WASHINGTON – Republican senators are expected to introduce an amendment to the “too-big-to-fail” bank bill tomorrow that would require the government to end its huge bailout of Fannie Mae and Freddie Mac, estimated to cost as much as $250 billion, and privatize the two secondary mortgage market giants.
“Fannie Mae and Freddie Mac are synonymous with mismanagement and waste and have become the face of 'too big to fail,’” said Arizona Sen. John McCain, who plans to introduce the measure with Republican colleagues Richard Shelby of Arizona and Judd Gregg of New Hampshire. "The time has come to end Fannie Mae and Freddie Mac's taxpayer-backed slush fund and require them to operate on a level playing field.”
The Fannie and Freddie bid comes as the two companies have reported billions more in losses and have asked for another $19 billion in financial assistance, bringing the two-year total to almost $150 billion.
But the amendment has little chance of being added to the massive bank reform package as Democratic leaders are not planning to resolve the two mortgage companies, taken under federal conservatorship in September 2008, until next year or later, they said. Sen. Chris Dodd of Connecticut, the chairman of the Senate Banking Committee who is managing the Senate debate on the bill, said last week he believes the resolution of Fannie and Freddie should wait until the mortgage markets are stabilized because of the critical role the two play.
Late yesterday, NAFCU sent a letter to Senate leaders urging them to defeat the amendment. "We realize reforms are needed and that Fannie Mae and Freddie Mac will need to transition out of their current conservatorship and into a new model," wrote NAFCU President Fred Becker to Senate Majority Leader Harry Reid of Nevada and Senate Minority Leader Mitch McConnell of Kentucky. "We do not believe that the [bank reform bill] is the appropriate measure in which to address GSE reform."
The Republican amendment would end the federal conservatorship in 30 months and require Fannie and Freddie to reduce their mortgage portfolios by 10% each year. It would also strip the two government sponsored enterprises of their mandate to promote affordable housing and would sharply reduce the government's role in mortgage finance. Fannie and Freddie would also have to start paying state and local sales taxes, lose their exemption from full registration at the Securities and Exchange Commission when they issue securities, and start paying fees to repay the taxpayer for the value of federal guarantees.
