Time to Take this New Deal Program off Taxpayer Life Support
Business-as-usual politics by the Washington Establishment must stop. When politicians try to manipulate the markets, they fail miserably and ordinary Americans pay a severe price. The cycle of irresponsible lending and taxpayer bailouts must end in Washington DC.
The federal government must get out of the mortgage business altogether. Fannie Mae lost $8.7 billion the first quarter of this year. They have had fourteen of fifteen losing quarters. Freddie Mac is expected to need billions more of taxpayer money in the future.
How big is the taxpayer bailout of Fannie and Freddie? CNS News recently reported that, “the Congressional Budget Office (CBO) says that the real cost of the federal government guaranteeing the business of failed mortgage giants Fannie Mae and Freddie Mac is $317 billion — not the $130 billion normally claimed by the Obama administration.”
The bottom line is that I will work to enact legislation that will wind down Fannie and Freddie, sell off the taxpayer assets and get the government out of the mortgage banking business in a responsible way by providing a smooth transition that will minimize the impact to the markets. It is time to return to a truly constitutionally limited government and let the free market work. Get the Washington Establishment out of the business of bailing out failed private institutions with our taxpayer money.
Fannie Mae was created during the New Deal. Fannie was split and privatized in 1968, creating a new category of “Government-Sponsored Enterprise” (GSE). Freddie Mac was created as a new GSE by an act of Congress in 1970 to provide “competition” for Fannie Mae. Both were known to have the implicit backing but not explicit support of the federal government.
To compound the problem, Congressmen used the GSEs’ connection to the government to push their social agendas; for example, during the housing bubble of the 1990s and early 2000s, Congress arm-twisted the companies to lend money under less-than stellar conditions to borrowers who would not otherwise have qualified for a mortgage loan. As long as the housing bubble continued to grow, everyone looked like winners and few complained.
Of course, Fannie and Freddie’s popularity among members of Congress was heightened by extensive lobbying and political activity. Members were lobbied and took campaign cash from the two entities, and in return turned a blind eye to Fannie and Freddie’s excesses. George Allen was one of those senators who took money from Fannie and Freddie lobbyists and refused to support reform of these programs.
Then the housing bubble collapsed in 2008. Mortgage default rates spiked upwards, and losses at Fannie and Freddie quickly mounted. Even though the mortgage-backed securities sold by Fannie and Freddie contained clear language that they were not government-guaranteed, the federal government stepped in, placed the two companies in receivership in September 2008, and began using taxpayer money to pay for Fannie’s and Freddie’s losses.