(Washington, D.C.) – The Council for Citizens Against Government Waste (CCAGW) today urged Congress to make improvements to the Federal Housing Finance Reform Act of 2005 (H.R. 1461).  CCAGW President Tom Schatz sent the following letter to the House of Representatives: 

            The House Financial Services Committee recently voted 65 to 5 in favor of a package of legislation to reform the       nation’s housing government-sponsored enterprises (GSEs).  Unfortunately, the Federal Housing Finance Reform            Act of 2005, H.R. 1461, as reported is seriously flawed.  The Council for Citizens Against Government Waste   (CCAGW) urges you to become a signatory to a letter being circulated by Reps. Mike Pence (R-Indiana), Ed Royce (R-Calif.), Jeb Hensarling (R-Texas), and Tom Feeney (R-Florida).  The letter asks House leadership not to schedule          a vote on H.R. 1461 until it has been significantly improved.     

            One of the bill’s most alarming deficiencies is a provision to create a new affordable housing fund using 5 percent of        the GSEs’ after-tax income.  The fund is a tax on home ownership that will be passed through to consumers and             inflate the cost of buying a home.  The bill as marked up allows each GSE to manage its respective fund to distribute    money to “non-profit, for-profit housing organizations, government agencies and lenders.”  The provision also   permits company management to leverage the fund and retain the profits, estimated to be as high as $2.5 billion per        year.  It was suggested that the fund could be used as a community development fund, possibly to fund commercial   ventures.  This represents a new and dangerous expansion of the GSEs’ activities and contradicts the             recommendations made by the White House, Treasury Secretary Snow, and Federal Reserve Chairman Greenspan, all of whom have stated that it is essential to reduce the GSEs’ risk profile by shrinking their portfolios. 

            CCAGW is also concerned that H.R 1461 fails to explicitly direct the new regulator to shrink the size of the GSEs’ portfolio, which is the best way to shield taxpayers in the event of a GSE failure and to minimize systemic risk.  The      bill contains an unnecessary one-year gap between the wind down of the current regulator and the imposition of the       new scheme, while offering virtually no opportunity for the new entity to review “ongoing” activities and services, or      activities which were initiated during the one-year interim.  H.R. 1461 enlarges the GSEs’ mission from simply providing liquidity to the home mortgage market to minimizing the cost of housing finance.  It also increases the             conforming loan limits to $540,000 in certain high-cost areas, allowing the GSEs to enter the jumbo mortgage             market, squeezing private companies out, and needlessly subsidizing the nation’s wealthiest homebuyers.   

            As written, H.R. 1461 subverts the intent of Congress when it created Fannie Mae and Freddie Mac.  Instead of             minimizing risk, tamping down the huge growth of these companies, and ushering in strong oversight and             accountability, the current version of H.R. 1461 could facilitate the GSEs’ growth and magnify systemic risk to the       economy and taxpayers.  Therefore, CCAGW urges you to sign the letter being circulated by Reps. Pence, Royce,             Hensarling, and Feeney, which calls for significant changes to H.R. 1461, including the elimination of the new            affordable fund before it moves forward for a vote.

The Council for Citizens Against Government Waste is the lobbying arm of Citizens Against Government Waste, the nation's largest nonpartisan, nonprofit organization dedicated to eliminating waste, fraud, abuse, and mismanagement in government.