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Tuesday, May 24, 2011

Proposals to Reform Fannie Mae and Freddie Mac in the 112th Congress

N. Eric Weiss
Specialist in Financial Economics

As households and taxpayers, Americans have a large stake in the future of Fannie Mae and Freddie Mac. Homeowners and potential homeowners indirectly depend on Fannie Mae and Freddie Mac, which at the end of 2010 backed and guaranteed home loans accounting for nearly half of the outstanding home mortgages in the nation.

Taxpayers have a large investment in Fannie Mae and Freddie Mac. Through the end of 2010, the Department of the Treasury kept the two insolvent companies in business by providing more than $150 billion in support. Based on past performance, it is not clear how the enterprises will be able to repay Treasury out of future earnings. In addition to the $150 billion in direct support, Treasury and the Federal Reserve (the Fed) purchased nearly $1.4 trillion in GSE-issued and guaranteed mortgage-backed securities (MBS).

These two entities are stockholder-owned, congressionally chartered companies that purchase home mortgages, commonly called government-sponsored enterprises (GSEs). In 2008, increasing mortgage delinquencies and the general financial crisis weakened the two enterprises to the point that they agreed to a voluntary takeover by the federal government known as conservatorship.

This report summarizes and analyzes bills introduced in the 112
th Congress that seek to enhance the public accountability of the two enterprises. The bills covered are H.R. 31, H.R. 408, H.R. 463, H.R. 1182, H.R. 1221, H.R. 1222, H.R. 1223, H.R. 1224, H.R. 1225, H.R. 1226, H.R. 1227, S. 178, and S. 693. Some seek to reduce the cost to the government, while others seek to change the enterprises’ charters if or when they leave conservatorship. None of the bills introduced proposes government actions to replace the two enterprises.

Because Fannie Mae and Freddie Mac are under conservatorship, Congress has unusual leverage to direct the Federal Housing Finance Agency (FHFA), which is both their regulator and conservator, to implement policy changes. Currently, FHFA has unusual control in that it both regulates and manages Fannie Mae and Freddie Mac.

Date of Report: May 18, 2011
Number of Pages: 16
Order Number: R41822
Price: $29.95

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