Fannie and Freddie's Nightmare on Main Street

The Obama administration held yet another style over substance “conference” yesterday, this time to give the appearance of doing something about housing giants Fannie Mae and Freddie Mac.  The two behemoth government sponsored enterprises (GSEs) are at the epicenter of America’s financial meltdown.

The two GSEs have further placed taxpayers on the hook for nearly $5 trillion in mortgage guarantees and debt obligations.

And Fannie and Freddie continue to bleed money at an alarming rate. 

In early August they requested over $3 billion in additional bailout funds.  To date, America’s taxpayers have shelled out a whopping $148.2 billion bailing out the two failed government mortgage enterprises.  The Congressional Budget Office (CBO) estimates the bailout could reach as high as $389 billion. 

“With the national debt at nearly $14 trillion and unemployment still near 10 percent, the administration has yet to stop the bailouts of Fannie Mae and Freddie Mac,” said House Republican Conference Chairman Mike Pence (R-Ind.).   “They would do well to remember that underwriting every bad loan in America is not the answer.”

Democrats refused to address Fannie and Freddie reform as part of their 2,315-page financial regulatory “reform” bill passed earlier this year, instead opting to leave taxpayers holding the bag for the government-guaranteed loans.

At the conference yesterday, Treasury Secretary and serial tax evader Tim Geithner pledged “fundamental change” without any specifics, saying the administration planned to offer a solution in January of next year.

Pence called on the Obama administration to “put the interests of the American people first and end its continued bailouts of Fannie Mae and Freddie Mac.  It is past time to rid the American taxpayer of the liabilities of these financial institutions once and for all.”

Of course, the plan the administration keeps floating while saying they’re not considering it is to force Fannie and Freddie to automatically reduce the principal of the underwater mortgages backed by the GSEs by writing down the value of the loans.  Under this plan, the administration would use as the vehicle its failing Home Affordable Modification Program (HAMP) as a means to sidestep approval of the massive new bailout by Congress.

The two major problems with the bailout scenario are 1) servicers could preemptively opt out as provided by their original participation agreements and 2) the bailout would incentivize those responsible borrowers with underwater mortgages to stop making loan payments in order to qualify for the massive loan write down bailout.

The federal government today controls about 90% of the home mortgage market.  This government interference in the housing market continues the disastrous economic consequences we see today.

Reps. Jeb Hensarling (R-Texas) and Scott Garrett (R-N.J.) responded to the lackluster conference in the Washington Examiner outlining the plan they introduced in March.

From the article:

“… we have introduced and cosponsored H.R.4653, the Accurate Accounting of Fannie Mae and Freddie Mac Act, and H.R. 4889, the GSE Bailout Elimination and Taxpayer Protection Act.

“The Accurate Accounting of Fannie Mae and Freddie Mac Act would finally peel back the curtain to shed light on the financial makeup of the GSEs by moving them both “on budget.”

“Put simply, this would require that taxpayers receive a detailed record of their financial exposure to the failed mortgage giants, something they have yet to see under this administration.

“The GSE Bailout Elimination and Taxpayer Protection Act will end the taxpayer bailouts of Fannie and Freddie and put them on a path toward becoming true market participants. It would end the conservatorship for both GSEs within two years and, if they are financially viable, allow them to resume operations for a transition period of three years.”

Much more at the link

Republicans were sounding alarm bells over the threats Fannie and Freddie posed to the economy long before the housing crash.  Lest we forget this 2004 montage of hearing footage from exposing Democrat efforts to block Republican attempts to reign in Fannie and Freddie long before the GSEs catapulted the American economy into meltdown. 

Democrats have zero credibility on Fannie and Freddie reform.