House Budget Committee Hearing: Fannie Mae, Freddie Mac & FHA: Taxpayer Exposure in the Housing Markets

Chairman Paul Ryan - Opening Remarks as Prepared for Delivery

Welcome all, to this important hearing. The purpose of today’s hearing is to highlight the true costs and risks posed to taxpayers by the government’s ongoing bailout of Fannie Mae and Freddie Mac. 

It also seeks to shed light on the hidden costs of the mortgage insurance program run by the Federal Housing Administration. This is a complex subject, but it is a critically important issue.

The federal takeover of Fannie and Freddie is the most costly taxpayer bailout to result from the 2008 financial crisis.  

For years we were told Fannie and Freddie posed no liability to the federal government. Through their unique status, which they cultivated through political influence, they pursued what I call crony capitalism. And now, the taxpayer is stuck with the bill.

To date, the Treasury Department has provided about $160 billion to Fannie and Freddie, and the Congressional Budget Office estimates their all-in cost for the decade will be about $370 billion.

While the Treasury Department has put forward a menu of options for reform, the Obama administration still does not account for these estimated future costs in its budget, even though it has lifted the cap on Fannie and Freddie’s line of credit.  

When it comes to this ongoing bailout of Fannie and Freddie, taxpayers have a right to know how much they are on the hook for.

FHA is different from the two GSEs because it is included in federal budget totals.  However, the current budgetary treatment of FHA understates the risk and cost of FHA guarantees, which now amount to nearly a fifth of all new single family home loans.

The CBO adjusts the cost of Fannie and Freddie loans for market risk. But under the Federal Credit Reform Act, budget projections do not incorporate market risk into the cost of FHA guarantees.  

The housing market is still in very fragile shape – no two ways about it. For the homeowners, for taxpayers, and for working families across this country, we need to put an end to the ongoing bailout of Fannie and Freddie and advance serious solutions.

That starts with a full accounting of their activities. We must advance plans to reform Fannie and Freddie… to fully account for FHA loans… to stop the hemorrhaging of taxpayer dollars… and to limit government’s dominance and distortion of housing finance.

I look forward to hearing from our witnesses today regarding these serious problems, and I look forward to a constructive debate on how we can save taxpayers from the consequences of misguided housing policy and crony capitalism, now and in the future.

I’d like to welcome our panel of distinguished witnesses.

Dr. Deborah Lucas, Assistant Director for Financial Analysis at the Congressional Budget Office – we are grateful to have her testimony before she returns to MIT’s Sloan School of Management as a professor of finance.

We also have Alex Pollock from the American Enterprise Institute – who has years of housing and finance expertise, including serving as President of the Federal Home Loan Bank of Chicago. 

I’d like to finally welcome to the Committee Sarah Rosen Wartell, with us today from the Center for American Progress and Center for American Progress Action Fund.

Thank you for testifying this morning, and with that, I yield to the Ranking Member, Mr. Van Hollen.