Posted on Wednesday, September 15, 2010
The debate over what’s next for the government-backed mortgage giants Fannie Mae and Freddie Mac has begun.
Last month, the Treasury invited a wide range of industry stakeholders to a summit in Washington to provide some guidance on the administration’s proposal for GSE reform.
The general consensus there was that the current public-private structure of Fannie and Freddie is not a viable arrangement going forward, but most participants seemed to agree that the GSEs play too big a role in the housing market to make an abrupt exodus. A large group of House Republicans, though, don’t share that view.
Led by Rep. Jeb Hensarling (R-Texas), the lawmakers are demanding an end to the federal bailout of Fannie Mae and Freddie Mac. And Hensarling says American taxpayers are behind him, with the elimination of the GSEs receiving the most public votes on the House Republicans’ YouCut Web site.
“The American taxpayers understand all too well what the continued bailout of these two Financial Frankensteins means: $7 billion of their hard earned money down the drain each and every month. The American taxpayers want the bailouts to end,” Hensarling said in a statement.
Hensarling has introduced legislation to end the taxpayer-funded bailouts of Fannie Mae and Freddie Mac – the GSE Bailout Elimination and Taxpayer Protection Act (H.R. 4889).
Among its provisions, the bill sets a deadline for ending the conservatorship of both GSEs within two years. Only if they are financially viable at that time would they be allowed to resume operations for period of three years, at the end of which, the GSEs’ government-granted charters would expire and they would be required to operate on a level playing field with their private sector competitors without government subsidies or guarantees.
If they are not deemed to be financially able to continue operating, the bill requires the Federal Housing Finance Agency (FHFA) to be made receiver and immediately begin procedures for the enterprises’ dissolution.
In a recent OpEd piece for The Inside Scoop, Hensarling wrote that options such as nationalization, a co-op, or a public utility model simply do not solve the anti-competitive market distortions the GSEs have fostered, nor do they protect taxpayers from the hundreds of billions of dollars in bailout costs.
“Ending the taxpayer subsidies and guarantees may not be the only way to reform the GSEs, but given the current options on the Obama administration’s menu, it is clearly the best way to protect taxpayers and to restore a vibrant market for mortgages where consumers have choices and the freedom to pursue the dream of homeownership,” Hensarling said.
To date, the GSEs have drawn $149 billion in taxpayer dollars to stay afloat. The House Financial Services Committee is scheduled to hold a hearing on the future of Fannie and Freddie this Wednesday.DSNews.com