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Hoyer: No Plans Yet by Democrats To End Fannie, Freddie Bailouts
House Majority Leader Steny Hoyer (D-Md.) could not say what action Democrats are planning to end the federal bailouts of Fannie Mae and Freddie Mac or when his party planned to take action.
(CNSNews.com) – House Majority Leader Steny Hoyer (D-Md.) could not say what action Democrats are planning to end the federal bailouts of Fannie Mae and Freddie Mac or when his party planned to take action.
Hoyer, speaking to reporters on Tuesday at his weekly press briefing, said only that the House Financial Services Committee was “looking at” what to do with the failed mortgage giants that played a central role in the 2008 economic crisis.
“The committee is looking at that,” said Hoyer. “It is going to be considering it. I can't tell you when specifically, but clearly the committee needs to deal with the issue of Fannie and Freddie and they will be doing it.”
Fannie and Freddie together own or guarantee $5.5 trillion worth of home mortgage loans – about half of all mortgages – and have been costing the taxpayers approximately $7 billion per month to keep afloat, after first being bailed out in September 2008.
So far, Fannie and Freddie have cost taxpayers $145 billion and have both reported that they will never be profitable again because the mortgages they bought and sold to investors are so poor that they will never make money on them, and will therefore require bailouts into the “indefinite future.”
“So, I agree we need to look at that and figure out how they are going to be viable in the future or if not, what entity will, [what] private sector entity will replace their ability to facilitate home mortgages,” Hoyer said.
The Congressional Budget Office has estimated that by the time the government is through unwinding Fannie and Freddie, it will have spent approximately $390 billion. The government has also committed over $2 trillion to guarantee debt issued by Fannie and Freddie.
When asked by CNSNews.com whether Democrats were planning on acting before or after the midterm elections in November, Hoyer said he had no “sense” of whether they would or would not.
“I don't have a sense of that specifically,” he said.
President Barack Obama has expanded both Fannie and Freddie’s mission and the government’s authority to bail them out. As part of a plan to address a lagging housing market, he allowed the failed companies to accept so-called underwater loans in his administration’s mortgage refinancing plan.
Underwater mortgages are those where the borrower owes more on the mortgage than the home is worth and is therefore unable to fully repay the loan even if he were to sell the house. Usually, underwater borrowers will walk away from the loan – refuse to make mortgage payments – or negotiate with the bank for a short sale, selling the home for less than they owe.
Obama’s plan, however, allowed Fannie and Freddie to accept underwater borrowers in a program intended to entice banks to refinance their loans, even though they would remain unable to fully repay the loan, making them more likely to default.
Obama also lifted the cap set by the George W. Bush administration on how much the government would pay to bail out Fannie and Freddie. Bush had set the cap at $400 billion. Obama repealed it on Dec. 24, 2009 and did not set a new limit, potentially exposing taxpayers to trillions of dollars in bailouts.
Representative Jeb Hensarling (R-Texas) introduced a bill to do away with both Fannie and Freddie within two years, allowing them to resume operation as fully private, heavily regulated companies if they are viable, and abolishing them entirely if they are not.
Hensarling’s bill was referred to the Financial Service Committee on March 19, but has yet to receive a hearing. Democrats united to defeat a similar measure in the Senate last week, saying that it was too soon to try to deal with Fannie and Freddie.
Instead of offering a plan to end the bailouts of Fannie and Freddie, Senate Democrats offered merely to commission a study of which options the Treasury Department thought best. Hoyer also endorsed this approach saying that he agreed that the issue needed to be studied.
Fannie Mae was established as a federal agency in 1938, according to its Web site, “and was chartered by Congress in 1968 as a private shareholder-owned company.” It is a government-sponsored enterprise.
Freddie Mac was established by Congress in 1970 through the Federal Home Loan Mortgage Corporation Act.
Fannie and Freddie, although largely responsible for many of the bad mortgages that hurt the housing market and the economy in 2008 and 2009, describe their mission as providing “liquidity” and “stability” to the U.S. housing market.
In commenting on the 2008 housing bust and government bailouts of Fannie and Freddie, Gerald P. O’Driscoll, a former vice president of the Federal Reserve Bank of Dallas, wrote: “At heart, Fannie and Freddie had become classic examples of ‘crony capitalism.’ The ‘cronies’ were businessmen and politicians working together to line each other's pockets while claiming to serve the public good. The politicians created the mortgage giants, which then returned some of the profits to the pols -- sometimes directly, as campaign funds; sometimes as ‘contributions’ to favored constituents.”
“Because the government was universally believed to guarantee their debt, Fannie and Freddie could borrow at better rates than true private-sector firms -- and accumulate far greater risks,” wrote O’Driscoll. “The politicians and regulators that should've reined them in did not -- because the giants bought influence, and because of their apple-pie image as ‘promoting homeownership.’”
