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Spending bill gives Congress the keys to GSEs' conservatorship

Congressional leaders reached an agreement on a final spending bill late Wednesday that includes language effectively assuring Fannie Mae and Freddie Mac will not be released from government conservatorship for two years absent reforms by Congress.

The omnibus bill, which is expected to be voted on later this week and will fund the government through the next fiscal year that ends in September 2016, includes a provision that would prevent the administration from selling off the government’s stake in Fannie and Freddie for two years without Congressional approval. That would ensure that the government-sponsored enterprises (GSEs) will remain in conservatorship pending Congressional reforms to the housing-finance system.  

That bill was first introduced as the Jumpstart GSE Reform Act by Sen. Bob Corker, R-Tenn. The bill originally contained language that prevented Congress from using the GSE’s guarantee fees, or g-fees, for purposes unrelated to insuring against mortgage default risk, but that provision was left out of the omnibus bill, according to reports.

The mortgage and banking industry has been divided on the issue of recap and release. The Mortgage Bankers Association (MBA) strongly supported both provisions in the bill, and opposes recap and release without substantive reforms.

"This provision protects the GSEs from potential immediate disruption that could result from a new administration in 2017, regardless of which party wins the White House," MBA President David Stevens said in a news release.

"It also reinforces the desire by many policymakers, supported by most housing stakeholders, to enact structural GSE reform before Fannie Mae and Freddie Mac can be released from conservatorship." 

Stevens also said that he was disappointed that the language preventing g-fee raids was left out of the bill.

"This is a critical issue for potential homeowners and the housing market and one on which we will continue fighting," Stevens said.

The Community Mortgage Lenders of America (CMLA) and the Community Home Lenders Association (CHLA) that represent small and midsize lenders, however, said that Corker’s bill will hamstring efforts to quickly reform the GSEs and release them from government control.

“The name ‘jumpstart’ is confusing because the effect of it is to hamstring the ability of Treasury and [Federal Housing Finance Agency] to continue GSE reforms,” said Scott Olson, CHLA’s executive director. “In terms of the prospects for congressional approval, I think they seem kind of dim right now. It doesn’t make sense to hamstring the regulators’ abilities to take constructive steps to improve access to credit.”

CMLA and CHLA indicated, however, that they were pleased that the omnibus bill doesn’t include language that prevents an amendment to the preferred-stock purchase agreement that would allow for Fannie and Freddie to retain earnings. Currently, those earnings are swept up by the Treasury Department, depleting the GSEs capital reserves.

“There are important constructive steps that we need to take that would be allowed under the language,” Olson said. “One is to amend the sweep agreement to make it more flexible, so they don’t need a draw [on Treasury later on]. Two, the FHFA should develop a recapitalization plan or options and send them to Congress, so at least we have a better sense of what our options are.” 


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