Category Archives: Fannie and Freddie

Hatch, McCain Seek to End Government Support of Fannie Mae and Freddie Mac

Senators Orrin Hatch (R-UT) and John McCain (R-AZ) introduced legislation today “to permanently end government support for Fannie Mae and Freddie Mac,” according to a press release from Hatch’s office.

The two government-sponsored enterprises (GSEs) backed highly-risky mortgages to people who could not afford them with taxpayer guarantees.  When the real estate bubble burst in 2008 with more and more Americans defaulted on their mortgages, Fannie and Freddie collapsed and were subsequently propped up with taxpayer dollars and then put into federal conservatorship.

According to the release, the GSE Bailout Elimination and Taxpayer Protection Act:

  • Establishes a finite end to the GSEs’ conservatorship 2 years from the date of enactment.
  • Immediately implements several fundamental GSE reforms to protect taxpayers:
    • Repeals of the GSEs’ misguided affordable housing goals mandate and the Affordable Housing Trust Fund;
    • Starts shrinking the size of the GSEs by capping their maximum portfolio size at $700 billion and gradually reducing that cap to $250 billion over five years;
    • Reduces the GSEs’ market share by returning the conforming loan limit to its pre-housing crisis standard limit of $417,000;
    • Increased guarantee fees (‘G-Fees’), to eliminate the GSEs’ competitive advantage and bring more private capital into the market; and
    • A prohibition on 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 (FHFA) must evaluate the financial viability of each GSE. If it is determined not to be viable, the FHFA would follow the procedure laid out by the Housing and Economic Recovery Act of 2008 (P.L. 110-289) for placing that GSE into 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 (3) years, with the following new rules:
    • Enhanced authority for FHFA to adjust the minimum capital requirements for the GSEs as appropriate, mirroring the existing capital adequacy requirements other regulators already have in place for banks (12 U.S.C. 3907);
    • A minimum down payment requirement of at least 5 percent for all new loans, increasing to 7.5 percent in the second year and 10 percent by the third year, to increase the quality of all loans touched by the GSEs;
    • Repeal of the GSEs’ exemption from having to pay state and local taxes, to remove one of the distinct advantages of being a GSE; and
    • Repeal of the exemption allowing GSE securities to avoid full SEC registration.
    • At the end of that 3 year period, each GSE’s charter expires. At that point, Fannie and Freddie must conduct all new operations as fully private sector companies competing on a level playing field without any government advantages.
    • Provides for the orderly wind down of any legacy business commitments post-charter expiration over a 10 year period following the model successfully used in the Sallie Mae transition from GSE to a private company (P.L. 104-208)

Congressman Jeb Hensarling (R-TX) also joined the Senators in announcing this measure today.

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Federal Housing Finance Agency Nominee Withdraws Name

The Obama administration’s pick “to run the agency that oversees Fannie Mae and Freddie Mac doesn’t want to be renominated after his candidacy ran into strong Republican opposition, a White House official said Thursday,” the Wall Street Journal reports.

President Barack Obama in November nominated North Carolina’s top banking regulator, Joseph Smith, to lead the Federal Housing Finance Agency. But Mr. Smith ran afoul of several Republicans, who voiced concerns about whether Mr. Smith would exert enough independence from the Obama administration.

Mr. Smith faced resistance from Sen. Richard Shelby (R., Ala.), who suggested he would be “a tool of the administration.” Mr. Shelby and other Republicans feared Mr. Smith would heighten pressure on Fannie and Freddie to slash mortgage balances for troubled homeowners.

Mr. Smith, whose term as North Carolina’s banking commissioner expires on March 31, would have replaced Edward DeMarco, a career civil servant who has been serving as the housing agency’s acting director since August 2009.

His nomination had been “supported by both North Carolina senators, Republican Richard Burr and Democrat Kay Hagan.”

The administration is now “left without its own appointee at FHFA just as officials prepare a proposal for reforms to the system of providing U.S. mortgages.”

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Senate Fails to Act on Peter Diamond, Joseph Smith Nominations

President Barack Obama “will again nominate economist Peter Diamond to the Federal Reserve Board next year, a White House official said on Thursday, setting up a potential clash with Republicans who will have more influence in the new Senate,” Reuters reports.

The Senate scuttled Diamond’s nomination on Wednesday by failing to vote on it before adjourning a lame-duck legislative session for the year.

The Obama administration views Diamond, a Nobel prize-winning economist at the Massachusetts Institute of Technology, as extremely well qualified for the job and believes Republicans will see this too if they stick with him.

Senator Richard Shelby (R-AL), who “will be back when the Senate reconvenes on January 5, had placed a so-called hold against confirmation of Diamond.”

Shelby applied the same tactic to delay confirmation of Obama’s choice to head the regulatory body that oversees Fannie Mae and Freddie Mac, Joseph Smith, the North Carolina commissioner of banks. Smith’s nomination also was killed by Senate inaction.

The only way Obama’s Democrats in the Senate could have gotten around the holds was to muster 60 votes in the 100-member Senate, but they were unable to do so.

White House officials “provided no details on whether they will try to revive Smith’s nomination to head the Federal Housing Finance Agency.”

Senator Shelby is currently the Ranking Member of the Banking, Housing and Urban Affairs Committee.

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Banking Committee Approves Joseph Smith Nomination

The Senate Banking, Housing and Urban Affairs Committee “voted Tuesday to recommend Joseph A. Smith Jr. as the next director of the beleaguered housing finance agencies Fannie Mae and Freddie Mac,” McClatchy reports.

The two mortgage giants have received an infusion of $151 billion from the federal government to keep them afloat, and President Barack Obama must tell Congress his plan for reorganizing the agencies next month. Smith would be in charge of carrying that out.

Smith now serves as the North Carolina commissioner for banks. Obama nominated him last month to take over the Federal Housing Finance Agency, which includes Fannie and Freddie along with the 12 federal home loan banks.

The Senate banking committee voted 16-6 to recommend Smith. Republican Sens. Richard Shelby of Alabama, Jim Bunning of Kentucky, Mike Crapo of Idaho, Jim DeMint of South Carolina, David Vitter of Louisiana and Mike Johanns of Nebraska voted against him.

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Crapo Fannie/Freddie Financial Reform Amendment Falls

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An amendment offered by Senator Mike Crapo (R-ID) to the Restoring American Financial Stability Act (S. 3217) has been defeated by a vote of 47-46.  The vote actually occurred on a motion to waive a budget point of order raised against the amendment by Senate Banking Committee Chairman Chris Dodd (D-CT).  Sixty votes were needed to adopt the motion.

Among other things, it would require that Fannie Mae and Freddie Mac expenses, debt, etc. be “counted as new budget authority, outlays, receipts, or deficit or surplus for purposes of—”

  1. the Budget of the United States Government as submitted by the President;
  2. the congressional budget;
  3. the Statutory Pay-As-You-Go Act of 2010; and
  4. the Balanced Budget and Emergency Deficit Control Act of 1985 (or any successor statute).

Read the full amendment here.

(credit image – getty)

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