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Still the Elephant in the Room?

by Jordan Forbes / /

It appears that government officials are finally starting to discuss potential reforms to Fannie Mae and Freddie Mac. What took so long?! As we have made clear in numerous letters and Vote Alerts, H.R. 4173, the "Wall Street Reform and Consumer Protection Act," miserably neglected to directly address the housing giants. I guess the question is why now and will these meetings do anything to mitigate the heavy burden placed on taxpayers (CBO predicts you will spend $369 billion to bail out the two enterprises by 2019)? The Administration says the delay can be attributed to an unstable housing market and the need to get it back on track before considering an overhaul of Fannie and Freddie; a highly contradictory argument given that the massive financial reform bill was just signed into law a month ago. At that time, the home-buyer tax credit had already expired (it expired in April) and the market was beginning to stall. What did they possibly think could get it "back on track" in such a short amount of time? There was no viable rationale (except, perhaps, political liability) to exclude Fannie and Freddie language from the financial reform legislation, yet Congressional leaders chose to ignore the interests of American taxpayers once again.

Amidst public outrage over the need to rein in the GSEs and their $148+ billion price tag, mortgage-industry executives and government leaders finally sat down today to "publicly" launch the controversial debate on reform. While we believe there is entirely too much government manipulation in the marketplace, there are some who profess that manipulation is essential for stability. Here's a direct quote from PIMCO founder Bill Gross, courtesy of Congressional Quarterly: "To suggest there's a large place for private financing of housing in the future is not realistic. Without government guarantees, mortgage rates would be hundreds of basis points higher, resulting in a moribund housing market for years." And while Treasury Secretary Tim Geithner says the federal government should step back from its role as the nation's primary mortgage lender, he does not seem to favor ending conservatorship altogether.

I'd be shocked if much else was done on the issue before the end of the year (virtually 0% chance of actual legislation), but I hope I'm wrong because it's unconscionable for Congress to continue to dismiss the very companies that caused much of the current economic crisis through their proliferation of unwise and dishonest loans. I'd encourage the Obama Administration to look at ideas presented by Senators McCain, Shelby, and Gregg in their amendment to the financial reform bill. We released a Vote Alert in support of their efforts to reform Fannie and Freddie by mandating the current conservatorship will end within 30 months, requiring the two GSEs to reduce their mortgage portfolios by 10% each year, establishing prudent post-conservatorship guidelines for loan guarantees, and reinstating the federal funding limit of $200 billion per institution. Additionally, Representative Scott Garrett introduced legislation to compel OMB to account for Fannie and Freddie losses in the President's budget request and subject their debt to the statutory debt limit.

Government officials have failed to listen in the past, but will they really listen now?