Legislation introduced in the Senate would prohibit raising guarantee fees charged by Fannie Mae and Freddie Mac to offset government spending. It would also require that the Department of the Treasury to obtain congressional approval before selling its preferred shares of the secondary lenders.
The Jumpstart GSE Reform Act was introduced Wednesday in the U.S. Senate. The bill would “provide certainty that Congress and the Administration will undertake substantive and structural housing finance reform, and for other purposes,” according to a copy of the proposed legislation.
Two Republicans — Sen. Bob Corker (R-Tenn.) and Sen. David Vitter (R-La.) — and two Democrats — Sen. Mark Warner (D-Va.) and Sen. Elizabeth Warren (D-Mass.) — are sponsoring the bill.
All four senators are members of the Senate Banking, Housing and Urban Affairs committee.
The bill would prohibit an increase in g-fees to offset increases in government outlays or a reduction in revenues unless they are tied to Fannie and Freddie’s business functions.
In addition the proposed law would prohibit the sale of preferred shares prior to structural housing finance reform. In addition, the shares cannot be sold without Congress first passing, and the president signing, a law that specifically instructs the Treasury secretary to unload the preferred stock.
Preferred shares of Fannie and Freddie were purchased by the Department of the Treasury in 2008 and are within Treasury’s discretion to unload.
“The reality is that if Congress were to spend ‘g-fee’ revenue from the GSEs on other programs, reforming these mortgage behemoths would become nearly impossible,” a statement from Corker said. “At the same time, if Treasury were to decide to sell its preferred share investment without Congress having first reformed our housing sector, we would just be returning to a time where gains are for private shareholders and losses are for taxpayers.
“Neither of these is an acceptable outcome.”
Warren, who set up the Consumer Financial Protection Bureau before being elected to the Senate, added that with five years having passed since the financial crisis, “it is past time to reform Fannie and Freddie. That means removing the obstacles and starting a bipartisan effort to take on housing finance reform this Congress.”
Mortgage Bankers Association President and Chief Executive Officer David H. Stevens commended the senators for introducing the bill.
