Final Obama Budget Banks on Fannie and Freddie for Years to Come

It is audacious that President Obama’s fiscal 2017 budget proposal released Tuesday counts income from Fannie Mae and Freddie Mac as just another revenue stream – not only for the coming year but for the next ten years.

The Administration has long shown it has a hearty appetite for the mortgage giants’ revenues. The two companies have already sent a combined $241.3 billion to the government since being placed in conservatorship 2008 – over $50 billion more than the $187.5 billion in taxpayer funds they received at that time. Should the “temporary” conservatorship and Third Amendment Sweep remain in force for at least another ten years the White House estimates the GSEs will send another $151.5 billion to the U.S. Treasury.  That could mean these privately-owned mortgage giants will have sent nearly an astounding $400 billion to Treasury while needed reforms were put on hold.

The revenue projections in the budget proposal justify assumptions about why the Administration has had much less of an appetite for recommending ways to reform and recapitalize Fannie and Freddie and ensure they could provide liquidity and stability in the mortgage market for years to come.  Why sell a cash cow? The Administration effectively yielded its statutory authority – and obligation – to end the conservatorship with the enactment of a massive spending bill late last year that included provisions of the so-called “Jumpstart GSE Reform.” Despite the bill’s name, it put Congress in the driver’s seat and all but guaranteed no additional action will be taken to end the conservatorship this year or perhaps not until well into 2017.  

The proposed fiscal 2017 budget, like all blueprints before it, makes no room for the inevitable recession and market correction. Should a downturn occur in the next year or so, taxpayers will be obligated to provide additional bailout funding because Fannie and Freddie have been prohibited from building up adequate capital levels.

In a nod to the persistent problem of access to affordable housing, the budget proposal estimates Fannie and Freddie will provide another $136 million to the Affordable Housing Trust Fund in 2017. This money is provided to states to finance affordable housing options for the poor. The Administration reports this would be added to the $170 million set to be distributed this year. But here’s the catch: those funds derive from a small fee on loans Fannie and Freddie help finance but only as so long as they don’t require another infusion of public money.

In essence, President Obama’s final budget proposal counts money to which it was never entitled; it flaunts a disregard for the Housing and Economic Recovery Act’s requirement that Fannie and Freddie be made sound and solvent; and it takes a cavalier stance to the fact that undercapitalized GSEs could have negative consequences for taxpayers and working Americans striving for homeownership. After eight years, the Administration’s parting message is that needed reforms in housing finance policy will simply have to wait for another president and another Congress.   There is not urgency of now, just the audacity of nope.