Two bills concerning the government sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, were introduced in the Senate last week. The first bill would suspend pay hikes for the CEOs of Fannie and Freddie. The second bill would prevent the U.S. Treasury from selling its stake in the GSEs without Congressional approval and prohibit the use of GSE guarantee fees (G-fees) to offset government spending unrelated to the GSE’s business operations.
The “Equity in Government Compensation Act of 2015” (S. 2036), introduced by Senators Elizabeth Warren (D-MA) and David Vitter (R-LA) on September 15, would reverse multimillion dollar pay raises for the CEOs of Fannie and Freddie that were approved earlier this year by Federal Housing Finance Agency Director Mel Watt. The bill would set each CEO’s base salary at $600,000, the amount they earned in 2014, and would cap any future salary increases as long as the GSEs remained in conservatorship. Director Watt had approved a $3.4 million increase for Freddie Mac CEO Donald H. Layton and Fannie Mae CEO Timothy J. Mayopoulis.
S. 2036 was fast tracked through the Senate, passing the bill by unanimous consent on the same day it was introduced. Fast tracking is how Congress can quickly move a bill outside the regular legislative process without procedural obstacles. The House is expected to take up the bill under a “suspension of the rules,” a designation reserved for noncontroversial bills. S. 2036 largely mirrors H.R. 2243 introduced by Representative Ed Royce (R-CA) and approved with bipartisan support in the House Committee on Financial Services. The Administration has indicated President Obama would sign the bill into law.
Senator Vitter stated, “Giving massive taxpayer-funded pay raises to Fannie Mae and Freddie Mac isn’t just out of touch – it’s downright offensive. These two companies are wards of the state. They exist in the current form only because folks across the country paid to bail out the mortgage giants during the financial crisis. In fact, they’d still be on the hook if Fannie Mae and Freddie Mac incurred further losses.”
The second bill, the “Jumpstart GSE Reform Act” (S. 2038), introduced on September 16 by Senators Bob Corker (R-TN), Mark Warner (D-VA), David Vitter, and Elizabeth Warren, would prevent Treasury from selling its share of the GSEs’ preferred stock without instruction from Congress. S. 2038 would also prohibit Congress from using any increase in G-fees – fees charged by the GSEs on mortgage lenders to guarantee loans and ultimately passed onto homebuyers – as an offset for other government spending. Earlier this summer, the Senate tried to use G-fees to offset the cost of the highway spending. The cosponsors of S. 2038 introduced similar legislation last Congress.
Senator Corker initially tried to fast track a bill preventing Treasury from selling shares of the GSE’s preferred stock without Congressional approval. Because it lacked the G-fee provision, Senator Warren withdrew her support. Senator Sherrod Brown (D-OH), the Ranking Member of the Senate Banking Committee, put a hold on the fast track process, stating he would prefer to tackle housing finance reform through regular order and not in a piecemeal fashion. Once Senator Corker agreed to include the G-fee provision, Senator Warren recommitted her support for the bill. It’s unclear whether the Senate will take up the bill.
When introducing S. 2038, Senator Corker stated, “There is an overwhelming bipartisan, bicameral consensus that congressional action is needed to reform our housing finance system and it is hard to imagine that anyone truly wants to return the GSEs to the failed model of private gains and public losses. While comprehensive reform is my preference, we must not allow a small minority to prevent us from making any progress at all.”
Read the text of S. 2036 at https://www.congress.gov/114/bills/s2036/BILLS-114s2036cps.pdf
Read the text of S. 2038 at https://www.congress.gov/114/bills/s2038/BILLS-114s2038is.pdf