Last year, Fannie Mae and Freddie Mac spent over $28 billion in taxpayer money. Since then, Fannie Mae has reported a net loss of $6.5 billion and requested an additional $6.2 billion in taxpayer funds from the Treasury. To date, the failures of the two government-sponsored enterprises (GSEs) have directly cost taxpayers more than $150 billion. The Congressional Budget Office (CBO) estimates that total federal subsidy outlays to Fannie and Freddie could total nearly $400 billion through 2019.
The housing crisis of 2008 revealed how the two GSEs were irresponsibly lending billions of dollars to homebuyers who ultimately could not afford houses. This irresponsible lending led to one of the worst housing crises in American history, and hardworking American taxpayers paid the price, not Fannie and Freddie.
We must enact fundamental reform of these entities and of the entire housing finance system. I have cosponsored the Government Sponsored Enterprise (GSE) Bailout Elimination and Taxpayer Protection Act to end the taxpayer-funded bailouts of Fannie Mae and Freddie Mac and put the two GSEs on a path towards privatization. This bill begins implementing important reforms upon enactment, puts a hard two-year end date on conservatorship, and eliminates the government charters after five years.
To protect taxpayers, the bill immediately implements several fundamental reforms:
- Repeals the GSEs’ misguided affordable housing goals mandate and the Affordable Housing Trust Fund;
- Starts shrinking the size of the GSEs by capping their maximum portfolio size at $700 billion and gradually reducing that cap to $250 billion over five years;
- Reduces the GSEs’ market share by returning the conforming loan limit to its pre-housing crisis standard limit of $417,000;
- Increases guarantee fees to eliminate the GSEs’ competitive advantage and bring more private capital into the market; and
- Prohibits any reduction to the senior preferred stock dividends the GSEs contractually agreed to pay taxpayers under their conservatorship.
By privatizing Fannie and Freddie over a five-year transition period and gradually eliminating taxpayer subsidies in the secondary mortgage market, the bill requires the GSEs to eventually stand on their own two feet and compete with private sector competitors.