Sen. Richard Shelby (R-Alabama), Chairman of the Senate Banking Committee, on Monday wrote two letters to federal watchdogs asking them to conduct further studies on the activities of the Federal Housing Finance Agency (FHFA) and Fannie Mae and Freddie Mac.
“Congress has a responsibility to conduct proper oversight over both the FHFA and the GSEs,” Shelby said. “It is my hope that GAO and CBO will provide the Committee with meaningful data regarding the market impact of FHFA’s decisions to ensure that Congress takes steps to protect American taxpayers from risk.”
In a letter to Comptroller General Gene Dodaro, head of the Government Accountability Office, Shelby noted that the FHFA has recently taken steps to encourage a more active role for the GSEs in the mortgage market rather than a reduced role. Those steps include issuing proposed rules regarding the GSEs’ duty to serve, lowering down-payment requirements, making contributions to the National Housing Trust Fund despite having no capital, and creating principle write-down requirements, according to Shelby.
Also, Shelby noted, the initial purpose of the common securitization platform created by the GSEs was to facilitate greater competition in the secondary mortgage market; however, he said, “it appears that the FHFA is no longer taking steps to enable the platform to be used by entities other than the enterprises.”
Shelby requested the GAO to study and report the extent to which FHFA’s actions could influence the following:
- GSEs’ dominance in residential mortgage markets
- Potential increase in the cost of entry for future competitors for the GSEs
- Financial demands on Treasury, both future and current
- Possible options for modifying the structure of the GSEs
- Any other areas deemed appropriate by the GAO to fully evaluate the issues
The senator requested all information from the GAO by November 1, 2016.
Also on Monday, Shelby wrote a letter to Keith Hall, Director of the Congressional Budget Office, asking him to address several questions regarding the lack of capital holdings by Fannie Mae and Freddie Mac. Shelby pointed out in his letter that in a speech in February 2016, FHFA Director Mel Watt himself had cited the GSEs’ lack of capital as a concern the longer the GSEs remain in conservatorship.
“Director Watt’s concerns have led some in the mortgage industry to support amending the GSEs’ agreements with the Department of Treasury to allow the GSEs to increase capital levels by retaining more of their earnings,” Shelby wrote. “Others, however, have argued that this would allow the GSEs to be reconstituted without providing a commensurate reduction in taxpayer exposure to the multi-trillion-dollar housing finance market. Such an outcome could potentially reduce incentives for Congress to enact statutory reforms.”
Shelby asked Hall to prepare a report that addresses the following questions:
- What the federal government’s obligations to the GSEs while they are in conservatorship of the FHFA?
- What are the implications for the budget and federal debt if Fannie Mae and Freddie Mac were to retain more of their earnings?
- How would the risk borne by taxpayers be affected if the GSEs’ capital levels were to be increased?
- Could recapitalizing the GSEs have consequences for the operations of the GSEs, or on mortgage markets?
Shelby asked Hall to complete the report by July 2016.
Click here to view Shelby’s letter to the GAO
Click here to view Shelby’s letter to the CBO.