“And, because government backing let Fannie and Freddie dominate the mortgage-underwriting market, private-sector criticism was silenced,” said O’Driscoll. “Local banks that wanted to offer mortgages dared not speak out against them. Large banks dared not complain about the giants' government-given advantage because they needed to be able to buy securities from Fannie/Freddie.”
House Majority Leader Steny Hoyer (D-Md.) (AP Photo)
Hoyer, speaking to reporters on Tuesday at his weekly press briefing, said only that the House Financial Services Committee was “looking at” what to do with the failed mortgage giants that played a central role in the 2008 economic crisis.
“The committee is looking at that,” said Hoyer. “It is going to be considering it. I can't tell you when specifically, but clearly the committee needs to deal with the issue of Fannie and Freddie and they will be doing it.”
Fannie and Freddie together own or guarantee $5.5 trillion worth of home mortgage loans – about half of all mortgages – and have been costing the taxpayers approximately $7 billion per month to keep afloat, after first being bailed out in September 2008.
So far, Fannie and Freddie have cost taxpayers $145 billion and have both reported that they will never be profitable again because the mortgages they bought and sold to investors are so poor that they will never make money on them, and will therefore require bailouts into the “indefinite future.”
“So, I agree we need to look at that and figure out how they are going to be viable in the future or if not, what entity will, [what] private sector entity will replace their ability to facilitate home mortgages,” Hoyer said.
The Congressional Budget Office has estimated that by the time the government is through unwinding Fannie and Freddie, it will have spent approximately $390 billion. The government has also committed over $2 trillion to guarantee debt issued by Fannie and Freddie.
When asked by CNSNews.com whether Democrats were planning on acting before or after the midterm elections in November, Hoyer said he had no “sense” of whether they would or would not.
Headquarters of the federally chartered mortgage giant, Freddie Mac, in McLean, Va. (AP photo)
President Barack Obama has expanded both Fannie and Freddie’s mission and the government’s authority to bail them out. As part of a plan to address a lagging housing market, he allowed the failed companies to accept so-called underwater loans in his administration’s mortgage refinancing plan.
Underwater mortgages are those where the borrower owes more on the mortgage than the home is worth and is therefore unable to fully repay the loan even if he were to sell the house. Usually, underwater borrowers will walk away from the loan – refuse to make mortgage payments – or negotiate with the bank for a short sale, selling the home for less than they owe.
Obama’s plan, however, allowed Fannie and Freddie to accept underwater borrowers in a program intended to entice banks to refinance their loans, even though they would remain unable to fully repay the loan, making them more likely to default.
Obama also lifted the cap set by the George W. Bush administration on how much the government would pay to bail out Fannie and Freddie. Bush had set the cap at $400 billion. Obama repealed it on Dec. 24, 2009 and did not set a new limit, potentially exposing taxpayers to trillions of dollars in bailouts.
Representative Jeb Hensarling (R-Texas) introduced a bill to do away with both Fannie and Freddie within two years, allowing them to resume operation as fully private, heavily regulated companies if they are viable, and abolishing them entirely if they are not.
Hensarling’s bill was referred to the Financial Service Committee on March 19, but has yet to receive a hearing. Democrats united to defeat a similar measure in the Senate last week, saying that it was too soon to try to deal with Fannie and Freddie.
Instead of offering a plan to end the bailouts of Fannie and Freddie, Senate Democrats offered merely to commission a study of which options the Treasury Department thought best. Hoyer also endorsed this approach saying that he agreed that the issue needed to be studied.
Fannie Mae was established as a federal agency in 1938, according to its Web site, “and was chartered by Congress in 1968 as a private shareholder-owned company.” It is a government-sponsored enterprise.
Freddie Mac was established by Congress in 1970 through the Federal Home Loan Mortgage Corporation Act.
Fannie and Freddie, although largely responsible for many of the bad mortgages that hurt the housing market and the economy in 2008 and 2009, describe their mission as providing “liquidity” and “stability” to the U.S. housing market.
In this July 11, 2008 file photo, a sign in front of the Fannie Mae headquarters in Washington is seen. Mortgage financier Fannie Mae reported in late January, 2010, that the rate of borrowers who have a conventional loan on a house and are seriously delinquent was 5.29 percent in November, more than doubling the rate of 2.13 percent in November 2008. (AP Photo/Manuel Balce Ceneta, File)
“Because the government was universally believed to guarantee their debt, Fannie and Freddie could borrow at better rates than true private-sector firms -- and accumulate far greater risks,” wrote O’Driscoll. “The politicians and regulators that should've reined them in did not -- because the giants bought influence, and because of their apple-pie image as ‘promoting homeownership.’”
“And, because government backing let Fannie and Freddie dominate the mortgage-underwriting market, private-sector criticism was silenced,” said O’Driscoll. “Local banks that wanted to offer mortgages dared not speak out against them. Large banks dared not complain about the giants' government-given advantage because they needed to be able to buy securities from Fannie/Freddie.”
