U.S. Representative Ed Royce (R-California), a senior member of the House Financial Services Committee, has issued a statement calling the Federal Housing Finance Agency (FHFA)'s announcement that the Agency will divert GSE money to the Housing Trust Fund and Capital Magnet Fund "outrageous."
FHFA made the announcement on Thursday directing Fannie Mae and Freddie Mac to begin allocating money to the Housing Trust Fund and Capital Magnet Fund pursuant to the Housing and Economic Recovery Act of 2008 (HERA). Under authorization from the HERA, FHFA notified the two GSEs on November 13, 2008, that these allocations were temporarily suspended. On Thursday, FHFA wrote letters to both Fannie Mae and Freddie Mac informing the GSEs that the temporary suspension of these allocations had been lifted.
Fannie Mae and Freddie Mac have been under conservatorship of FHFA since September 2008 "to preserve and conserve their assets and property and restore them to a sound financial condition so they can continue to fulfill their statutory mission of promoting liquidity and efficiency in the nation's housing finance markets," according to FHFA's website. The two GSEs received a combined $188 billion in bailout money from the government in 2008, but have since returned to profitability.
"Contrary to what Fannie and Freddie apologists claim, the GSEs have yet to repay any of the taxpayer-funded bailout funds they received, which makes today’s announcement by the FHFA outrageous," Royce said in his statement on Friday. "Money coming in from the GSEs should go to the taxpayers instead of a slush fund for ideological housing groups to play around with."
Representative Randy Neugebauer (R-Texas), Chairman of the House Financial Services Subcommittee on Housing and Insurance, expressed sentiments similar to those of Royce regarding FHFA's announcement.
"I am outraged by Director Watt’s decision to fund the Housing Trust Fund at a time when taxpayers remain on the hook for the operations of Fannie and Freddie," Neugebauer said in a prepared statement. "To add insult to injury, today’s decision comes at the eleventh hour just before Congress finishes its legislative work for the 113th Congress. The timing could not be more suspect.
"Recent history should serve as a reminder that failed government housing policy can have catastrophic consequences for hardworking American taxpayers and the overall health of our economy. This is déjà vu all over again. Director Watt may have forgotten the path of destruction left by the GSEs, but the American people have not. $16 trillion in wealth destruction which shattered dreams of early retirement for millions, countless boom and bust cycles that have wreaked havoc on the emotions of families across the country, and nearly $200 billion of taxpayer funded bailouts that plunged the nation further into debt. I look forward to working with my colleagues on the House Financial Services Committee to hold the Agency accountable and conduct further oversight."
Royce and Representative Jeb Hensarling (R-Texas), Chairman of the House Financial Services Committee, wrote a letter to FHFA Director Mel Watt back in April urging the FHFA to continue suspension of the allocation of funds to the Housing Trust Fund and Capital Magnet Fund. During consideration of the FY 2015 Transportation, Housing, and Urban Development Appropriations, the House unanimously adopted an amendment authorized by Royce to prevent the GSEs from allocating money to those two funds.
While Royce, Hensarling, Neugebauer, and others such as Bob Corker (R-Tennessee) were critical of the FHFA's policy change regarding the allocation of GSE money, others such as Representative Maxine Waters (D-California), who is a ranking member of the House Financial Services Committee, and Senator Tim Johnson (D-South Dakota), Chairman of the Senate Banking Committee, offered praise. HUD Secretary Julián Castro issued the following statement on Thursday in response to FHFA's announcement of the allocation of the funds:
"Affordable housing is about opportunity. That’s why today represents important progress for the American people. The Federal Housing Finance Agency's decision to release resources for the Housing Trust Fund will help people across the nation secure a decent place to call home. This effort will assist individuals from all backgrounds—including low-income families and those experiencing homelessness—in building better lives. HUD will soon issue regulations to implement the Housing Trust Fund. We look forward to working with partners from throughout the nation to expand the circle of opportunity for current and future generations of Americans."
While opinions about the FHFA announcement were generally split among party lines, not all democrats met the announcement with enthusiasm.
"This legislation accomplishes the bare minimum needed to avert a government shutdown, but it also includes provisions to further degrade our campaign finance laws, to allow government bailouts for banks engaged in risky trading, and to cut retirement benefits for over a million Americans," Senator Sheldon Whitehouse (D-Rhode Island) said in a statement on Sunday. "These provisions were slipped in at the last minute with no opportunity for debate, against the best traditions of the senate. I voted against this bill because Rhode Islanders deserve a government that works to solve real problems for real people, not one that sneaks in special deals for special interests."
The FHFA also announced it sent an Interim Final Rule to the Federal Register that "implements a statutory prohibition against the Enterprises passing the cost of such allocations (to the Housing Trust Fund and Capital Magnet Fund) through to the originators of loans they purchase or securitize." The rule has a 30-day comment period and will go into effect immediately upon publication in the Federal Register.
Several investors have sued the federal government in the last year and a half over distribution of GSE profits, which have all been swept into the U.S. Department of Treasury since 2012. Those who brought the lawsuits, notably Pershing Square Capital Management CEO William A. Ackman, claimed that the sweeping of GSE profits into Treasury equates to taking private property for public use without "just compensation," a practice forbidden by the Fifth Amendment of the U.S. Constitution, and creates a "windfall" for the government while shortchanging GSE shareholders. Lawsuits filed by Fairholme Funds and Perry Capital were dismissed by judges in September, and Ackman voluntarily dropped one of two suits he filed. His other suit is still pending.