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Senators Introduce Legislation to End Taxpayer Support of GSEs

Sens. John McCain (R-Arizona) and Orrin Hatch (R-Utah) have introduced legislation to permanently end government support for ""Fannie Mae"":http://www.fanniemae.com and ""Freddie Mac"":http://www.freddiemac.com.

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The GSE Bailout Elimination and Taxpayer Protection Act would put an end to the two companies' conservatorship in two years and enact several reforms aimed at protecting taxpayers.

The bill, which is the Senate companion version of House legislation (H.R.1182) introduced by Reps. Spencer Bachus (R-Alabama) and Jeb Hensarling (R-Texas) on March 17, seeks to accelerate the timeline for putting Fannie and Freddie on a path toward privatization.

Both pieces of legislation are aimed at stopping the taxpayer-funded bailout of Fannie Mae and Freddie Mac. Since the two GSEs were placed into conservatorship in September 2008, they have drawn more than $150 billion in taxpayer funds.

""Fannie Mae and Freddie Mac leveraged taxpayer dollars to support highly risky mortgages knowing full well that if

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things went south, the federal government would bail them out,"" said Sen. Hatch. ""It's time to force these two government-supported companies to stand on their own two feet by taking them off government life support and undertaking significant reforms to protect taxpayers. That's what this legislation that I'm proud to support does.""

The bill repeals the GSEs' affordable housing goals mandate and the Affordable Housing Trust Fund. It will start to shrink the GSEs by capping their maximum portfolio size at $700 billion and gradually reduce that cap to $250 billion over five years.

The bill also reduces the GSEs' market share by returning the conforming loan limit to its pre-housing crisis standard limit of $417,000 and increases guarantee fees to bring more private capital into the market.

In addition, it would prohibit any reduction to the senior preferred stock dividends the GSEs contractually agreed to pay taxpayers under their conservatorship.

Upon the end of the conservatorship, the ""Federal Housing Finance Agency"":http://www.fhfa.gov (FHFA) would be required to evaluate the financial viability of each GSE. If either is determined not to be viable, the FHFA would follow the procedure laid out by the Housing and Economic Recovery Act of 2008 for placing that GSE into federal receivership.

If determined to be viable, the GSE would be allowed to resume limited market operations under its own control for a maximum of three years. At the end of that three-year period, Fannie and Freddie would be required to conduct all new operations as fully private sector companies competing on a level playing field without government backing.

About Author: Heather Cernoch

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