House Hearing Airs Controversy Over Measures to Wind Down the GSEs and Abolish the Housing Trust Fund

The House Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises held a hearing May 25 to discuss seven draft bills, which Subcommittee Chair Scott Garrett (R-NJ) released on May 13.  If enacted, the bills would increase the oversight of and impose limitations on government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac.  The hearing, which included testimony from a federal regulator and industry and academic housing experts, was marked by heated congressional debate over Subcommittee member Ed Royce’s (R-CA) proposal to abolish the Affordable Housing Trust Fund.

The other bills discussed at the hearing would, in Garrett’s words, “continue the Subcommittee’s efforts to begin to wind down Fannie and Freddie and allow private capital to begin to reenter the markets.”  Specifically, the draft bills would:  prevent the Treasury Department from lowering the 10 percent dividend payments Fannie Mae and Freddie Mac are currently paying to the federal government; subject them to the Freedom of Information Act; require them to dispose of all "non mission-critical assets”; cap the dollar amount of federal government support they may receive; prevent the creation of future entities with a similar business structure to that of Fannie Mae or Freddie Mac; and prohibit the federal government from advancing legal fees for GSE executives.

The Subcommittee is likely to hold a markup of the bills sometime in June.

Witnesses at the hearing were split into two panels, with the first panel consisting only of Ed DeMarco, Acting Director of the Federal Housing Finance Agency (FHFA), and the second panel consisting of Professor Anthony Sanders, George Mason University; David John, Senior Research Fellow in Retirement Security and Financial Institutions at the Heritage Foundation; and Dr. Sheila Crowley, President of the National Low Income Housing Coalition (NLIHC).

DeMarco addressed nearly all of the draft bills in his testimony and subsequent discussion with the Subcommittee members—offering limited support on some measures and expressing downright disagreement on others.  A number of the measures are, according to DeMarco, redundant because they are already authorized under existing law.  Some are already being implemented by FHFA.  For example, the draft bills that would fix the dividend payments made by the GSEs to the federal government and authorize the liquidation of the GSEs’ “non-mission critical assets,” authorize activities that current law already permits and FHFA is pursuing.  On the measure that would fix the dividend payments made by the GSEs, DeMarco said, “fixing the dividend rate at 10 percent may limit some of the resolution options” and “limit the ability of the Enterprises to … exit from conservatorship.”

On Royce’s bill prohibiting GSE payments to the Affordable Housing Trust Fund, DeMarco reminded the Subcommittee that the GSEs had never contributed to the fund because their poor  financial  condition precluded them from doing so.  “It would be inappropriate for the Enterprises to start making contributions to the fund now or at any time while they are in conservatorship and in debt to the taxpayer,” DeMarco said.

Ranking Member Maxine Waters (D-CA) called efforts by Subcommittee Republicans to label the Affordable Housing Trust Fund as a “slush fund” a “disingenuous [effort]…since it has yet to be capitalized.”

The second panel also focused on the Trust Fund, with Crowley praising it as a solution to the persistent structural deficit of rental housing affordable and available to the lowest income people in the United States.  Several Democratic Subcommittee members voiced support for the Trust Fund during the hearing.

House Financial Services Committee members John Campbell (R-CA) and Gary Peters (D-MI) both requested that the Subcommittee hold additional hearings to address a comprehensive housing finance reform bill they introduced on May 12.  Their bill would wind down Fannie Mae and Freddie Mac and set up a system that allows new entities, called housing finance guaranty associations (HFGAs), to replace them.  Garrett made no promise to hold a future hearing or markup of their bill.  A detailed summary of the bill is available on NCSHA’s website.