The U.S. House of Representatives voted on Thursday to pass an amendment eliminating the use of guarantee fees on mortgages backed by Fannie Mae and Freddie Mac to fund a controversial $47 billion transportation bill known as H.R. 22, or the Developing a Reliable and Innovative Vision for the Economy (DRIVE) Act.
The DRIVE Act was introduced in January by Rep. Rodney Davis (R-Illinois) and passed in the Senate in July by a vote of 65 to 34. The Act is a multi-year transportation bill which authorizes spending for six years but with only enough funding for the first three years. To pay for the remaining three years, the Act proposes funding using a number of alternate revenue streams unrelated to transportation, such as delaying cuts to guarantee fees on GSE-insured mortgages and reducing the fixed dividend rate the Federal Reserve pays to larger banks.
The amendment, proposed by Reps. Randy Neugebauer (R-Texas) and Bill Huizenga (R-Michigan), removes the proposed delay in cuts to Fannie Mae’s and Freddie Mac’s g-fees and also strikes down the proposed reduction to the Fed’s fixed dividend rate for banks, which would limit the banks’ ability to lend.
The Neugebauer-Huizenga amendment passed in the House with bipartisan support by a vote of 354 to 72, and the House then passed the full DRIVE Act by a vote of 363 to 64. The amendment will next head to the Senate.
“Moving forward with the Federal Reserve dividend reduction without studying it could have devastating consequences for the supervision of the financial sector and the stability of the Federal Reserve System,” Neugebauer said on Thursday from the House floor. “The costs that banks—especially community banks—could face as a result of the dividend reduction would be passed on to hardworking consumers. At a time when many Americans continue to struggle from the unintended consequences of Dodd-Frank, it would be dangerous and irresponsible to move forward with the Senate version.”
“Allowing Congress to continue to raise the g-fees will make comprehensive housing finance reform impossible.”
Rep. Randy Neugebauer
Neugebauer pointed out that the vote on this amendment is especially timely, since Freddie Mac announced a $475 million net loss for the third quarter and Fannie Mae reported a net income reduction of more than 50 percent in Q3 from the previous quarter (from $4.6 billion down to $2 billion). FHFA Director Mel Watt said in reaction to the announcement of Freddie Mac’s near half-billion net loss for Q3 that both Enterprises are “increasingly susceptible” to the possibility of another draw on Treasury in the future.
“This amendment further protects the taxpayers,” Neugebauer said. “Allowing Congress to continue to raise the g-fees will make comprehensive housing finance reform impossible. Our amendment addresses both problems by liquidating and dissolving the Federal Reserve capital surplus account. The Federal Reserve currently has $29 billion in a capital surplus account. This account is made up of earnings that the Federal Reserve has retained from investing member banks’ money. . . When the surplus account was created no one could have imagined the debt and deficits we are facing. It is appropriate to liquidate this account to meet today’s realities.”
The amendment calls for the use of funds from the Fed’s surplus account of earnings to pay for the extension of the Highway Trust Fund that is part of the DRIVE Act. The amendment will provide an additional $40.5 billion in additional revenue over the Senate funding levels; liquidating the Fed’s capital surplus account will generate about $59.5 billion in revenue over the next 10 years. Striking the g-fee increase and Fed dividend reduction, which accounts for $18.9 billion in revenue, results in the Neugebauer-Huizenga amendment providing additional revenue over the next 10 years of $40.5 billion, according to the Congressional Budget Office.
“Fannie Mae and Freddie Mac g-fees should not be used toward unrelated government spending—plain and simple,” said Ed Delgado, President and CEO of the Five Star Institute. “Raising taxes on homebuyers in this way is not only bad for the housing market but the greater economy. The DRIVE Act would also severely limit the ability of banks to serve their customers by reducing the amount of capital available, which is also bad for housing and for the economy. I congratulate the House on passing this amendment and urge the Senate and the President to leave g-fees alone.”
Editor’s Note: The Five Star Institute is the parent company of DS News and DSNews.com.