U.S. Senators Bob Corker (R-Tennessee) and Mark Warner (D-Virginia) have introduced a bipartisan amendment to the Transportation, Housing and Urban Development, and Related Agencies Appropriations Act (H.R. 2577) in an effort to spur substantive and structural housing finance reform, according to an announcement from Corker.
The amendment, known as the Jumpstart GSE Reform Act, was introduced by Corker, Warner, Senator Elizabeth Warren (D-Massachusetts), and Senator David Vitter (R-Louisiana) in September and offered on Thursday by Corker and Warner as an amendment to H.R. 2577. The Jumpstart GSE Reform Act prohibits the sale of Treasury-owned preferred shares in Fannie Mae and Freddie Mac without approval from Congress, and also prohibits increases in guarantee fees charged by the GSEs from offsetting non-housing related government spending.
“Although the FHFA is taking important steps to de-risk Fannie Mae and Freddie Mac, taxpayers will continue to be on the hook for a future bailout if Congress does not produce legislation to transform our housing finance system,” Corker said. “There is overwhelming consensus that congressional action is needed, and it is hard to imagine that anyone would ever want to harm taxpayers and return to the failed model of private gains and public losses. While comprehensive reform is my preference, this amendment will ensure the future of Fannie and Freddie will be determined by Congress.”
That same quartet of Senators originally introduced the Jumpstart GSE Reform Act in March 2013. Three months later, in June 2013, Corker and Warner also introduced a bill to wind down the GSEs and replaced them with a new government agency with a private backstop, transferring much of the mortgage risk from taxpayers to the private sector.
“As my colleagues and I reintroduce this broadly bipartisan legislation, momentum is certainly building to ensure that Fannie Mae and Freddie Mac are not turned loose to wreak havoc on the economy and taxpayers in their current form,” Vitter said. “I’m confident that when it reaches the floor, there will be an overwhelming show of bipartisan support for this common sense, reform legislation.”
Fannie Mae and Freddie Mac have been in conservatorship of the government since September 2008, at which point they received a $187.5 billion bailout from taxpayers to continue operations. Treasury purchased senior preferred stock in the GSEs as a result of the bailout and was given sole discretion as to what to do with those shares. The Jumpstart GSE Reform Act would change that and require Congressional approval for Treasury to purchase those shares.
“There is overwhelming consensus that congressional action is needed, and it is hard to imagine that anyone would ever want to harm taxpayers and return to the failed model of private gains and public losses.”
Sen. Bob Corker
While there is much bipartisan agreement that the conservatorships were only meant to be temporary and should end, top officials in the Obama Administration have stated in the last two months that the FHFA’s conservatorships of the GSEs will not end during the last year of Obama’s presidency despite calls from various activist groups to “recap and release,” or recapitalize the GSEs and release them from conservatorship.
“Given Fannie and Freddie’s significance to our housing market, any decision about their future should be based on bipartisan policy goals that have been reviewed and approved by Congress,” Warner said. “It’s been seven years of limbo and volatility since the GSEs were taken into conservatorship. It’s time for Congress to act on a long-term solution for our housing finance system.”
On the issue of GSE reform, Warren said, “It has been nearly seven years since the financial crisis, and it is past time to reform Fannie and Freddie. That means removing the obstacles and starting a bipartisan effort to take on housing finance reform this Congress. I am pleased to have the opportunity to work with Senators Corker, Warner, and Vitter, and I look forward to collaborating with them and other Senators in the months ahead on this important issue.”
A bill sponsored by Vitter and Warren that would cap the annual salaries of the CEOs of Fannie Mae and Freddie Mac at $600,000 passed in the House earlier in November with bipartisan support.
Earlier in November, the U.S. House of Representatives voted 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 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.