The two entities are government-sponsored enterprises (GSEs)—congressionally chartered, stockholder-owned companies with special legal privileges and special obligations to facilitate the flow of mortgage funds. In recent years, Fannie Mae and Freddie Mac together were responsible for nearly half of the nation's outstanding residential mortgage debt. To support the mortgage markets during the financial crisis of 2008-2009 and to keep these enterprises in business, the U.S. Department of the Treasury has purchased more than $175 billion of special preferred stock. In addition, Treasury and the Federal Reserve (the Fed) have provided mortgage market support by purchasing nearly $1.4 trillion in MBS from investors in the open market. Based on their past histories, it is not clear that the enterprises could survive without Treasury's continued support. 1222 ). 1225 ). 1182 / S. 693 ). H.R. 1859 and H.R. 2413 ). Table 1 summarizes and illustrates differences in provisions of the various bills introduced in the 112 th Congress. In September 2008, Fannie Mae and Freddie Mac separately agreed to enter voluntary conservatorship, which entailed giving their regulator, the Federal Housing Finance Agency (FHFA), management and control of the enterprises. Homeowners and potential homeowners indirectly depend on Fannie Mae and Freddie Mac as a source of mortgage money. If and when legislation is introduced, it will be incorporated into this report. H.R. 31 , Fannie Mae and Freddie Mac Accountability and Transparency for Taxpayers Act of 2011, would require the director of FHFA to make quarterly reports on Fannie Mae and Freddie Mac in 12 specific areas:
1. total liabilities and the risk to the federal government; 2. executive compensation and bonuses; 3. the impact of reducing the conforming loan limits at the end of FY2011; 4. foreclosure mitigation efforts; 5. mortgage fraud prevention efforts; 6. communications with the Federal Reserve and Treasury regarding the purchase or sale of enterprise securities; 7. enterprise investments outside of their mission; 8. reasons for equity (preferred stock) investments by Treasury; 9. capital levels, portfolio size and their impacts on the safety and soundness of the enterprises; 10. underwriting standards; 11. mortgage buyback policies; and 12. the enterprises' actions that affected enterprise securities, in particular, preferred stock issued before September 6, 2008. H.R. 463 . H.R. H.R. As conservator or receiver, FHFA has the authority to implement these provisions. H.R. H.R. The companion bills H.R. 1224 . The companion bills H.R. H.R. H.R. H.R. Unless the housing goals are repealed, the enterprises will continue to be required to meet them. H.R. H.R. H.R. H.R. H.R. H.R. FHFA would submit to Congress a plan to sell these assets. H.R. 1221 through H.R. 1227 . 1859 and H.R. 2413 would replace the enterprises. H.R. This is similar to H.R. 1226 . 408 and S. 178 would
end the enterprises' conservatorship in 24 months (without the option for FHFA to grant a six month extension) (Section 3); start the phase-out the enterprises' charters as pertains to new business three years after they leave conservatorship (Section 5); repeal the enterprises' exemption from SEC registration as pertains to MBS and subordinated debt (Section 4(b)(4)); lower the conforming loan limit to $417,000, eliminate the high-cost areas limit, and increase in future years to reflect increasing house prices (Section 4(a)(3)); direct FHFA to increase the minimum capital required of the enterprises (Section 4(b)(1)); increase borrower downpayment requirements (Section 4(b)(2)); and require the enterprises to pay all state and local taxes (Section 4(b)(3)). H.R. 2413 , Secondary Market Facility for Residential Mortgages Act of 2011, would create a federal corporation to purchase and securitize mortgages that meet certain underwriting standards. The facility would be prohibited from originating mortgages and would charge a guarantee fee and a reinsurance fee for purchasing mortgages.
As households and taxpayers, Americans have a large stake in the future of Fannie Mae and Freddie Mac. Homeowners and potential homeowners indirectly depend on Fannie Mae and Freddie Mac, which in recent years backed and guaranteed home loans accounting for nearly half of the outstanding home mortgages in the nation.
Taxpayers have a large investment in Fannie Mae and Freddie Mac. The Department of the Treasury kept the two insolvent companies in business by providing more than $175 billion in support. Based on past performance, it is not clear how the enterprises will be able to repay Treasury out of future earnings. In addition to the $175 billion in direct support, Treasury and the Federal Reserve (the Fed) purchased nearly $1.4 trillion in GSE-issued and guaranteed mortgage-backed securities (MBS).
These two entities are stockholder-owned, congressionally chartered companies that purchase home mortgages, commonly called government-sponsored enterprises (GSEs). In 2008, increasing mortgage delinquencies and the general financial crisis weakened the two enterprises to the point that they agreed to a voluntary takeover by the federal government known as conservatorship.
This report summarizes and analyzes bills introduced in the 112th Congress that seek to enhance the public accountability of the two enterprises. The bills covered are H.R. 31, H.R. 408, H.R. 463, H.R. 1182, H.R. 1221, H.R. 1222, H.R. 1223, H.R. 1224, H.R. 1225, H.R. 1226, H.R. 1227, H.R. 1859, H.R. 2413, H.R. 2425, H.R. 2428, H.R. 2436, H.R. 2439, H.R. 2440, H.R. 2441, H.R. 2462, S. 178, and S. 693. Some seek to reduce the cost to the government, while others seek to change the enterprises' charters if or when they leave conservatorship. None of the above bills introduced proposes government actions to replace the two enterprises.
To date, two bills, H.R. 1859 and H.R. 2413, propose creating a replacement for the two enterprises. H.R. 1859 would authorize the Federal Housing Finance Agency (FHFA) to charter special purpose associations to support the secondary mortgage market by issuing MBS with an explicit federal catastrophic guarantee. The associations would be charged for this guarantee. H.R. 1859 would require FHFA to develop a plan to transition from enterprise support for the secondary mortgage market to support by these new associations.
The second bill, H.R. 2413, would create a government corporation (the Secondary Market Facility for Residential Mortgages) to purchase and to securitize mortgages. Those selling mortgages to the facility would be required to pay guarantee and reinsurance fees for an explicit federal guarantee on the securities.
Because Fannie Mae and Freddie Mac are under conservatorship, Congress has unusual leverage to direct FHFA, which is both their regulator and conservator, to implement policy changes. Currently, FHFA has unusual control in that it both regulates and manages Fannie Mae and Freddie Mac.
This report will be updated as warranted.