Congress Should Protect, Not Expose, Taxpayers to Mortgage Giants’ Bailouts

The House Financial Services Committee has had a productive year delivering real results to America’s taxpayers -- be it advancing the repeal and replacement of Dodd-Frank, reforming the broken National Flood Insurance Program, or replacing the DOL Fiduciary Rule with one that actually protects consumers rather than expands the bureaucracy. That’s why we are surprised to see legislation marked up in the Committee today that could, if it passes, end the year by missing the mark for taxpayers.

H.R. 4560, the “GSE Jumpstart Reauthorization Act” of 2017, has a catchy title, but in reality it would take a step backward for taxpayers by exposing them to the near-term prospect of a bailout for the Government-Sponsored Enterprises (GSE) Fannie Mae and Freddie Mac. This bill essentially puts further pressure on the Federal Housing Finance Agency (FHFA) to continue paying the Net Worth Sweep, the ill-advised and risky policy of sending FHFA profits to the US Treasury. Should the Agency retain this profit for building a prudent capital cushion rather than sending it to the Treasury, Fannie and Freddie will be barred from making any contributions to the Housing Trust Fund.

Taxpayers -- and lawmakers -- have every reason to ask hard questions about financial accountability for the money being funneled into the Housing Trust Fund. Congressman Ed Royce introduced a bill in the previous Congress to strengthen the law that requires Fannie and Freddie to suspend housing trust fund payments if they would “cause the GSEs to be undercapitalized.” HR 4560, however, goes well beyond this approach by effectively blocking FHFA from taking interim steps to ensure the GSEs don’t have to tap Treasury resources to stay healthy.

Either way, the FHFA is stuck in a bad situation: the Net Worth Sweep leaves the Agency with less reserve capital to begin with, while the new bill would leave FHFA with fewer options to correct that situation.

Both scenarios increase the likelihood of a taxpayer-funded bailout, given warnings from FHFA that Fannie and Freddie are becoming seriously undercapitalized.

NTU has long advised Congress on the glaring threat Fannie and Freddie could pose to taxpayers, as well as the reckless practice of using the GSEs as ATMs. Rather than complicating and possibly impeding housing reform, NTU believes it is best to tackle all elements of reform at the beginning of 2018 when a complete, comprehensive package can be debated. Until then, all tools should be available, including those residing with the Executive Branch, to shield taxpayers from any potential liabilities from Fannie and Freddie. We strongly urge the Committee to bear in mind these critical taxpayer concerns instead of plowing ahead with unnecessary -- and potentially counterproductive -- legislation.