Fannie Mae: Why Does Sen. Isakson Want to Add $5 Trillion to the National Debt?

Fannie Mae: Why Does Sen. Isakson Want to Add $5 Trillion to the National Debt? by Investors Unite

Right-wing purists will likely cheer recent calls by Sen. Johnny Isakson to liquidate Fannie Mae and Freddie Mac. That is, until they find out that the Senator’s new bill would assign all of the current liabilities of Fannie and Freddie – some $5 trillion – to the U.S. taxpayer, and dramatically increase our national debt.

Last month, without any fanfare, Isakson introduced S.1048, the Mortgage Finance Act. The bill would place Fannie Mae and Freddie Mac into receivership under the authority of a new government-controlled Mortgage Finance Agency. Isakson’s legislation envisions a new securitization program and a payback for the taxpayers over 10 years for their 2008 rescue of the GSEs.  (Never mind the fact that Fannie and Freddie have already paid back in excess of $40 billion more than they were loaned).

The fact that these two companies currently own or guarantee about half of all U.S. mortgages, worth about $5 trillion, is not insignificant. As receiver, the government would assume this massive portfolio.  That sum is equal to about one third of nation’s GDP.

And aside, from the question of how loading up the government with $5 trillion in obligations, Isakson’s bill should also raise concerns about future access to mortgages for millions of middle class Americans because it obliterates Fannie and Freddie without a credible alternative.  Fannie and Freddie have made the dream of homeownership a reality for millions of Americans.  Isakson wants to throw all of that away and replace them with an untested new securitization platform.  Is this how to run for Governor of Georgia?  We think not!

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Fannie Mae: Why Does Sen. Isakson Want to Add $5 Trillion to the National Debt?

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  • elegiamore

    Johnny Isakson seems to have lost his mind. This proposal, from a realtor, no less. Signing the treasonist 47 senator Iran letter. Standing behind the Congress’ decision to give a 19% deduction shaft to disabled children and adults (his office refused to discuss this topic with me). And he’s an SAE to boot. What gives, Senator?

  • jayjay269

    You may want to correct the line about Isakson running for Governor… He’s running for reelection to the U.S. Senate.

  • arne

    The author is pointing out that the government would take on the obligations of Fannie and Freddie under receivership. That includes the implied liability of wrapping $5 trillion in outstanding mortgage bonds (not on balance sheet) plus all of the debt issued by the companies. The debt would be “on balance sheet”. I don’t care enough to look up the data but it would be in the trillions. So, the article is a little unclear, but the concept–government takes GSE debt on balance sheet–is the issue.

  • dirk

    LOL, what accounting principals? Does Ambac count as debt every muni bond they wrap? You need to study accounting a bit closer. Where on Fannie’s balance sheet do these guarantees on MBS show up as debt? And if it isn’t on Fannie’s balance sheet, why would it magically need to be on the balance sheet of the U.S. govt? This sort of fear mongering shows how desperately weak your position is.

  • Jouk

    Fannie and Freddie worked perfectly fine for 70 years, tracking our rise as the world power. Sure they had a hand in the Recession, but so did big banks and the U.S. consumer mentality (using our homes as piggy banks). Let’s put in some hard coded reforms to keep the GSEs from going overboard ever again, but let’s not throw out all the good they did. The US resi finance system was the envy of the world under the GSEs, and scraping them to introduce all the unknowns in a new system seems way riskier than keeping them.

  • Jouk

    Wrong, dirk. Its a $5T assumption in accordance with accounting principals. The fact that it will likely never come to pass is irrelevant. The fact is that the gov’t will have to account for that possibility in its bookkeeping — no way around it. Thus the increase in national debt. That increase triggers all sort of nightmarish results such as the lowering of the U.S. credit rating.

  • dirk

    This article is misleading – Fannie and Freddie guarantee $5T worth of MBS. That is NOT the same as having $5T worth of debt. They would ONLY have to pay out $5T if every single mortgage in those MBS defaulted and suffered 100% loss (i.e. every house underlying these mortgages became worthless). This is not the same at all as having $5T of debt outstanding. Think about it another way – if Fannie and Freddie really were $5T underwater (as this article implies), then why are these hedge fund vultures circling around these companies?

  • James Oliver

    Isakson sounds so stupid we should probably go ahead and get him committed before he really embarrasses himself. Let’s put the two most productive enterprises on the planet into receivership? Did the idiot really say that?

  • Gor

    well said

  • PaulApp

    The U.S. officials have shown their arrogance and stupidity again and again…. and how these people can get elected is even a bigger question.