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An Open Letter to the United States House of Representatives: the Affordable Housing Fund Is One of Many Reasons H.R. 1461, the "Federal Housing Finance Reform Act," Is Bad for Taxpayers
October 24, 2005
On behalf of the 350,000 members of the National Taxpayers Union (NTU), I write in strong opposition to several aspects of H.R. 1461, the Federal Housing Finance Reform Act, which is supposedly meant to reform scandal-plagued Government Sponsored Enterprises (GSEs). Instead of asking Fannie Mae and Freddie Mac to adhere to basic corporate bookkeeping rules, legislation scheduled to come to the floor as soon as this week would, among other things, levy a five percent tax on profits and expand the ability of these entities to take on new debt.
The legislation has justifiably been delayed due to significant concerns about the potential use and abuse of an affordable housing account to be funded by the five percent profits tax. If created, this fund would be nothing more than a tax increase on the shareholders of Fannie Mae and Freddie Mac stock, both of which are publicly traded. Moreover, at $1 billion over the next two years alone, this would amount to a significant tax hike.
Every bit as troubling as the tax increase contained in this bill is the fact that as it stands now, the legislation provides an increase to $540,000 in the limit on the size of home loans that may be purchased by Fannie and/or Freddie (in some areas of the country). At a time when both GSEs are facing serious questions about the veracity of their accounting techniques, is it really wise to enable them to take on even greater debt burdens? This question carries even greater importance given the implicit federal guarantee on GSE debt that allows these entities to borrow at lower rates than their wholly private counterparts.
NTU is by no means the only voice that has called for real GSE reform. Federal Reserve Chairman Alan Greenspan has repeatedly said that the indebtedness of Fannie Mae and Freddie Mac "pose a threat to the economy and taxpayers." Unfortunately, H.R. 1461 as currently written would only exacerbate the situation decried by Greenspan.
If important changes are made to H.R. 1461 that comply with the Administration's repeatedly expressed desire for reform, and if lawmakers abandon the affordable housing "slush fund," taxpayers may support the House in its GSE reform efforts. If, as it appears more likely, the House forges ahead with the bill in its current form, NTU will heavily weight votes as being anti-taxpayer in its annual Rating of Congress.
Paul J. Gessing