Housing groups argue Freddie Mac’s loss should spur finance reform

Housing industry and mortgage advocates say Freddie Mac’s $354 million first-quarter net loss should sound an alarm on Capitol Hill that there is an urgent need to overhaul the nation’s housing finance system.

Government-controlled Freddie, which reported strong business during the January-March quarter, won’t pay the Treasury Department a quarterly dividend after recording the shortfall. 

{mosads}Ed Brady, chairman of the National Association of Home Builders and a homebuilder from Bloomington, Ill., said that “taxpayers dodged a bullet today, but the warning bell is blaring.”

“Today’s earnings report should serve as an urgently needed wake-up call to policymakers,” Brady said.  

“Congress and the administration must end their dawdling and make it a top priority to fix our nation’s housing finance system.”

There has been growing concern among congressional lawmakers and industry experts that falling profits for two agencies could put taxpayers back on the hook for future losses that exceed Fannie’s and Freddie’s capital buffers. 

Independent Community Bankers of America (ICBA) President and CEO Camden Fine said, “It is only a matter of time until one or both of them will need a draw, putting the housing market and taxpayers at risk.”

The ICBA called on Federal Housing Finance Agency Director Mel Watt and Treasury Secretary Jack Lew to end the sweep of Fannie and Freddie’s revenues and require both entities to rebuild their capital buffers to avoid another bailout.

David Stevens, president and CEO of the Mortgage Bankers Association, said the loss is another “reminder of why we need congressional GSE [government-sponsored enterprises] reform to ensure the companies can serve their important mission of providing mortgage liquidity to the nation’s housing finance system.”

Stevens added: “Resolving the long-term future of the two companies will help Americans of all income levels by protecting the critical role the two entities play in providing affordable rental and ownership opportunities for millions of families.”

Freddie needed a $71.3 billion bailout from taxpayers to stay afloat during the financial crisis. Since 2012, the agency has paid $98.2 billion in dividends to the Treasury, but the payments don’t count toward reducing its debt to the government.

Taxpayers ultimately injected $188 billion into Freddie and larger sibling Fannie Mae to save them from failing.

“The fact that the Treasury could have put American taxpayers on the hook to cover Freddie Mac’s first quarter losses should come as no surprise to the White House and Congress, which have abrogated their responsibilities by allowing Fannie Mae and Freddie Mac to remain in conservatorship for the past eight years,” Brady said. 

Fannie is set to release its earnings report on Thursday.  

“Freddie Mac’s first quarter business results continued to be strong, reflecting our transformation to be a more competitive company,” said Freddie CEO Donald Layton in a statement on Tuesday. 

The loss was mainly caused by accounting measures, Layton said. 

Housing experts have long argued the lack of congressional action has injected more uncertainty into the housing market and has contributed to the slower pace of growth as the sector has gradually recovered from the housing crash.

Several attempts have been made in Congress to move a bill across Capitol Hill, but so far all efforts have failed.

Sens. Mark Warner (D-Va.) and Bob Corker (R-Tenn.) produced a bill that was approved by the Senate Banking Committee in 2014.

That measure was reworked into legislation by then-Banking Committee Chairman Tim Johnson (D-S.D.) and ranking member Mike Crapo (R-Idaho) that would have guaranteed the 30-year mortgage and phased out Fannie and Freddie over several years.

But the Senate and the House couldn’t reach an agreement and the bill stalled.

Warner, ranking member of the Senate Banking Subcommittee on Securities, Insurance and Investment, said Tuesday that Freddie’s loss is “yet another reminder of why we need to reform our housing finance system now.”

Freddie and Fannie own or guarantee about half of all new home loans, comprising a book of $5 trillion in mortgages.

Wade Henderson, president and CEO of The Leadership Conference on Civil and Human Rights, said the long-term stability of Freddie and Fannie is “crucial to preserving access to affordable housing for low-income communities.”

“We are inevitably headed toward a path of yet another taxpayer-funded bailout, which should be unthinkable eight years after the financial crisis and which is even worse because it appears to be by design,” Henderson said.