Bloomberg News is reporting that Senators Tim Johnson (D–SD) and Mike Crapo (R–ID) have completed a bill that will finally eliminate Fannie Mae and Freddie Mac. That’s good news because the former housing government sponsored enterprises (GSEs) were deemed insolvent in 2008 and have remained under Federal conservatorship ever since. Taxpayers, meanwhile, are responsible for even more government guarantees now than when the GSEs failed.
Unfortunately, Bloomberg is also reporting that Crapo and Johnson’s bill is similar to the Corker-Warner bill, legislation that was introduced in the Senate last June. Particularly troubling is the report that Crapo-Johnson retains the “loss-sharing” provision in Corker-Warner. This section of the bill makes it explicit that taxpayers will be responsible for at least 90 percent of mortgage losses instead of 100 percent. Only in Washington could this sort of change be considered strong protection for taxpayers.
It also appears that Crapo-Johnson will include Corker-Warner’s new government agency, the Federal Mortgage Insurance Corporation (FMIC). In the Corker-Warner plan, this FDIC-like institution also serves as yet another federal regulator. As Heritage has pointed out previously, Corker-Warner includes several other provisions which fail to protect taxpayers.
All of the details are not yet public, so there is still hope that Crapo-Johnson will actually eliminate the GSEs and not simply replace them with a new version. Legislation in the House, such as House Financial Services Committee chairman Jeb Hensarling’s Protecting American Taxpayers and Homeowners (PATH) Act, moves the U.S. much closer to a housing finance system that protects both taxpayers and homeowners.
The goal for GSE reform should be to get taxpayers off the hook by eliminating government guarantees in the housing market, and the House of Representatives seems to have caught on. Let’s hope the Senate has too.