Republican member of the House Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises have introduced a series of eight bills aimed at reforming Fannie Mae and Freddie Mac. Rather than seeking comprehensive reform, the bills indicate an approach to tackle various issues individually.
Presenting a review of the eight bills, Rep. Scott Garrett, Chairman of the Subcommittee noted that this is the first round in what will likely be multiple rounds of very specific and targeted bills that will serve to formally wind down the GSE's and support a housing finance market dominated by private capital.
An overview of the eight bills, according to Rep. Garrett, follows:
The Equity in Government Compensation Act
This bill suspends the current compensation packages for all employees at Fannie Mae and Freddie Mac and establishes a compensation system that is consistent with that of the Executive Schedule and the Senior Executive Service of the Federal Government. In addition, the bill expresses the sense of the Congress that the 2010 pay packages for Fannie and Freddie senior executives were excessive and that the money should be returned to taxpayers.
The GSE Mission Improvement Act
Seeks to permanently abolish the GSE affordable housing goals, which were a central cause behind the collapse of the GSEs. The ongoing goal of the GSEs should be to reduce risk to taxpayers, not expose them to further losses.
The Fannie Mae and Freddie Mac Accountability and Transparency for Taxpayers Act
This bill ramps up oversight of Fannie Mae and Freddie Mac by establishing in statute an Inspector General (IG) within FHFA and providing the IG with additional law enforcement and personnel-hiring authority. The bill also requires the GSE Inspector General to submit regular reports to Congress outlining taxpayer liabilities, investment decisions, and management details of Fannie and Freddie. Finally, the bill requires that these reports, along with a system to report waste, fraud, or abuse, be made publicly available.
The GSE Subsidy Elimination Act
Directs the FHFA to phase in an increase of the guarantee fees over two years so Fannie Mae and Freddie Mac price their guarantees as if they were held to the same capital standards as private banks or financial institutions. By gradually increasing these fees, the playing field will be leveled so that private capital to re-emerge – all of which will decrease the government’s exposure to the housing market.
GSE Portfolio Reduction Act
Accelerates and formalizes the reductions in the size of the GSE's portfolios by setting annual limits on the maximum size of each GSE’s retained portfolio and ratcheting the limits down over five years until they have reached a sustainable level. In the first year, the GSEs would have their portfolios capped at no more than $700 billion, declining to $600 billion for year two, $475 billion for year three, $350 billion for year four, and finally $250 billion in year five.
GSE Risk and Activities Limitation Act
Prohibits Fannie and Freddie from engaging in any new activities or businesses. Currently, FHFA is preventing the entities from engaging in new activities, and we want to ensure that stays that way by codifying that current practice.
The GSE Debt Issuance Approval Act
Requires the Department of Treasury to formally sign off on any new debt issuance by the GSEs. This will help protect taxpayers by requiring the formal legal authority of U.S. debt issuance to approve the issuing of agency debt, which is roughly the same as U.S. debt.
GSE Credit Risk Equitable Treatment Act
Seeks to hold Fannie Mae and Freddie Mac 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. This bill would ensure that 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.