(Washington, D.C.) – The Council for Citizens Against Government Waste (CCAGW) today reacted unenthusiastically to the markup of a manager’s amendment to a bill to reform the nation’s housing government-sponsored enterprises (GSEs): Fannie Mae, Freddie Mac, and the Federal Home Loan Bank System.  The Federal Housing Finance Reform Act of 2005 (H.R. 1461), also known as the Baker-Oxley bill, is now encumbered with amendments that have weakened the bill and could create new dangers for taxpayers. 

Fannie Mae and Freddie Mac are congressionally-chartered companies that benefit from indirect subsidies from the federal government worth about $11 billion annually, according to the Congressional Budget Office.  More than one-third of that subsidy is absorbed by the GSEs’ executives and shareholders and not passed on to homebuyers.  As a direct result of their close links with the federal government, the GSEs materially profit from the perception that taxpayers back their securities and would be forced to bail them out in case of financial crisis.  As the GSEs have increasingly repurchased and held their own mortgage-backed securities in portfolio, their overall size has exploded.  Limiting their growth is essential to insulating taxpayers from a future bailout.

The Baker-Oxley bill has now been weakened by a series of amendments that include: delaying the establishment of the new regulator for a year; increasing the conforming loan limits to $540,000 in so-called high-cost areas, essentially subsidizing America’s wealthiest homebuyers and expanding the GSEs’ playing field into the jumbo market, where they would squeeze out private sector mortgage companies in a competitive and vibrant mortgage industry; creating a 5 percent set-aside fund for a huge new bureaucracy which would ostensibly be used by the GSEs to make grants to support affordable housing goals and fund some community development projects; denying the new regulator meaningful authority to shrink the GSEs’ overall portfolio, a power strongly favored by the Federal Reserve Chairman Alan Greenspan, the U.S. Treasury Department, the White House, taxpayer and consumer groups, as well as the co-sponsors of a GSE reform bill in the Senate; and denying the new regulator the authority to adjust capital requirements in a timely manner.

“The House bill was insufficient to begin with,” CCAGW President Tom Schatz said.  “CCAGW held out hope that the members of the House Financial Services Committee would enhance and strengthen it before it went to the floor for a vote.  One would think that accounting scandals and investigations at both GSEs would convince representatives to protect taxpayers from a potentially massive GSE bailout.  Instead, it appears that members of the House have succumbed to the pressure of Fannie, Freddie, and their lobbying allies to dumb the bill down until it is virtually meaningless.  While the White House has held out hope the House bill can be improved, taxpayers will likely have to look to the Senate for any hope of real GSE reform.”

The Council for Citizens Against Government Waste is the nation's largest nonpartisan, nonprofit organization dedicated to eliminating waste, fraud, abuse, and mismanagement in government.