Yesterday, I posted on this blog a section of a recent Treasury financial document that pertains to Fannie and Freddie. At the end of that section of the Treasury document it states:
“The Temporary Payroll Tax Cut Continuation Act of 2011 was funded by an increase of ten basis points in the GSEs’ guarantee fees (referred to as “the increased fees”) which began in April 2012, and is effective through October 1, 2021. The increased fees are remitted to the Department and not retained by the GSEs. Accordingly, the increased fees do not affect the profitability of the GSEs. For fiscal years 2014 and 2013, the GSEs remitted to the Department the increased fees totaling $1.9 billion and $946 million, respectively, which are reported within the line item entitled “Fines, Penalties, Interest and Other Revenue” on the Department’s Statements of Custodial Activity.”
The 2011 Act is intended “To extend the payroll tax holiday, unemployment compensation, Medicare physician payment, provide for the consideration of the Keystone XL pipeline, and for other purposes.”
The Act also states that the “Amounts received from fee increases imposed under this section shall be deposited directly into the United States Treasury, and shall be available only to the extent provided in subsequent appropriations Acts. The fees charged pursuant to this section shall not be considered a reimbursement to the Federal Government for the costs or subsidy provided to an enterprise.”
For all you accountants out there – does the following statement by Treasury follow GAAP? “…the increased fees do not affect the profitability of the GSEs.” Is it an appropriate accounting practice to not have Fannie and Freddie properly account for all of their revenue? Further, how can private companies funnel off portions of their revenue to fund government programs that are totally unrelated to the private companies’ businesses?
The 2011 Act states that it is amending at earlier law, “Housing and Community Development Act of 1992.”
In the 1992 ACT, I did not find prior existence of a Guarantee Fee tax that funds government programs. So, this special tax on Fannie and Freddie was put into place after the take-over by the US Government.
Incidentally, as it relates to the explicit/implicit government backing of Fan and Fred’s business, the 1992 Act has this entry:
“SEC. 1304. PROTECTION OF TAXPAYERS AGAINST LIABILITY.
This title and the amendments made by this title may not be construed as obligating the Federal Government, either directly or indirectly, to provide any funds to the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, or the Federal Home Loan Banks, or to honor, reimburse, or otherwise guarantee any obligation or liability of the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, or the Federal Home Loan Banks. This title and the amendments made by this title may not be construed as implying that any such enterprise or Bank, or any obligations or securities of such an enterprise or Bank, are backed by the full faith and credit of the United States.”
So, going back to 1992 the US Government clearly stated that no explicit or implicit backstop exists.
Further review of the 2011 Act, it goes on to state:
“Authority to limit offer of guarantee
The Director shall prohibit an enterprise from consummating any offer for a guarantee to a lender for mortgage-backed securities, if—
(A)the guarantee is inconsistent with the requirements of this section; or
(B)the risk of loss is allowed to increase, through lowering of the underwriting standards or other means, for the primary purpose of meeting the requirements of this section.”
It appears that this section directly challenges the supposed independence of FHFA and also usurps FHFA’s goal as stated:
“In accordance with the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 as amended by HERA, FHFA is authorized to “take such action as may be: (i) necessary to put the regulated entity in a sound and solvent condition; and (ii) appropriate to carry on the business of the regulated entity and preserve and conserve the assets and property of the regulated entity.”
Any wonder why the Administration does not want to end Conservatorship? The Golden Geese are under protective custody!