"These two entities-Fannie Mae and Freddie Mac-are not facing any kind of financial crisis. The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing." -Rep. Barney Frank (D-MA), 2003
With encouragement from Congressional Democrats, Fannie and Freddie were major purchasers of subprime securities, which allowed the GSEs to receive credit toward their federally-mandated affordable housing goals. Fannie and Freddie also guaranteed Alt-A loans, which did not require the verification of income or assets for potential borrowers. Long time supporters of Fannie and Freddie, Rep. Barney Frank (D-MA) and Senator Chris Dodd (D-CT), are now offering irresponsible financial services reform plans that place the financial services system in the control of the federal government, while again ignoring any reform of Fannie and Freddie. Yet, the Obama administration has committed to providing the GSEs unlimited taxpayer funded bailouts as their losses continue to mount. The taxpayers have already lost $126.9 billion bailing out the two firms. On May 5, 2010, Freddie Mac requested an additional $10.6 billion in bailout funds.
ISSUES OF CONCERN:
Lack of Meaningful Financial Reform: Fannie and Freddie were at the center of the mortgage market meltdown that caused the nation's financial turmoil. Therefore, financial regulatory reform legislation will not have any meaningful impact on ending taxpayer bailouts if the cost of operating the GSEs is allowed to continue to rise and the level of taxpayer support is allowed to grow.
Lack of Honest Accounting: Fannie and Freddie were placed in conservatorship in September 2008. With unlimited taxpayer support, the GSEs are functioning as federal government agencies. In fact, in its August 2009 baseline, Congressional Budget Office concluded "that Fannie and Freddie were federal agencies whose operations should be included in the federal budget." Democrats have resisted this accounting, choosing again to be on the side of Fannie and Freddie by hiding the true cost of Fannie's and Freddie's operations from the taxpayers.
Lack of Concern for Taxpayers: On December 24, 2009, the Department of Treasury removed the $400 billion cap on Treasury's funding of Fannie Mae and Freddie Mac. The move gave the failed GSEs potentially unlimited taxpayer funded bailouts to cover losses incurred as a result of their managements' recklessness and their boards of directors' oversight failures. The Treasury Department has essentially turned the two failed GSEs into full government agencies, further exposing taxpayers to losses that the GSEs may incur in the future.
Lack of Fairness: Freddie Mac lost $8 billion over the first three months of 2010. Yet, Fannie and Freddie received approval to pay $42 million in compensation packages to 12 top executives (all federal government employees and payable in cash) for 2009. Ironically, Secretary Geithner and Rep. Barney Frank (D-MA) have launched an all out attack on capitalism by attempting to restrict the compensation of Wall Street firms they deem to be too profitable.