Fannie Mae and Freddie Mac have begun making payments into an affordable housing trust fund, a step toward returning to normal operating procedures that one top Republican warned Monday could lead to another financial crisis.
The two bailed-out mortgage giants disclosed in recent regulatory filings that they sent $187 million in February to the housing trust fund run by the Department of Housing and Urban Development.
In response, House Financial Services Committee chairman Jeb Hensarling, a top congressional advocate of shuttering Fannie and Freddie and reforming the housing finance system, criticized the federal regulator responsible for the two companies for allowing the payments.
That regulator, Federal Housing Finance Agency director Mel Watt, made a “grave mistake that harms hardworking taxpayers and violates both the letter and spirit of the law,” Hensarling said in a statement.
Watt made the decision in December, 2014, that the two government-sponsored enterprises might begin contributing to the trust fund.
Conservatives have criticized the housing trust fund as a “slush fund” for nonprofit housing groups aligned with Democrats. They’ve also argued that Fannie and Freddie are not financially secure enough to divert funds to housing projects, and that the plan may help create another housing bubble.
“Diverting assets from taxpayers to housing trust funds re-invites the same politically directed lending abuses that have characterized the broken GSE model and sows the seeds for the next housing crisis,” Hensarling said.
Fannie and Freddie have remained in the government’s custody for nearly eight years since the financial crisis. Although they initially received nearly $200 billion in taxpayer support, in recent years they have returned to positive cash flow.
Meanwhile, Congress has failed to pass legislation that would resolve the companies’ status one way or another. In the absence of a broad overhaul, however, Hensarling and other conservatives have tried to stop them from returning to their pre-crisis behavior.
Fannie and Freddie buy mortgages from lenders and package them into securities to be sold to investors with a guarantee that the investors will be made whole if the loans fail. They charge a fee for that guarantee, and under the current terms of the government’s management of the firms, a small cut of that fee is now diverted to the housing trust fund.
