H. Rept. 115-648 - GSE JUMPSTART REAUTHORIZATION ACT OF 2017115th Congress (2017-2018)
Committee Report
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115th Congress } { Report
HOUSE OF REPRESENTATIVES
2d Session } { 115-648
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GSE JUMPSTART REAUTHORIZATION ACT OF 2017
_______
April 24, 2018.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Hensarling, from the Committee on Financial Services, submitted the
following
R E P O R T
together with
MINORITY VIEWS
[To accompany H.R. 4560]
[Including cost estimate of the Congressional Budget Office]
The Committee on Financial Services, to whom was referred
the bill (H.R. 4560) to suspend contributions by Fannie Mae and
Freddie Mac to the Housing Trust Fund during any period that
the full required dividend payments under the Senior Preferred
Stock Purchase Agreements for such enterprises are not made,
and for other purposes, having considered the same, report
favorably thereon without amendment and recommend that the bill
do pass.
Purpose and Summary
On December 6, 2017, Representative French Hill introduced
H.R. 4560, the ``GSE Jumpstart Act Reauthorization'', which
would reauthorize the GSE Jumpstart Act of 2015 through January
1, 2019. As enacted into law, the GSE Jumpstart Act of 2015,
originally sponsored by Senators Corker (R-TN) and Warner (D-
VA), prohibits the sale of Treasury-owned senior preferred
shares in Government Sponsored Enterprises (GSEs), Fannie Mae
and Freddie Mac, without congressional approval. Furthermore,
the 2015 law expresses the sense of Congress that Congress
``should pass and the President should sign into law
legislation determining the future of Fannie Mae and Freddie
Mac, and that notwithstanding the expiration of subsection (b),
the Secretary should not sell, transfer, relinquish, liquidate,
divest, or otherwise dispose of any outstanding shares of
senior preferred stock acquired pursuant to the Senior
Preferred Stock Purchase Agreement until such legislation is
enacted.''
H.R. 4560 would further prohibit payments to the Housing
Trust Fund and the Capital Magnet Fund for any fiscal year in
which the GSEs fail to pay any portion of their scheduled
dividends to Treasury during that year. Specifically, for any
period that the GSEs do not make their full required dividend
payments to taxpayers (via the U.S. Treasury through the Senior
Preferred Stock Purchase Agreements ``PSPAs''), the legislation
would suspend the GSEs' contributions to the Housing Trust Fund
and the Capital Magnet Fund for that fiscal year.
Background and Need for Legislation
The goal of H.R. 4560 is to reauthorize the GSE Jumpstart
Act of 2015 for one additional year and to ensure that the GSEs
pay their full required dividend payment to taxpayers before
allocating funds to the Housing Trust Fund and the Capital
Magnet Fund.
Pursuant to the Third Amendment to the PSPAs, the
Applicable Capital Reserve Amount for the GSEs will fall to $0
on January 1, 2018. After this date, the GSEs will not retain
any capital and their entire net worth amount will be swept to
the U.S. Treasury on behalf of the taxpayers. Former Federal
Housing Finance Agency (FHFA) Director Ed DeMarco said in 2012
the purpose of the Third Amendment to the PSPAs was to ``ensure
stability'' and ``fully capture financial benefits for
taxpayers.''\1\
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\1\``Changes to Fannie Mae and Freddie Mac Preferred Stock Purchase
Agreements,'' Statement by Acting FHFA Director Ed DeMarco, October 17,
2012, available at: https://www.fhfa.gov/Media/PublicAffairs/Pages/
Statement-of-FHFA-Acting-Director-Edward-J-DeMarco-on-Changes-to-
Fannie-Mae-and-Freddie-Mac-Preferred-Stock-Purchas.aspx.
---------------------------------------------------------------------------
Although the GSEs' capital would fall to $0 on January 1,
2018, the GSEs still have a $258 billion line of credit with
the U.S. Treasury. According to the Congressional Budget
Office, that $258 billion line of credit already ``serves as an
effective capital cushion and ensures that, under most
circumstances, the GSEs would be able to pay investors who held
their debt and mortgage backed securities.''\2\
---------------------------------------------------------------------------
\2\``The Effects of Increasing Fannie Mae's and Freddie Mac's
Capital,'' Congressional Budget Office, October 2016, p. 7, available
at: https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/
reports/52089-gse-report.pdf.
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In the estimation of CBO, allowing the GSEs to retain
earnings would in effect convert a potential future draw on
federal funds into an immediate one.\3\ Furthermore, CBO notes
that ``the explicit federal backing--and ultimately the risk
that taxpayers bear--would effectively be increased by the
amount of earnings that the GSEs retained.''\4\
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\3\Id.
\4\Id.
