CCAGW Against Amendment to Weaken GSE Reform
Wednesday, May 16, 2007
By: Tom Schatz

Letter to House

Dear Representative,

The House of Representatives will soon be debating and voting on H.R. 1427, the “Federal Housing Finance Reform Act of 2007.” Unfortunately, several members of the House intend to offer an amendment to weaken one of the most critically important provisions in the bill the ability of the new regulator to consider systemic risk to the nation’s entire financial system when reviewing the safety and soundness of the government-sponsored enterprises’ (GSEs) activities. On behalf of the 1.2 million members and supporters of the Council for Citizens Against Government Waste (CCAGW), I ask you to reject this amendment.

The amendment, being proposed by Reps. Melissa Bean (D-Illinois), Randy Neugebauer (RCalif.), Dennis Moore (D-Kansas), and Gary Miller (R-Calif.), would tie the new regulator’s hands, preventing him or her from limiting the size of the GSEs’ mortgage-backed securities (MBS) portfolio unless their activities are potentially damaging to the financial health of the GSEs themselves not the rest of the economy. Given the fact that the Fannie Mae and Freddie Mac currently hold $1.4 trillion in MBS, have not filed financial statements in several years, are both embroiled in massive financial scandals which are not fully resolved, and have significant exposure in the risky derivatives market, this amendment is fiscally irresponsible. The Wall Street Journal wrote in a May 10 opinion piece that amending the bill to limit restrictions to the MBS portfolio will gut one of the most critical provisions of the bill.

The current bill language defining the scope of the new regulator’s powers was the result of arduous negotiations between House Financial Services Committee Chairman Barney Frank (D-Mass.), and the Treasury. The White House has already signaled that this amendment endangers their continued support of the final bill. CCAGW has expressed serious reservations about several provisions in the bill, but we have fully supported language that gives the new regulator the broadest possible authority when addressing MBS portfolio limitations precisely because the taxpayers would be at risk if a GSE experienced financial distress.

Bi-partisanship authorship of an amendment does not automatically confer credibility. This amendment serves the interests of Fannie Mae and Freddie Mac at the expense of taxpayers. We urge a “no” vote on the Bean/Neugebauer amendment. All votes on H.R. 1427 will be among those considered in CCAGW’s 2007 Congressional Ratings.

Sincerely,