WASHINGTON-Frustrated by an 18-month federal conservatorship of Fannie Mae and Freddie Mac costing the government more than $6 billion a month, House Republicans introduced legislation that would privatize the two government sponsored housing enterprises over the next five years.
"The American nightmare is buying a home that two years later is foreclosed upon, and Fannie and Freddie, I'm afraid, enabled a whole lot of American nightmares," said Texas Republican Jeb Hensarling, who sponsored the bill.
The proposal, which appears to have no support from congressional Democrats who control the levers of power on Capitol Hill, would set strict new limits on the two housing giants over the next two years before removing all of their government support after five years.
"It is unacceptable that 18 months after the takeover that the Treasury Department still doesn't have a plan for Fannie and Freddie," said Alabama Rep. Spencer Bachus, the senior Republican on the House Financial Services Committee, addressing Treasury Secretary Timothy Geithner during a committee hearing last week.
Bachus noted the enormous subsidies the federal government has dedicated towards keeping the two housing giants afloat, including a commitment of $127 billion in funding to fill huge losses at the firms and the Treasury program that bought back more than $1.2 trillion of mortgage-backed securities issued by the two companies.
Treasury Secretary Geithner said his agency has not reviewed the Republicans' privatization bill yet and is just starting the process of planning a reform of the housing finance system, which will also include the status of the Federal Home Loan Banks, Ginnie Mae and the Federal Housing Administration. But the Treasury Secretary questioned a policy that would remove all government financial guarantees from Fannie and Freddie or the other housing agencies.
The Republicans on the committee took aim at the traditional support for Fannie and Freddie by the Democrats, which have long been associated with the two housing agencies. Bachus wondered why the Democrat-developed financial services bill, which would resolve large insolvencies, does not include Fannie Mae and Freddie Mac.
"When are we going to hear a comprehensive recovery plan (for Fannie and Freddie)?" asked Florida Republican Bill Posey. "When will Fannie and Freddie's conservatorship end?"
Massachusetts Democrat Barney Frank, chairman of the Financial Services Committee, said there is broad agreement that the current system of federally-backed housing finance needs to be reformed, but the legislative process is in its infancy.
The privatization of a major government sponsored enterprise has been tried in recent years with Sallie Mae. Chartered as a GSE in 1974 to serve as a secondary market conduit for guaranteed student loans made by credit unions and banks, Sallie Mae undertook a full privatization in the early 2000s to great success. But the company's prospects plunged and its stock price along with them three years ago when legislation reduced drastically the government subsidies for student loans. More recently, the company, which has become the nation's biggest originator of student loans since its privatization, has fallen even more as Congress this week passed legislation that will eliminate completely the guaranteed student loan program and replace it with direct loans from the government.
