House chairman sees wholesale overhaul of GSEs
Financial Services chairman reiterates need to abolish public-private structure of Fannie Mae and Freddie Mac.
Fannie Mae and Freddie Mac should be abolished in their public-private structure and their future would lie within an overhaul of the nation's housing finance system, House Financial Services Chairman Barney Frank, D-Mass., announced on Friday.
In comments at a hearing on executive compensation at financial firms, Frank repeated his belief that the public-private structure as a government-sponsored enterprise will not work, given that the government took both over in September 2008 and has provided more than $100 billion to keep them viable. The GSEs guarantee or own more than $5 trillion in home mortgages.
"I believe the remedy is abolishing Fannie Mae and Freddie Mac in their present form and coming up with a whole new system of housing finance," Frank said.
Nationalization or privatization of both seems politically untenable in the political environment and shaky housing market. Frank said the panel will examine the future of both GSEs within a broader range of revamping the nation's housing finance structure, including the role of the Federal Home Loan Bank system and Ginnie Mae.
"We're sorting out the function of promoting liquidity in the market and also the secondary market in general, and also doing some sort of subsidy for affordability. I do not think they should be necessarily combined," Frank said. "I don't think [I know] anybody who thinks Fannie and Freddie should continue as they are. ... I'm surprised anyone thinks that's news."
The remarks came as House Republicans on Friday showcased their next attack on the Obama administration's handling of the economy by specifically focusing on Fannie and Freddie, most notably on the Dec. 24 decision to allow million-dollar bonuses to be paid to executives of the two mortgage giants.
GOP panel members charged they were unfairly denied their choice of their witness for the hearing. They lobbied to include Edward DeMarco, the acting director of the Federal Housing Finance Agency, who approved the compensation package for the two CEOs. It could total as much as $6 million for each, while annual pay for officers is capped at $500,000.
"We are paying these people bonuses to lose tens of billions of dollars of the United States taxpayer," said Financial Services Financial Institutions Subcommittee ranking member Jeb Hensarling, R-Texas. "What people do with their money is their business. What they do with the taxpayer money is our business."
Frank said he agreed the bonuses were too high and noted he will hold a hearing next month to examine the pay structure of public-sector entities, where DeMarco will testify.
The GOP push places the Democrats on the defensive on the executive compensation issue, an area where they have been on the offense against major Wall Street banks. Frank has made the issue a priority and included provisions in House-passed legislation to revamp the nation's financial regulatory system to allow shareholders of all public companies to have a vote on executive compensation packages. His bill contained a measure to allow regulators to restrict risk-based incentive pay.
But Frank has taken issue with the GOP effort, which includes legislation that would suspend the bonuses and subject compensation to the rate equal to the pay for federal employees. He noted that the Republicans lined up in opposition against two House-passed bills last year that would have given FHFA the authority to restrict bonuses for Fannie and Freddie executives.
Republicans also signaled they will be taking a hard stance on the future of both companies, preferring that they be spun into the private sector, with the aim of tapping into the populist backlash over government bailouts of the banking and auto sectors.
"The Republicans on this committee have put forth proposals to reform these institutions, because it is indisputable that Fannie and Freddie were the central role in the mortgage meltdown that we've experienced. They've helped ignite the economic crisis that has left millions of Americans unemployed," said Financial Services Capital Markets Subcommittee member Scott Garrett, R-N.J.
NEXT STORY: GOP senator seeks $120 billion in funding cuts