Sen. John McCain (Arizona) and two other Republicans have introduced an
amendment to the Senate's regulatory reform package that would wean mortgage
giants Fannie Mae and Freddie Mac
off of federal funding over the next five years
and completely dissolve them after 15 years."The events of the past two years have made it clear that never again can we
allow the taxpayer to be responsible for poorly-managed financial entities
who gambled away billions of dollars," Sen. McCain said in a statement to
the press. He continued, "Fannie Mae and Freddie Mac are synonymous with mismanagement
and waste and have become the face of 'too big to fail'. The time has come
to end Fannie Mae and Freddie Mac's taxpayer-backed slush fund and require
them to operate on a level playing field."Congress, and the GOP in particular, have repeatedly pressed the
administration to figure out just what to do with the GSEs. Treasury
Secretary Timothy Geithner has made it clear that he doesn't plan to release
any plans for Fannie and Freddie until next year. Tired of playing the
waiting game, the Republican senators have decided to move forward with
their own proposal. Their legislation, dubbed the
GSE Bailout
Elimination and Taxpayer Protection Amendment, provides for a finite end to
the current conservatorship period for both companies - two years from the
date the amendment is enacted. The GSEs' regulator, the Federal Housing Finance Agency (FHFA) has an option
to extend conservatorship for six months if the agency determines and
notifies Congress that adverse market conditions exist and an exit from
conservatorship could prove precarious for the mortgage industry. The amendment spells out that if at the end of the conservatorship either
GSE is not financially viable, FHFA must place that GSE in receivership. If
the GSE is financially viable, then it would be allowed to re-enter the
market "under new operating restrictions." These new restriction would include a repeal of the GSEs' affordable housing
goals, a reduction in assets allowed on each company's books, retraction of
the higher conforming loan limits allowed for certain areas, and full
Securities and Exchange Commission (SEC) registration for the GSEs'
securities.The amendment also outlines the ultimate wind-down of operations and
dissolution of the enterprises. It establishes a three-year period after the
end of conservatorship for a "financially viable" GSE to operate under the
new operating restrictions until their government charter expires. At that
time, the legislation calls for a 10-year period to create a separate
holding corporation and a dissolution trust fund for any remaining mortgages
or debt obligations held by the GSEs.So after 15 years, Fannie and Freddie would be no more. Together, the two mortgage financiers have drawn $110 billion in taxpayer
dollars since they were put into conservatorship in September 2008. Freddie
Mac said Wednesday
that it needs another $10.6 billion from the Treasury to cover its
net worth deficit from first-quarter operations.The latest estimates from the Congressional Budget Office
, issued
in January, put the cost to subsidize Fannie Mae and Freddie Mac through the
year 2019 at $389 billion. But Sen. Judd Gregg (New Hampshire), who
co-sponsored the amendment with McCain, says it's time for the federal
government to come clean about the real costs of keeping the two companies
afloat. He says the figure is closer to $500 billion.
amendment to the Senate's regulatory reform package that would wean mortgage
giants Fannie Mae and Freddie Mac
off of federal funding over the next five years
and completely dissolve them after 15 years."The events of the past two years have made it clear that never again can we
allow the taxpayer to be responsible for poorly-managed financial entities
who gambled away billions of dollars," Sen. McCain said in a statement to
the press. He continued, "Fannie Mae and Freddie Mac are synonymous with mismanagement
and waste and have become the face of 'too big to fail'. The time has come
to end Fannie Mae and Freddie Mac's taxpayer-backed slush fund and require
them to operate on a level playing field."Congress, and the GOP in particular, have repeatedly pressed the
administration to figure out just what to do with the GSEs. Treasury
Secretary Timothy Geithner has made it clear that he doesn't plan to release
any plans for Fannie and Freddie until next year. Tired of playing the
waiting game, the Republican senators have decided to move forward with
their own proposal. Their legislation, dubbed the
GSE Bailout
Elimination and Taxpayer Protection Amendment, provides for a finite end to
the current conservatorship period for both companies - two years from the
date the amendment is enacted. The GSEs' regulator, the Federal Housing Finance Agency (FHFA) has an option
to extend conservatorship for six months if the agency determines and
notifies Congress that adverse market conditions exist and an exit from
conservatorship could prove precarious for the mortgage industry. The amendment spells out that if at the end of the conservatorship either
GSE is not financially viable, FHFA must place that GSE in receivership. If
the GSE is financially viable, then it would be allowed to re-enter the
market "under new operating restrictions." These new restriction would include a repeal of the GSEs' affordable housing
goals, a reduction in assets allowed on each company's books, retraction of
the higher conforming loan limits allowed for certain areas, and full
Securities and Exchange Commission (SEC) registration for the GSEs'
securities.The amendment also outlines the ultimate wind-down of operations and
dissolution of the enterprises. It establishes a three-year period after the
end of conservatorship for a "financially viable" GSE to operate under the
new operating restrictions until their government charter expires. At that
time, the legislation calls for a 10-year period to create a separate
holding corporation and a dissolution trust fund for any remaining mortgages
or debt obligations held by the GSEs.So after 15 years, Fannie and Freddie would be no more. Together, the two mortgage financiers have drawn $110 billion in taxpayer
dollars since they were put into conservatorship in September 2008. Freddie
Mac said Wednesday
that it needs another $10.6 billion from the Treasury to cover its
net worth deficit from first-quarter operations.The latest estimates from the Congressional Budget Office
, issued
in January, put the cost to subsidize Fannie Mae and Freddie Mac through the
year 2019 at $389 billion. But Sen. Judd Gregg (New Hampshire), who
co-sponsored the amendment with McCain, says it's time for the federal
government to come clean about the real costs of keeping the two companies
afloat. He says the figure is closer to $500 billion.
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