Pagliara: Government’s profit sweeps of Fannie and Freddie put taxpayers at risk

Fannie, Freddie not adequately capitalized

On Thursday an op-ed penned by Tim Pagliara appeared in The Hill newspaper, a Capitol Hill publication whose primary audience is Congress, its thousands of staff members and administration officials.

The focus of Pagliara’s op-ed is how the U.S. Treasury’s illegal net sweep is putting taxpayers at risk.

Here’s a taste:

The Housing and Economic Recovery Act (HERA) of 2008 stabilized the mortgage finance giants known as Fannie Mae and Freddie Mac with an infusion of funds from the Treasury Department and put them into conservatorship under the authority of the Federal Housing Finance Agency. The statute made it clear that the conservatorship was a temporary arrangement to conserve and preserve the assets of Fannie Mae and Freddie Mac and to restore them to a “sound and solvent” condition for the benefit of stakeholders.

That’s why it is so confounding that the federal government has asserted that it is acting within its authority as it continues a practice begun abruptly by the Treasury Department in 2012 to lay claim to revenues of Fannie Mae and Freddie Mac and use them for a variety of budget needs. What is called the “Third Amendment sweep” effectively prevents Fannie Mae and Freddie Mac from building a financial buffer for the proverbial rainy day. It is all but certain that the rainy day will come and when it does taxpayers will once again be asked to put the two entities, as Government Sponsored Enterprises (GSEs), on sound footing.

At this point, no one knows how long the conservatorships will last. Fannie Mae and Freddie Mac are back in business providing liquidity and stability to a housing market that has lagged other sectors in recovery. But that does not mean they are adequately capitalized. 

 Read the article online here.  

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