, DC 20024
Dear Director Watt:
Recently thirty-three Senators sent you a letter pushing to end the suspension of contributions to the National Housing Trust Fund (NHTF) and the Capital Magnet Fund (CMF) from the Government Sponsored Entities (GSEs) Fannie Mae and Freddie Mac. This would be a huge mistake. Ending this suspension while the companies are in conservatorship and benefiting from a direct line of credit to the United States Treasury would put the American taxpayer at further risk in what is already the most expensive bailout of the financial crisis.
After the financial crisis in 2008, taxpayers were forced to bail out Fannie Mae and Freddie Mac. Nearly four and a half years later, the GSEs remain under the FHFA's conservatorship. To date, in addition to the initial $2 billion commitment (Treasury purchased $1 billion of senior preferred stock in each GSE) the GSEs have drawn approximately $187.5 billion from Treasury - $116 billion by Fannie Mae and $71 billion by Freddie Mac. As a result of their taxpayer funded bailouts Fannie Mae and Freddie Mac both continue to have access to a line of credit with the Treasury with no time limit, subject only to an overall limit. As of January 2013, $140.5 billion is available to Freddie Mac and $117.6 billion is available to Fannie Mae. The taxpayer bailouts of Fannie Mae and Freddie Mac are by far the costliest of all taxpayer bailouts over the six years, and given the size of the risk taxpayers are exposed to with these two companies, it would be irresponsible to have them take on additional spending burdens like contributing to the housing trust funds.
Importantly, the authors and supporters of these trust funds designed them so that Fannie Mae and Freddie Mac would fund them creating an off-budget funding stream for affordable housing. Given the fact that the two companies have agreed to bailout terms, to compensate taxpayers for the amount of mortgage risk they are guaranteeing, every dollar of earnings each firm generates is currently used to compensate taxpayers and is remitted to the Treasury. So, every dollar you authorize these companies to contribute to the aforementioned trust funds will come directly from the taxpayer's pocket.
Your predecessors James Lockhart and Ed DeMarco suspended these contributions because they thought funding these trust funds directly from the U.S. Treasury was wrong. In testimony to House Financial Services Committee in June, 2009 Mr. Lockhart explained that the "FHFA suspended Enterprise contributions to the Housing Trust Fund in light of Enterprise losses and their draws on the Treasury Department's Senior Preferred Stock Purchase facility." Former Director DeMarco agreed with Mr. Lockhart and kept these suspensions in place during his entire tenure as Acting Director, and we urge you to do the same until these two failed financial entities are reformed by Congress, the taxpayers are repaid and no longer required to provide a line of credit from the Treasury.
For these reasons, we ask you to continue both FHFA's efforts to protect taxpayers and the suspension of contributions of the housing trust funds by Fannie Mae and Freddie Mac.