An update from the office of
U.S. Representative Michael E. Capuano
7th Congressional District of Massachusetts
March 2, 2015
Fannie Mae and Freddie Mac
This week I reintroduced H.R. 1036: “Let the GSEs Pay Us Back” Act. This legislation gives Fannie Mae and Freddie Mac, which are Government Sponsored Entities (GSEs), a mechanism to repay the money they owe Treasury. My legislation requires a new agreement to allow payments that Fannie and Freddie make to Treasury to count towards paying down their debt. It will help make taxpayers whole on the money borrowed and will stop homeowners from being treated as piggy banks. I hope this bill will provide incentive to hasten reform of Fannie and Freddie. America needs affordable mortgages for average people and strong, safe agencies to provide them.
This is the technical background: during the 2008 financial crisis, they received $187.5 billion in taxpayer funds to stabilize their operations. Now, fees paid by middle-class homeowners to the GSEs are sent to Treasury to pay down this debt. By the first quarter of 2014, Fannie and Freddie had fully repaid the borrowed funds. By next month, they will have returned over $228 billion to Treasury but NONE of it is counted towards the money owed to taxpayers for the bailout. Unless something changes, average homeowners will continue being forced to make payments toward a debt that never budges.
Originally, the two entities were required to pay quarterly dividends to Treasury on the borrowed funds. In some quarters, Fannie and Freddie didn’t have sufficient funds and had to borrow from Treasury in order to make their dividend payments to Treasury. In 2012, Treasury changed the agreement to fix this. Instead, Fannie and Freddie are now required to return any and all quarterly profits to Treasury. But if all of their profits are turned over to Treasury and counted as dividends, they can’t accumulate enough funds to pay down their debt.
Not counting the GSEs’ payments towards the principal they owe represents outrageous usury on homeowners. If any other creditor refused to reduce the balance of a paying consumer, we would never tolerate it. AIG, GM and others were given the opportunity to pay back their debt from the financial crisis — and the U.S. has profited from these loans. Fannie and Freddie, and by extension homeowners, should have the same chance.
Moreover, the GSEs’ payments should not go towards reducing the national debt. That burden should be borne by all Americans. Homeowners should not be forced to pay more than their fair share. I spoke about this issue during a recent Financial Services Committee hearing, you can watch here: