The National Taxpayers Union and a coalition of 11 other center-right organizations have written a letter to Congress urging the passage of a bill introduced by U.S. Rep. Mick Mulvaney (R-South Carolina) that includes a proposal for reforming Fannie Mae and Freddie Mac, according to an announcement on the National Taxpayers Union website.
The subject of GSE reform has been a hotly contested one among lawmakers and the housing industry. Nearly everyone on both sides of the aisle agrees that GSE reform is necessary and that the FHFA’s conservatorships of Fannie Mae and Freddie Mac need to end—they just cannot agree on what type of reform should take place.
The letter noted that Americans are, depending on the policy issue, “fed up with inaction or overreach from Washington’s officials” and that the “government’s handling of the massive government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mad represents a failed mixture of both, and must be corrected now.”
The need for reforming Fannie Mae and Freddie Mac has taken on greater urgency recently as the GSEs’ capital buffer continues to wind down, as required, and is scheduled to be at zero by January 1, 2018. The conservatorships, which were meant to be temporary, are now approaching their eighth anniversary.
The zero capital buffer requirement for Fannie Mae and Freddie Mac has been a growing concern for stakeholders in the housing industry since FHFA Director Mel Watt sounded the alarm in a public speech in February. The calls grew louder for GSE reform last week when Freddie Mac reported its second loss in the last three quarters.
Further complicating the issue is that all GSE profits have been swept into Treasury since August 2012 as a result of an amendment to the bailout agreement. This action has prompted several lawsuits from GSE investors who claim the profit sweep is illegal.
“This (profit sweep) has had the perverse effect of making these huge institutions more vulnerable to market downturns while leaving taxpayers on the hook for additional capital the GSEs may need to cover losses related to their mortgage portfolios,” the letter stated.
The letter further characterized the government’s role in housing as “oversized” and said that the pathway to protect the broader financial system, as well as taxpayers, lies in Congress passing Mulvaney’s Housing Finance Restructuring Act of 2016. This would allow Fannie Mae and Freddie Mac to retain capital and for the conservatorships to end once they reach a 5 percent weighted capital, and it would require the Enterprises to maintain capital buffers similar to those of large financial institutions.
Organizations signing the letter along with National Taxpayers Union were (alphabetically) 60 Plus Association, Americans for Prosperity, Americans for Tax Reform, Center for Freedom and Prosperity, Competitive Enterprise Institute, Conservative Leadership PAC, Generation Opportunity, Less Government, National Federation of Republican Assemblies, Taxpayers Protection Alliance, and The Jefferson Project.
Click here to read the full letter.