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A Letter in Support of the GSE Bailout Elimination and Taxpayer Protection Act
April 4, 2011
The Honorable Jeb Hensarling
Dear Representative Hensarling:
On behalf of the 362,000 members of the National Taxpayers Union (NTU), I write in support of your “GSE Bailout Elimination and Taxpayer Protection Act.” This bill would put a stop to more taxpayer bailouts of Fannie Mae and Freddie Mac and set the two Government Sponsored Entities (GSEs) on a path towards competing in the free market.
For years, Fannie and Freddie have saved billions in borrowing costs each year by using their implied federal guarantee to borrow at below market rates. Following the financial crisis, that guarantee was realized, carrying with it an enormous pricetag for taxpayers. Fannie and Freddie’s poor underwriting standards, risky investments, and misguided pursuit of “affordable housing” goals (largely at Congress’ insistence) have cost taxpayers more than $150 billion. The enormous financial drain isn’t expected to end anytime soon. President Obama’s budget estimates that losses by the GSEs could reach $224 by the end of the year.
Prior to the crisis, NTU strongly pushed for GSE reform, citing the enormous threat to taxpayers should they face bankruptcy or default. Unfortunately, we cannot turn back time, your legislation does ensure taxpayers aren’t imperiled by these mortgage giants in the future. Your bill would end the conservatorship of the GSEs and, assuming they are viable, allow them to resume limited operation for a three year period. During that phase, taxpayers would be protected by comprehensive new rules which establish bedrock accounting principles such as increased minimum capital requirements, minimum loan down payment requirements, and an end to the affordable housing mandate that encouraged poor lending standards in the first place. After the transition, your bill ensures Fannie and Freddie become fully private sector companies that must complete in the marketplace without any government advantages or implicit taxpayer guarantees.
While the “Troubled Asset Relief Program” draws more ire from angry taxpayers, it is the GSEs that have triggered much larger costs and pose a grave danger in the future. It is therefore essential to protect taxpayers from further excesses of Fannie Mae and Freddie Mac by passing your “GSE Bailout Elimination and Taxpayer Protection Act.” We will be urging the 112th Congress to act decisively on GSE reform and we look forward to working with you in this endeavor.