Restoring American Financial Stability Act of 2010--Continued
Floor Speech
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Mr. THUNE. Madam President, I thank my colleague from Arizona for yielding me time.
I would say Fannie Mae and Freddie Mac is a pox on all of us. But shame on us if we do not try to do something in this legislation to address this issue. What the McCain-Shelby-Gregg amendment does is responsible. It does allow for a wind-down of this conservatorship. But, as the Senator from Arizona has pointed out, it goes squarely at what I think most economists argue was a huge contributor to the meltdown we experienced a couple years ago: the runaway lending and irresponsible lending practices that were involved with the plight we now see with Freddie Mac and Fannie Mae, where they have, up until, I think, this last quarter--or taking the last quarter combined, it is about $145 billion now that the taxpayers are on the hook for.
As the Senator from Arizona pointed out, last Christmas Eve the administration lifted the cap. There was a $400 billion cap on the amount of taxpayer assistance that could be provided to these two institutions. But now that cap has been lifted. Imagine the scale and dimension of what we are talking about, when we already have $145 billion of taxpayer exposure. We assume it could be as much as $400 billion. But just in case, the administration lifts the cap because it could go well beyond that, which suggests, if history is any indication, it will go well beyond that.
What this does is say we need to exercise some responsibility with regard to the regulation of all the financial institutions in this country. What the Senator from Connecticut, in his bill, does--with the financial services regulation reform bill--is to attempt to get at what contributed, in many respects, to the meltdown we experienced a couple years ago. But it ignores perhaps, as has been pointed out by the Senator from Arizona, one of the biggest contributors to that problem; that is, these two toxic institutions, Freddie Mac and Fannie Mae.
The administration has said they need time to come up with a plan. The side-by-side that is going to be offered by the Democrats is going to be a study. We are going to study this for about 6 months. I think their argument is, it would be dangerous to rush the process. I think the contrary is true. I believe it is dangerous to ignore this problem any longer. We cannot afford to wait so more taxpayer money can be lost, can be wasted in trying to keep these two entities afloat.
As I said before, last week we were informed that Freddie Mac needs an additional $10.6 billion in taxpayer funds due to an $8 billion loss in the first quarter of 2010. Since September of 2008, that brings the taxpayers' invoice for Freddie Mac to $61.3 billion.
Fannie Mae reported a first quarter loss of more than $13 billion, needing $8.4 billion from the government, putting their bill to the American taxpayers at $83.6 billion.
So the grand total of taxpayer loss from these two entities since their takeover in 2008 is a whopping $145 billion.
The losses racked up by Freddie Mac and Fannie Mae exceed--exceed--the government's losses on AIG, General Motors, and Chrysler. Yet the current legislation in the Senate is completely silent on these two entities. That is outrageous. We cannot continue to funnel unlimited amounts of taxpayer money into Freddie and Fannie and have no plan to end this siphon.
In a time when we are faced with crushing debt and out-of-control deficits, we are willing to turn a blind eye to a $145 billion problem, which is going to only magnify over time. Last Christmas Eve, the administration lifted the cap of $400 billion, which is what initially was put in place that would limit the amount of taxpayer exposure. But what we are now saying is that may not be enough. Yet we do nothing--nothing--in this legislation to remedy this problem.
Obviously, the administration knew there was more bad news ahead when they decided to lift the cap on government assistance on Christmas Eve of last year. The Obama administration decided that taxpayers could afford unlimited funding for Freddie and Fannie rather than keep a $400 billion cap on assistance in place. It is frightening they believe that $400 billion is not going to be enough--unlimited funding may not be enough. Who knows where this ends.
That is why I think it is important right now that we deal with this issue, and the McCain-Shelby-Gregg amendment does it in a responsible way by winding down and providing a timeline. It sets a 30-month date out there by which this conservatorship has to be wound down.
If you look at what the current exposure is in terms of Freddie and Fannie, they own or guarantee over 30 million
home loans, worth about $5.5 trillion. The CBO estimates that Freddie and Fannie could cost the taxpayers as much as $380 billion through 2020. As I said before, my assumption is that because we lifted--``we,'' the administration lifted--the cap on the $400 billion of exposure, the assumption is, it is going to go much higher than that. So I think we have to ask ourselves this fundamental question: Is this the direction in which we want to continue heading or is it time to change course?
