Provision Would Spur Structural Housing Reform, Prevent Misguided “Recap and Release” Effort
Dec 16 2015
WASHINGTON – U.S. Sens. Mark Warner (D-VA) and Bob Corker (R-TN), members of the Senate Banking Committee, today applauded inclusion of a Jumpstart GSE Reform Act provision in the fiscal year 2016 “omnibus” appropriations bill.
The provision, which would spur substantive and structural housing finance reform, would prohibit for at least two years the sale of Treasury-owned senior preferred shares in government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac without congressional approval. The appropriations bill also expresses the sense of Congress that it “should pass and the President should sign into law legislation determining the future of Fannie Mae and Freddie Mac, and that notwithstanding the expiration of subsection (b), the Secretary should not sell, transfer, relinquish, liquidate, divest, or otherwise dispose of any outstanding shares of senior preferred stock acquired pursuant to the Senior Preferred Stock Purchase Agreement until such legislation is enacted.”
“The inclusion of our ‘Jumpstart GSE’ provision demonstrates the unmistakable intent of Congress that the Secretary of Treasury shall not re-IPO or otherwise divest the taxpayers' investment in Fannie and Freddie without full debate and clear direction from the peoples' elected representatives,” said Sen. Warner. “Homeownership is a fundamental part of the American Dream, and we remain committed to revamping the housing finance system to ensure affordable access while protecting taxpayers so they are never again on the hook for a bailout.”
“Passage of this provision makes it clear that Congress – who created mortgage giants Fannie Mae and Freddie Mac in the first place – should ensure we do not return to the failed model of private gains and public losses that once forced taxpayers to write a $188 billion bailout check,” said Sen. Corker. “Recapitalizing and releasing these behemoth entities as they now exist is not in our nation’s interest. Today, we are putting to bed that misguided idea, but there is more work to be done. Fortunately, a lot of the heavy lifting has taken place, and it is time for Congress to finally finish its job. Protecting taxpayers and ensuring we have a dynamic housing finance system that works for Americans will remain near the top of my to-do list, and I look forward to working with my colleagues toward that end.”
In 2008, Fannie Mae and Freddie Mac were taken into government conservatorship and given a $188 billion capital injection from taxpayers to stay afloat. As a result of the bailout, the U.S. Department of Treasury purchased senior preferred stock in the GSEs and was given sole discretion to sell or otherwise dispose of those shares.
There is broad bipartisan, bicameral consensus that the status of the GSEs prior to conservatorship was a failure and that the best way to prevent another bailout and protect taxpayers is through comprehensive housing finance reform. Furthermore, the Obama administration has made clear that they continue to believe comprehensive housing finance reform is the only effective way forward and have publicly rebuked calls by some activist groups to recapitalize Fannie Mae and Freddie Mac and release them from conservatorship.
The Jumpstart GSE Reform Act was introduced in September by Corker, Warner and Sens. David Vitter (R-LA) and Elizabeth Warren (D-MA) and does not indicate which housing finance reform proposal should be adopted.