One of the top Republicans in Congress lays the blame for Fannie Mae and Freddie Mac needing money from the government for the first time since 2012 not on the Republican tax plan’s reduction of the corporate tax rate, but rather, squarely at the feet of Federal Housing Finance Agency Director Mel Watt.
In a letter sent late this week to Watt, House Financial Services Committee Chairman Rep. Jeb Hensarling, R-Texas, said that Watt could have avoided the need for a Treasury draw by suspending the government-sponsored enterprises’ payments to the Housing Trust Fund and the Capital Magnet Fund, but chose not to.
And Hensarling wants to know why.
Earlier this week, Fannie and Freddie reported their fourth quarter earnings, which indicated that the GSEs would need approximately $4 billion total from the Treasury to eliminate budget deficits caused by the new tax law reducing the corporate tax rate from 35% to 21% (explained in more detail here).
But, as Hensarling notes, Watt sent letters to both Fannie and Freddie earlier this month, ordering each GSE to make its payments to the Housing Trust Fund and the Capital Magnet Fund as scheduled, even though all parties involved knew that the Republican tax plan would likely trigger a draw for both Fannie and Freddie.
“While the enactment of the Tax Cuts and Jobs Act of 2017 requires Freddie Mac to re-measure its net deferred tax asset using the new law’s lower corporate tax rate which will trigger a one-time charge through the provision for federal income taxes and will likely require a draw under the Senior Preferred Stock Purchase Agreement, I do not consider this one-time event to relate to any financial instability on the part of the Enterprise either now or in the future,” Watt wrote in the Feb. 7, 2018 letter to Freddie Mac.
Despite acknowledging that Freddie (and Fannie) would likely need draws from the Treasury, Watt directed the GSEs to make the payments to the Housing Trust Fund and the Capital Magnet Fund, citing the amount of profit that each GSE has sent to the Treasury in the last several years.
In December 2014, Watt ordered the GSEs to begin contributing to the Housing Trust Fund and the Capital Magnet Fund again. Contributions to the funds, which aim to provide support to states to build, preserve and ultimately increase the supply of affordable housing for extremely low- and…