U.S. Senator Bob Corker, R-Tenn., a member of the Senate Banking Committee, Tuesday urged House and Senate negotiators not to use a 10-year tax increase on insurance for mortgages guaranteed by Fannie and Freddie Mac as a “piggy bank” to pay for a temporary extension of the payroll tax holiday through the end of the year. The two-month extension of the payroll tax holiday signed into law in December included an offset, opposed by Sen. Corker, that increases the guarantee fees paid by mortgage lenders for home loans backed by government-sponsored enterprises Fannie Mae and Freddie Mac.
In a letter Tuesday to members of the House-Senate conference committee to extend the temporary payroll tax holiday, Sen. Corker asked the conferees not to use the GSE guarantee fee increase in a final bill because the additional fee would only perpetuate government control of Fannie Mae and Freddie Mac, set a terrible precedent for how to offset new spending, and make it less likely that taxpayers will get paid back.
“Using the GSE guarantee fee for a tax offset is bad public policy. We would just be reinforcing the impression these enterprises are merely government ‘piggy banks’ to pay for spending programs, and it allows Congress to continue to shirk our responsibility to find long-term solutions to our country’s debt and spending habits. I urge you to not include this provision in the final legislation,” said Sen. Corker in the letter.
In November of last year, Sen. Corker introduced the Residential Mortgage Market Privatization and Standardization Act to responsibly unwind government-sponsored enterprises Fannie Mae and Freddie Mac and end dependence on the government for housing finance.
A complete copy of the letter to the conferees is included below.
February 7, 2012
I am writing to express my strong opposition to the use of an increased government-sponsored enterprise (“GSE”) guarantee fee as an offset by the conferees of H.R. 3630, legislation to extend the payroll tax cut and unemployment insurance. The actions taken by conferees will have long-lasting consequences on our constituents, local governments, seniors, and retirees who have their savings in residential mortgage-backed securities-related investments.
When Congress passed the two-month extension of the payroll tax/unemployment insurance legislation, I believe that it did not fully consider the consequences of raising the guarantee fee and having the proceeds going directly to the Treasury. Dedicating the guarantee fee as a tax will tie Fannie Mae and Freddie Mac into the appropriations process for the full 10-year period of the required offset, limiting Congress’ options for improving our system of housing finance. I also believe it is poor tax policy to use a 10-year revenue stream to pay for two months of spending. Finally, using GSE guarantee fee increases as a revenue source effectively perpetuates the conservatorship, draining financial resources from the entities and making it less likely the government will get paid back its invested capital.
Guarantee fees are supposed to be used as reserves to absorb credit losses on mortgages. Using the guarantee fee as a tax makes it more likely the GSEs will have to continue to draw on their Treasury line in the future to cover losses for which they have insufficient reserves. In addition, the tax drains resources from the real estate sector when the market is still extremely weak, while making it harder for Fannie Mae and Freddie Mac to operate their core guarantee business. All of this would come at a time when the housing market is still struggling under the weight of a backlog of millions of foreclosures and tens of millions of borrowers trapped underwater.
Using the GSE guarantee fee for a tax offset is bad public policy. We would just be reinforcing the impression these enterprises are merely government “piggy banks” to pay for spending programs, and it allows Congress to continue to shirk our responsibility to find long-term solutions to our country’s debt and spending habits. I urge you to not include this provision in the final legislation.