When Federal Housing Finance Agency director Mel Watt spoke to the Senate last month, he reaffirmed that he was committed to following Congress’s lead on Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) reform, and then asked them to please got on with setting a course of action. But recent comments from Democrats and Republicans make it sound like there won’t be any more progress in the next Congressional term than there was in the previous one.
Senators respond to Watt’s decision
“New Yorkers know painfully well that it is becoming extremely difficult to afford the rising cost of rent. The decision by the FHFA to fund the National Housing Trust Fund and the Capital Magnet Fund will bring millions of dollars to New York for rental housing and is a step in the right direction to help ensure that hardworking New York families have safe and affordable places to live,” said Democratic Senator Chuck Schumer.
Schumer, Senator Elizabeth Warren, and other progressives have focused on affordable housing when talking about Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corp).
“Contrary to what Fannie Mae and Freddie Mac apologists claim, the GSEs have yet to repay any of the taxpayer-funded bailout funds they received, said Republican Representative Ed Royce, reports Vicki Needham for The Hill. “Money coming in from the GSEs should go to the taxpayers instead of a slush fund for ideological housing groups to play around with.”
Paying back the government is a bit of a red herring since Fannie Mae and Freddie Mac don’t have the right to repurchase the government’s preferred stock even if they wanted to – Fannie Mae and Freddie Mac shareholders point out that dividend payments to the government are now much larger than the size of the original bailouts. But Royce and Republican Rep Jeb Hensarling both called the Housing Trust Fund a ‘slush fund’ and were furious that Watt had decided to start funding it.
Fannie Mae, Freddie Mac Reform: Changing terms of the debate spell gridlock
The reason this matters is that previous attempts to find common ground, like last year’s Crapo-Johnson bill, focused on the goal of bringing private capital back to the secondary mortgage market while limiting taxpayer exposure, a principal that has broad bipartisan appeal. But if Fannie Mae and Freddie Mac reform is going to be reduced to free markets v affordable housing, that common ground disappears pretty quickly.