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.”