Toothless Legislative Plan Will Leave Taxpayers More Vulnerable to Fannie Mae's/Freddie Mac's Fiscal Overbite, Study Concludes

(Alexandria, VA) - A key Congressional Committee's legislation is being billed as a way to reform Fannie Mae and Freddie Mac, but according to a new "Issue Brief" from the 350,000-member National Taxpayers Union (NTU) the plan will actually allow the scandalized housing-finance giants to take an even bigger bite from taxpayers.

"When taxpayers needed the House Financial Services Committee to draft a Fannie/Freddie reform bill with teeth, lawmakers responded instead with a scheme that will only gum up financial markets and gulp more tax dollars," said NTU Director of Government Affairs and Issue Brief author Paul Gessing. "The so-called 'Federal Housing Finance Reform Act' ought to carry a label warning taxpayers of false advertising as well as a serious risk to their own wallets."

The NTU study provided 10 reasons why the legislation (H.R. 1461) deserves rejection by both chambers of Congress unless it is substantially strengthened. Among the author's points:

  • The legislation ignores warnings from Treasury Secretary Snow, Federal Reserve Chairman Greenspan, and other analysts that Fannie and Freddie must be downsized to avoid "an inevitable systemic event" - such as a taxpayer bailout - when mortgage default rates return to their historical norms. "Trillions of dollars in mortgage holdings by Fannie and Freddie are exposed to the devastating prospect of rising default rates, whether or not interest rates rise in the short term," Gessing observed.
  • Anecdotal evidence increasingly indicates that the "democratization of credit" underwritten by Fannie and Fannie is contributing to local real estate speculation instead of simply making housing more affordable. The bill's creation of a new "Affordable Housing Fund" will only increase distortions to the free market principles that, when allowed to function properly, make our nation's housing finance process among the most accessible in the world.
  • H.R. 1461 would boost the limit on individual Fannie/Freddie home loan purchases to $540,000 in some areas of the country. Even in pockets of high real estate prices, "American consumers who can afford half-million-dollar homes do not require federal housing subsidies," the study noted.

For more than a decade, NTU has supported taxpayer protections from Government-Sponsored Enterprises (GSEs). Earlier this year, NTU organized a joint-statement from 37 federal, state, and local citizen, consumer, and policy groups representing millions of Americans, urging Congress to "act decisively to avert another financial disaster" by passing comprehensive GSE reform.

"H.R. 1461 is the wrong legislation at the wrong time," Gessing concluded. "GOP House leaders should refuse to schedule the bill in its current form for consideration, and President Bush should be prepared to veto any legislation that fails to gradually reduce the size of both GSEs."

NTU is a non-partisan citizen group founded in 1969 to work for lower taxes and smaller government. Note: Issue Brief 154, Ten Reasons Why the "Federal Housing Finance Reform Act" Is Bad News for Taxpayers, and other GSE reform materials, are available at