On September 6, 2008, mortgage giants and government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac were placed into federal conservatorship in the wake of the housing market crash and global financial crisis. 

Nearly a decade later, neither the GSEs, the Federal Housing Finance Administration (FHFA), nor Congress have offered any viable plans to unwind these entities and release them from taxpayer-backed financial foster care. 

More alarmingly, there are no indications that, should Congress manage to create a path to release them from conservatorship, Fannie and Freddie will be constrained to their original mission of secondary mortgage market securitization.  In fact, their activities over the past decade indicate that they will continue to overspend, overreach, and overlap into the private sector, as they did before the 2008 meltdown.

FHFA is the GSEs’ regulator, but it has failed to act as the taxpayer watchdog Congress intended.  FHFA Inspector General (IG) Laura Wertheimer testified at an April 12, 2018 House Financial Services Committee hearing that nearly $193.5 billion has been invested into Fannie and Freddie from the pockets of taxpayers.  Rather than ensuring that the GSEs' “reduce taxpayer risk,” Fannie and Freddie required another $4 billion infusion of taxpayer money in February 2018, and could need a bailout of up to $100 billion in the future.

Despite prior and potential future bailouts, Fannie and Freddie continue to spend recklessly.  For example, the build-out costs for Fannie Mae’s new headquarters, according to a September 28, 2017 FHFA Office of the Inspector General (OIG) report, rose by 49 percent, from $115 million in January 2015 to $171 million in March 2016.  Fannie Mae’s excessive purchases included a $250,000 chandelier, $1.2 million for decorative wood ceilings, $2 million for a third glass bridge spanning between the organizations two towers, and a $4.1 million cafeteria, lavish appointments for an entity that is currently under federal control; i.e., the American taxpayers.

Beyond the GSEs’ wasteful spending, they continue to blur the lines as to whether they are government entities or private sector operations.  On May 7, 2018, Bloomberg reported that Freddie Mac has been extending lines of credit to nonbank mortgage servicers.  Very few details have been provided on exactly what Freddie Mac is planning to do, and whether it will use its privileged status to create an uneven playing field with private businesses.

Fannie Mae is also under increased scrutiny for edging past FHFA’s lobbying ban, according to Bloomberg, which reported that Fannie has been “quietly meeting with people inside and outside President Donald Trump’s administration.”  Fannie denies that its executives are actively lobbying, claiming that they are only presenting “factual information on policy proposals” in meetings with government officials.   Pouring money into lobbying was a hallmark of the GSEs’ business model before 2008.  It should come as no surprise that there are indications that they may be following that freewheeling model again, even under conservatorship. 

FHFA Director Mel Watt, a former member of Congress who was an avid apologist for the GSEs when he served on the House Committee on Financial Services, has acted more as a collaborator than an impartial watchdog.  For instance, IG Wertheimer has called out FHFA’s and Director Watt’s poor oversight of the construction of Fannie Mae’s new headquarters.  She concluded that Fannie’s team of experts did not properly consider the OIG’s recommendations on cost efficiencies, or whether a GSE with an “uncertain future” warranted such an expensive, leased building.

The GSEs are engaging in wasteful spending, with little FHFA oversight.  Senators will have the opportunity to ask questions and get answers about FHFA and the GSEs from Director Watt when he appears before the Senate Banking Committee on May 23, 2018.