The time to change course is now while we are debating a bill that is designed to address the very problems we encountered a couple years ago. Freddie and Fannie, as the Senator from Arizona said, were at the very heart, the very core of that issue.
According to a recent Washington Post article, with the government's
conservatorship of Freddie and Fannie and the increase in FHA and VA loans, the government backed nearly 97 percent of home loans in the first quarter of 2010. Madam President, 97 percent of loans are backed by the U.S. Government. Is this where we want to end up? Is this where we want to head? Is this the best course for our housing market? Is this the role the Federal Government should be taking when it comes to housing in this country?
I firmly believe it is time we change course. I think there is great value--we all agree there is great value--in home ownership and helping families achieve the American dream of owning their own homes. But we have to bring personal responsibility back into the conversation. We need to go back to a time when families saved up money to make a downpayment on a house. They went to their banks. They provided the necessary documentation to prove they could pay back their loans, and they bought a house that was within their budgets. Buying and owning a home should be a goal people work to achieve, not a government mandate funded by the taxpayers. That essentially is what we have created.
So I believe it is about time to take responsibility for our actions. My constituents in my State who bought houses they could afford and paid their bills on time want to see Congress start taking some responsibility. I believe the McCain-Shelby-Gregg amendment does just that. It shows our commitment to getting our fiscal house in order in Washington, DC.
As I said, it is a sound plan for winding down the government backstop to Freddie Mac and Fannie Mae. It mandates that conservatorship will end in 30 months or less. Freddie Mac and Fannie Mae will have to reduce their portfolios by 10 percent each year, and if they are not viable enough to exist after the 30 months they will be liquidated. If they are a viable company after the 30 months, they would only enjoy their Federal GSE status for another 3 years.
The amendment repeals the affordable housing goals that persuaded the two entities to enter into the subprime loan business in the first place, which I believe was the slippery slope that got us into all the problems, all the troubles we are facing today.
It creates new underwriting requirements on loans purchased by Freddie and Fannie. Freddie and Fannie will have to reduce their mortgage assets by more than 50 percent within 2 years and increase their capital reserves. It repeals the temporary increase in the conforming loan limit, returning it to $417,000. The two would have to pay State and local taxes, register with the SEC, and pay a fee to the government to repay their debts to the taxpayer.
These are all responsible reforms. Contrary to the assertions that have been made by the other side, this amendment is the correct way to proceed in dealing with these two giant institutions that have lost their way and are costing the taxpayers literally billions and billions and billions of dollars every quarter that passes that we do not take steps to fix this problem.
The amendment would reinstate the $400 billion cap that the administration lifted in December so the taxpayers know for certain they are not going to be on the hook for unlimited financial support.
The amendment establishes a new special inspector general at the GAO to investigate and report to Congress on these two entities. Freddie and Fannie would be included in the Federal budget until their conservatorship has ended, which is the fiscally responsible thing to do when we all know they do, in fact, have an impact on our budget and on our debt.
As I said, I have heard the arguments on the other side of the aisle, and I think they are ignoring the clear will of the American people. The American people get this. They know why we are where we are. They are sick and tired of subsidizing the mistakes of Freddie Mac and Fannie Mae. We need to put an end to the taxpayer bailout.
I think it is important to the credibility of our economy and our credibility with the American taxpayers--but it is important to the credibility of the markets and to our economy--that they understand we are serious about solving this problem. That is why the McCain-Shelby-Gregg amendment is the correct way to proceed. We are going to have a vote on that very soon, and I hope we will not leave this subject, that we will not dispose of this financial services regulation reform bill without addressing this very important topic.
To suggest for a minute, as the other side has, that somehow we can do a study, we can put this off for 6 months--and who knows. By the time they complete the study, they will have to think about the results of that study and formulate a plan, and that will take another 6 months or a year. Every single month, every single quarter that goes by, we continue to hemorrhage more and more money at the cost of billions and billions of dollars to the American taxpayers. They have had enough. We should say we have had enough and we are going to bring some discipline. This amendment does that, and I hope my colleagues will support it.
I yield the remainder of my time.
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