A bi-partisan group of Senators has introduced legislation that would prohibit any increase in the guarantee fees levied by Freddie Mac and Fannie Mae (the GSEs) from being used to offset other government spending.  The bill would also restrict the sale of stock in the two companies currently held by the U.S. treasury from being sold without congressional approval.

The bill entitled Jumpstart GSE Reform Act was introduced by four members of  the Senate Banking, Housing, and Urban Affairs Committee, Bob Corker (R-TN), Mark Warner (D-VA), Elizabeth Warren (D-MA), and David Vitter (R-LA).

As drafted, the purpose of the legislation is "To provide certainty that Congress and the Administration will undertake substantive and structural housing finance reform, and for other purposes," Other than there and in the title, the draft makes no other mention of GSE reform.   

The Strategic Plan developed by the Federal Housing Finance Agency, conservator of the GSEs envisions slowly raising the guarantee fees (g-fees) which the GSEs are required to charge, less as a source of operating revenue than as a tool to encourage the return of private money to the mortgage market.  The proposed legislation would prohibit any of these increases from being used to offset other government spending. The extension of the temporary payroll tax reduction signed into law in December 2011 was paid for in part by an increase in g-fees authorized by the same legislation.  Additional increases have been mentioned several times as a funding source for other programs.

When the GSEs were placed in conservatorship in August 2008, preferred shares in the two companies were taken by the Treasury as collateral for the substantial financial support they intended to and have provided.  This stock is within Treasury's discretion to sell or dispose of by any other means.  The new bill would prohibit the sale "until such time as Congress has passed and the President has signed into law legislation that includes a specific instruction to the Secretary" to do so.  

Corker said, "The reality is that if Congress were to spend 'g'fee' revenue from the GSEs on other programs, reforming these mortgage behemoths would become nearly impossible. At the same time, if Treasury were to decide to sell its preferred share investment without Congress having first reformed our housing sector, we would just be returning to a time where gains are for private shareholders and losses are for taxpayers. Neither of these is an acceptable outcome."

"We know our housing finance system is not sustainable in its current form, and this legislation will keep us on a path to accomplish real reforms," Warren said. 'We believe that as we transition Fannie and Freddie out of their present roles, we need to think about the system in its entirety. The guarantee fee should not be mixed with other funding needs, and the preferred shares should be handled as one step within a multi-year process.  It has been nearly five 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."

David H. Stevens, President & CEO of the Mortgage Bankers Association (MBA), issued the following statement in response to the recently released “Jumpstart GSE Reform Act”:
 
“The Jumpstart GSE Reform Act is yet another clear example of the need for substantive GSE reform. U.S. Senators Bob Corker, R-Tenn., Mark Warner, D-Va., David Vitter, R-La., and Elizabeth Warren, D-Mass, are to be commended for introducing this piece of legislation and spearheading a transparent, complete discussion about the future of GSEs and the government’s role in the housing markets.
 
“In its current form, this bill would prohibit any raise in the guarantee fee from offsetting other government spending and disallow the sale of preferred shares without congressional approval and structural housing finance reform. These types of actions should not be taken without being part of a broader framework. Doing so will only compound current problems and fail to create the real reform needed.

“It is imperative that Congress as well as the White House and key members of the housing community come together to create a comprehensive, transparent process that properly addresses the concerns and objectives of all affected stakeholders involved with GSE reform. Without this all inclusive, broad approach, uncertainty will continue and the housing market will be unable to fully rebound.”