Republicans Dive Head First into GSE Reform with Eight New Bills

The House Republicans who will ultimately have the mostrninfluence on the decision have come out with a plan for reforming the tworngovernment sponsored enterprises (GSEs) Fannie Mae and Freddie Mac.  </p

Scott Garrett (R-NJ) Chairman of the HousernFinancial Services Subcommittee on Capital Markets and Government-SponsoredrnEnterprises released what was actually a summary of eight bills, each coveringrna different aspect of reform and each introduced by a different member of the parentrnFinancial Services Committee.  They coverrna broad range of issues involved in bringing the government’s conservatorshiprnof the GSEs to an end and establishing a philosophy as well as a new system ofrnfinancing the housing industry.  </p

Garret said that this is the first in what will be multiplernrounds of “very specific, very targeted bills to end the bailouts, protectrnthe taxpayers and get private capital off the sidelines.”  The endrnresult, he said, will formally wind down the GSEs and return the housingrnfinance system to the private marketplace.<br /<br /"With the American taxpayers on the hook for $150 billion and counting, thernbailout of Fannie and Freddie is already the most expensive component of thernfederal government's intervention into the financial system.  Americansrnare tired of the ongoing bailout of the failed government-backed mortgagerngiants, and they are tired of Democrats' refusals to address the driving forcernbehind the financial collapse.  While Democrats chose to ignore thernproblem last Congress, House Republicans stand ready to end the bailout andrnprotect American taxpayers from further losses."</p

Here is a summary of the bills: </p

The Equity in GovernmentrnCompensation Act, sponsoredrnby Spencer Bachus (R-AL), Chairman of the House Financial ServicesrnCommittee. </p

The bill suspends the current compensation packages for allrnGSE employees and replaces them with a system consistent with the ExecutivernSchedule and Senior Executive Service of the Federal Government.  The bill also expresses the sense of the Congressrnthat the 2010 pay packages for senior executives were excessive and the moneyrnshould be returned to taxpayers. <br /<br /The GSE Mission Improvement Act, sponsored by Ed Royce (R-CA)</p

This legislationrnwould permanently abolish the affordable housing goals of Freddie Mac andrnFannie Mae.  According to Royce’srncomments accompanying the bill, these goals were a central cause behind therncollapse of the GSEs and the ongoing goal of the GSEs should be to reduce riskrnto taxpayers rather than expose them to further losses.  “To meet these goals, the GSEsrnpurchased more than $1 trillion in ‘junk loans.’  These loans accountedrnfor a large portion of the mortgage giants’ losses – losses that were laterrnloaded onto the backs of American taxpayers.” </p

The Fannie Maernand Freddie Mac Accountability and Transparency for Taxpayers Act (H.R. 31),rnsponsored by Judy Biggert (R-IL) Chairman of the House Financial ServicesrnSubcommittee on Insurance, Housing and Community Opportunity.<br /<br /This bill would establish an Inspector General (IG) within the Federal HousingrnFinance Agency (FHFA,) the conservator of the GSEs, provide him/her withrnadditional law enforcement and personnel hiring authority, and require him/herrnto submit regular reports to Congress on taxpayer liabilities, investmentrndecisions, and management details.  Thesernreports would be made publically available.<br /<br /The GSE Subsidy Elimination Act,rnsponsored by Randy Neugebauer (R-TX) Chairman of the House Financial ServicesrnSubcommittee on Oversight.</p

The proposed legislation would direct FHFA to phase in anrnincrease in the fees it charges for its guarantee as though they were held tornthe same capital standards as private financial institutions.  The phase-in would be conducted over twornyears and would, the summary says, level the playing field so that privaterncapital can re-emerge, decreasing the government’s exposure to housing marketrnrisks.</p

GSE PortfoliornReduction Act, sponsored by Jeb Hensarling (R-TX), Vice Chairman ofrnthe House Financial Services Committee.</p

This bill would accelerate and formalize the previouslyrnestablished rate of reducing the portfolios of the two GSEs by setting annualrnlimits on the maximum size of each portfolio rather than using the percentagerndecrease currently in place.  The billrnwould cap the portfolios at $700 beginning in year one and bring them down torn$250 billion by the end of year five. </p

GSE Risk andrnActivities Limitation Act, sponsoredrnby David Schweikert (R-AZ), Vice Chairman of the House Financial ServicesrnSubcommittee on Capital Markets and Government-Sponsored Enterprises.<br /<br /This bill would prohibit the GSEs from engaging in any new activities orrnbusinesses.  The bill's sponsor acknowledgesrnthat FHFA already has such a prohibition in place; the bill merely codifiesrnthat prohibition. <br /<br /The GSE Debt Issuance Approval Act, Sponsored by Steve Pearce (R-NM).<br /<br /Under the requirements of this legislation, the Department of the Treasuryrnwould have to formally approve any new debt issued by the GSEs.  Pearce comments that, "This will helprnprotect taxpayers by requiring the formal legal authority of U.S. debt issuancernto approve the issuing of agency debt which is roughly the same as U.S.rndebt."</p

GSE Credit RiskrnEquitable Treatment Act, sponsored by Scott Garrett.   <br /<br /This proposed legislation would apply any of the standards applied to privaternsecondary mortgage market participants to the GSEs. It would, according tornGarrett, ensure that the GSEs are not exempt from new risk-retention rulesrnmandated by Dodd-Frank and that they face the same retention standards asrnprivate market participants.  Garrettrnsaid this bill will make clear that Fannie Mae and Freddie Mac will be held to the same standards as any other secondary mortgage market participants.  Under Dodd-Frank, Fannie and Freddie could still be able to purchase a mortgage from a financial institution that falls outside of the Qualified Residential Mortgage (QRM) definition and issue asset-backed securities backed by non-QRM assets.  Garrett’s bill would clarify that a GSE loan purchase or asset-backed security issuance would not affect the status of the underlying assets.  If the GSEs purchase a non-QRM loan, all lender risk-retention requirements will still apply, and if the GSEs issue a non-QRM security, all securitization risk retention rules will still apply.<br /<br /The Financial Services Subcommittee on Capital Markets and Government-SponsoredrnEnterprises will hold a legislative hearing on the eight bills Thursday, Marchrn31st and then a markup on Tuesday, April 5th.   </p

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