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Fannie Mae & Freddie Mac to Recapitalize under Newly Drafted Legislation

DSN-freddiefannie-620x330As Fannie Mae and Freddie Mac celebrate their seven-year anniversary of conservatorship, new legislation is being drafted in the U.S. House that will allow them to establish more capital and prevent another taxpayer-sponsored bailout.

This is a great development,” said Tim Pagliara, founder of Investors Unite and chairman, founder and CEO of CapWealth Advisors, LLC. The Third Amendment Sweep continues to put taxpayers at risk by depriving the GSEs of capital that would be a buffer against another economic downturn.”

Rep. Mick Mulvaney (R-South Carolina), author of the legislation, would let Fannie Mae and Freddie Mac “once again build up their capital cushions,” Politico Pro says.

Investors Unite, feels that Rep. Mulvaney’s legislation would pair nicely with Congresswoman Marsha Blackburn’s bill, H.R. 1673, the “Enterprise Secondary Reserve Taxpayer Protection and Government accountability Act of 2015.”

Rep. Blackburn’s bill, the only of its kind that does anything to protect taxpayers from the risks presented by the complete lack of capital at Fannie Mae and Freddie Mac, was introduced in March to prevent the U.S. Treasury from bleeding Fannie and Freddie dry by placing the money from the Sweep into a separate account.

“Restoring shareholder rights and respecting the rule of law are integral to the strength of the nation’s housing market,” Investor’s Unite said. “Rep. Blackburn’s bill is a smart legislative solution to stem the damage from the U.S. Treasury bleeding Fannie and Freddie dry. Housing finance reform and determining the eventual path for Fannie Mae and Freddie Mac remain important issues that Congress should tackle, but while lawmakers are wrangling over that, we hope to see progress made in restoring private capital’s confidence in the GSEs.”

A group of 15 watchdog taxpayer companies also issued an open letter in August to all members of the U.S. House and U.S. Senate urging them to pass Rep. Blackburn’s bill.

The letter stated:

“H.R. 1673 would help protect taxpayers in the event that these two GSEs experience significant losses in the future. By creating a reserve fund using profits generated by the GSEs, the Enterprise Secondary Reserve Taxpayer Protection and Government Accountability Act allows Fannie Mae and Freddie Mac to draw down such funds in the event of significant losses, rather than going back to the Treasury for additional resources. Once FHFA’s conservatorship of Fannie Mae and Freddie Mac ends, the reserve fund would dissolve. Simply put, the bill creates an insurance policy for taxpayers.

“As long as Fannie Mae and Freddie Mac are under conservatorship, any losses they experience are a threat to taxpayers. While H.R. 1673 is a wise proposal, it highlights the need for Congress to reduce dramatically the role of government in the housing finance system. In particular, Fannie Mae and Freddie Mac’s government support – implicit and explicit – should be phased out. Until lawmakers embrace comprehensive reform, however, they should pass the Enterprise Secondary Reserve Taxpayer Protection and Government Accountability Act. And this measure must, as a first step, be part of any large appropriations or financial services bill that attempts to deal with Fannie Mae and Freddie Mac.”

Click here to view the complete letter.

About Author: Xhevrije West

Xhevrije West is a writer and editor based in Dallas, Texas. She has worked for a number of publications including The Syracuse New Times, Dallas Flow Magazine, and Bellwethr Magazine. She completed her Bachelors at Alcorn State University and went on to complete her Masters at Syracuse University.

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