Washington, D.C. – The Council for Citizens Against Government Waste (CCAGW) today expressed support for the Secondary Mortgage Market Enterprises Regulatory Improvement Act introduced this week by Representative Richard Baker (R-La.).  The bill is a positive step toward comprehensive reform of Fannie Mae and Freddie Mac, the quasi-government mortgage agencies.

“This bill would remove oversight of Fannie Mae and Freddie Mac from the Department of Housing and Urban Development, where two agencies now share those duties,” CAGW President Thomas A. Schatz said.  “With all of the politics that surround the appropriations for these agencies, a single regulator is essential and will improve accountability for Fannie Mae and Freddie Mac.  The bill establishes the Federal Reserve as the new oversight body.  The legislation will also end the GSEs’ current carte blanche ability to launch into new ventures outside their charter and compete directly with the private sector.  Recently, several large financial institutions have expressed concern over these activities, as well as alleged threats by Fannie Mae and Freddie Mac to cease their criticism of the GSEs.”

“Fannie Mae and Freddie Mac were created as government-sponsored enterprises (GSEs) to serve a limited public purpose: promoting liquidity in the secondary mortgage market,” Schatz added.  “By buying mortgages from banks and reselling them to private investors in the secondary mortgage market, the housing GSEs were able to ensure a continuous flow of capital and to spread the interest rate risk among multiple investors.”

“Today, the secondary mortgage market is a mature, thriving industry,” Schatz also said.  “However, Fannie Mae and Freddie Mac continue to operate as quasi-government agencies operating under a congressional charter and, as such, place the American taxpayer at enormous risk.  While they are not technically backed by the full faith and credit of the United States, they do enjoy an ‘implied government guarantee,’ much in the same way the savings and loans did when they were bailed out in great excess of the legal obligation of the U.S.”

“Congress recently committed itself to paying down the national debt.  While debt held by the public has been decreasing over the past few years, housing GSE debt is exploding, increasing by more than $260 billion in 1999 alone to $2.2 trillion,” Schatz concluded.  “As housing GSE securities flood the debt market, they compete directly with U.S. government-backed securities—driving up the interest rates the Treasury must pay to service its guaranteed debt.  In fact, the housing GSEs have publicly stated that they want to replace U.S. Treasury debt as the nation’s benchmark note.”

CCAGW urges members of Congress to support Rep. Baker’s bill. 

CCAGW is the lobbying arm of Citizens Against Government Waste, a nonpartisan, nonprofit organization dedicated to eliminating waste, fraud, mismanagement and abuse in government.