A coalition of more than two dozen conservative groups sent a letter to members of the Senate Banking Committee Wednesday, urging them to vote against a major bill to overhaul the housing finance market.
The legislation, crafted by Sens. Tim Johnson, D-S.D., chairman of the banking panel, and Mike Crapo, R-Idaho, the ranking member, is currently scheduled for a markup starting April 29. The bill, which draws on earlier work by Sens. Bob Corker, R-Tenn., and Mark Warner, D-Va., would unwind Fannie Mae and Freddie Mac and establish a new secondary market backed by a government guarantee in the event of catastrophic losses. The system would be overseen by a new regulator, the Federal Mortgage Insurance Corp.
But the conservative groups, including the Competitive Enterprise Institute, the Club for Growth and FreedomWorks, argue that the Johnson-Crapo bill would not actually amount to reform, but would instead lead to an expansion of government intervention in the mortgage market.
"We believe the government-sponsored enterprises, Fannie Mae and Freddie Mac, whose debts are implicitly guaranteed by the federal government, should be phased out," the letter says. "But the answer is not to replace them with a new federal entity, the Federal Mortgage Insurance Corp., which would give explicit guarantees to trillions of dollars of mortgages, as Johnson-Crapo would do. The increase in moral hazard and taxpayer risk should be clear."
The letter also criticizes the creation of several affordable housing trust funds, arguing that the funding stream would not be subject to congressional oversight and could be "diverted for political purposes."
Moreover, the groups argue the legislation unfairly treats current GSE shareholders, who are embroiled in lawsuits with the government over a 2012 Treasury Department decision to sweep all the profits at the GSEs as part of the plan to wind them down. The draft language in the Johnson-Crapo codifies Treasury's decision and requires regulators to maximize profits for the government.