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Paul Ryan budget will not abandon Fannie and Freddie

…for now

Fannie Mae
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Fannie Mae and Freddie Mac managed to still weasel their way into the House Budget Committee Chairman Paul Ryan’s, R-Wis., fiscal year 2015 budget plan despite his plans to slowly wind them down.

“The resolution aims to limit and reform programs in this function to reduce spending; to limit the federal government’s role in housing-finance, financial, and telecommunications markets,” the budget proposal states.

The budget ultimately recommends putting an end to corporate subsidies and taxpayer bailouts in housing finance and envisions to eventual elimination of Fannie and Freddie.

However, in order to get to that end result, the budget advises following the Protecting American Taxpayers and Homeowners Act, which phases out the government-sponsored enterprises in five years.

Additionally, the PATH act increases competition by ending the federal government’s domination of the mortgage finance system and also gives consumers more options in determining which mortgage product best suits their needs.

Included in the changes is reforming the Credit Reform Act to incorporate fair value principles. The budget noted that due to the precarious financial position of the Federal Housing Administration, the government should adopt measures to control the assumption of risk by the FHA as other government-backed entities are wound down.

“As the government reforms its role in the U.S. housing markets, which this resolution supports, Fannie, Freddie, and FHA loans should be treated with parity and full transparency. The housing-finance system of the future, however, should allow private-market secondary lenders to fairly, freely, and transparently compete, with the knowledge that they will ultimately bear appropriate risk for the loans they guarantee. Their viability will be determined by the soundness of their practices and the value of their services,” Ryan’s budget said.

One catch of the budget: it significantly pulls back the authority of the Dodd-Frank Act.

“Dodd-Frank contains layer upon layer of new bureaucracy sewn together by complex regulations, yet it fails to address key problems. Although the bill is dubbed 'Wall Street Reform,' it actually intensifies the problem of too-big-to-fail by giving large, interconnected financial institutions advantages that small firms will not enjoy,” the budget said.

Other key sections of the bill include that the Ryan budget significantly reduces federal debt relative to current law, especially in debt as percentage of gross domestic product, dropping the GDP in FY 2024 from 79% (the latest Congressional Budget Office baseline projection) to 56%, the Bipartisan Policy Center said.  

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