House Financial Services Chairman Jeb Hensarling demanded answers Friday from the regulator of Fannie Mae and Freddie Mac for its decision to direct the two bailed-out government-sponsored enterprises to continue making payments to affordable housing trust funds, even though they will need a new round of financial support from the Treasury this week.
In a letter to Mel Watt, the director of the Federal Housing Finance Agency, Hensarling asked for a written explanation within a week for the decision to allow the payments, despite Watt’s prior assurances that the payments would stop if Fannie or Freddie required new funds from the Treasury.
Hensarling called the decision “unjustifiable.”
“Congress must have the confidence that it can rely on the credibility of the regulators it empowers to faithfully execute their authority and provide accurate written and verbal assurances of their decisions,” he wrote.
A representative for the agency said that it had received the letter and would respond.
Fannie Mae announced Wednesday with its fourth-quarter results that it would need $3.7 billion from the Treasury, and Freddie Mac announced Thursday that it would require a little over $300 million.
In both cases, the losses that plunged the GSEs underwater were prompted by the Trump-signed tax cuts, which reduced the value of tax losses that the two could claim in future years. The losses didn’t affect the underlying economic relationship between the GSEs and the Treasury, since they are required to send all their profits to the Treasury, which also collects their taxes.
Because the losses were one-time account losses and not a sign of deeper financial problems, Freddie said in its disclosures, Watt directed it to keep making payments to the trust funds.
In 2015 testimony, though, Watt told the Hensarling’s committee that if one of the GSEs ever drew on Treasury funds, that would “automatically” stop the payments.
Conservatives have long opposed payments to the trust funds, which Watt, an Obama appointee, allowed the two GSEs to begin making in 2014. Some conservatives view the funding as unaccountable spending on favored liberal groups. Republicans have also criticized Fannie and Freddie making the payments while they remain wards of the state, which they have been since 2008.
Fannie said that it planned to make a $239 million payment to the trust funds this quarter, and Freddie said it would disburse $114 million.
