Federal Housing Finance Agency Director Mel Watt is set to testify before the Senate Banking Committee today about government-backed mortgage buyers Fannie Mae and Freddie Mac. CEI financial policy expert John Berlau criticized an unfair, ongoing government policy of confiscating all Fannie/Freddie shareholder profits.
Today, Fannie Mae and Freddie Mac’s chief regulator, Mel Watt, is expected to testify that the two government-sponsored enterprises may need yet another bailout by the end of the year to stay afloat. Watt’s expected statement at the Senate Banking Committee’s hearing on the government’s eight-year “conservatorship” of the GSEs would be disappointing but unfortunately not surprising. Fannie and Freddie’s perilous financial state is the direct result of the Obama administration’s 2012 “Third Amendment” policy, which confiscates all of Fannie and Freddie’s profits for the US Treasury. This use of the GSEs as a “piggy bank” to reduce the deficit and mask overspending in the short term flouts the interests of both the GSEs’ private shareholders and that of US taxpayers. The Third Amendment should be curtailed immediately , allowing Fannie and Freddie to retain some earnings and build capital to spare taxpayers another bailout. Then the GSEs should be phased out or broken up, divorcing them from implicit or explicit government support.