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On December 21, 2017, FHFA Director Melvin Watt announced
the FHFA and the Treasury Department reached an agreement to
deprive taxpayers of the compensation to which they are legally
entitled under the ongoing GSE conservatorship. This agreement
alters the practice that has been in place for more than half a
decade to determine how to compensate taxpayers for the risk of
their continued financial backing of these failed mortgage
companies. Under the December 21, 2017 agreement, the GSEs
increase the allowable amount of net capital they can hold in
2018 and beyond from zero dollars to $3 billion each--revenue
that should be going to taxpayers--meaning the ongoing cost of
the conservatorship will increase to $119.1 billion for Fannie
Mae and $74.3 billion for Freddie Mac. This FHFA announcement
makes clear that H.R. 4560 is absolutely necessary to protect
taxpayers.
Hearings
The Committee on Financial Services held a hearing
examining matters relating to H.R. 4560 on October 3, 2017.
Committee Consideration
The Committee on Financial Services met in open session on
December 13, 2017, and ordered H.R. 4560 to be reported
favorably to the House as amended by a recorded vote of 33 yeas
to 26 nays (recorded vote no. FC-134), a quorum being present.
Committee Votes
Clause 3(b) of rule XIII of the Rules of the House of
Representatives requires the Committee to list the record votes
on the motion to report legislation and amendments thereto.
The first recorded vote was on an amendment, no. 1, offered
by Ranking Members Waters to strike Section 3 of H.R. 4560. The
amendment was NOT AGREED TO by a recorded vote of 26 ayes and
34 nays (Record vote no. FC-133). The second recorded vote
ordered H.R. 4560 to be reported favorably to the House as
amended by a recorded vote of 33 yeas to 27 nays. (Record vote
no. FC-134), a quorum being present.
Committee Oversight Findings
Pursuant to clause 3(c)(1) of rule XIII of the Rules of the
House of Representatives, the findings and recommendations of
the Committee based on oversight activities under clause
2(b)(1) of rule X of the Rules of the House of Representatives,
are incorporated in the descriptive portions of this report.
Performance Goals and Objectives
Pursuant to clause 3(c)(4) of rule XIII of the Rules of the
House of Representatives, the Committee states that H.R.4560
will protect taxpayers by requiring the Director of the Federal
Housing Finance Agency to suspend allocations by a Government
Sponsored Enterprise (GSE) to the Housing Trust Fund and the
Capital Magnet Fund if such GSE does not make its full required
dividend payment to the U.S. Treasury pursuant to the Third
Amendment of Treasury's Senior Preferred Stock Purchase
Agreement with each GSE.
New Budget Authority, Entitlement Authority, and Tax Expenditures
In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee adopts as its
own the estimate of new budget authority, entitlement
authority, or tax expenditures or revenues contained in the
cost estimate prepared by the Director of the Congressional
Budget Office pursuant to section 402 of the Congressional
Budget Act of 1974.
Congressional Budget Office Estimates
Pursuant to clause 3(c)(3) of rule XIII of the Rules of the
House of Representatives, the following is the cost estimate
provided by the Congressional Budget Office pursuant to section
402 of the Congressional Budget Act of 1974:
U.S. Congress,
Congressional Budget Office,
Washington, DC, February 8, 2018.
Hon. Jeb Hensarling,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 4560, the GSE
Jumpstart Reauthorization Act of 2017.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Aurora
Swanson.
Sincerely,
Keith Hall,
Director.
Enclosure.
H.R. 4560--GSE Jumpstart Reauthorization Act of 2017
H.R. 4560 would prohibit the U.S. Treasury from selling the
senior preferred stock issued by Fannie Mae and Freddie Mac
until January 1, 2019. The bill also would direct those
entities to suspend annual contributions to affordable housing
trust funds if they withhold any of their profits from the
Treasury during any quarter in a calendar year.
Using information from the agencies' regulator, the Federal
Housing Finance Agency (FHFA), CBO estimates that enacting the
bill would not affect the federal budget; therefore, pay-as-
you-go procedures do not apply.
In recent years, FHFA has directed Fannie Mae and Freddie
Mac to contribute to affordable housing trust funds. Annual
contributions to those funds have averaged about $300 million
in the recent past. FHFA can direct Fannie Mae or Freddie Mac
to suspend contributions if either entity has a negative net
worth. Under H.R. 4560, if either entity withheld profits from
the Treasury for any quarter during a calendar year, it would
be required to suspend contributions to the trust funds for
that year.
CBO estimates that implementing H.R. 4560 would not affect
contributions to the affordable housing trust funds because,
according to FHFA, there are no plans to direct the entities to
withhold future profits from the Treasury.
In addition, according to FHFA, the federal government has
no plans to sell the preferred stock issued by the entities.
Therefore, prohibiting the sale of the preferred stock until
after January 1, 2019, would not affect the federal budget.
On December 21, 2017, FHFA and the Secretary of the
Treasury directed Fannie Mae and Freddie Mac to withhold some
of their profits from the Treasury and to establish capital
reserves of $3 billion each. The entities must maintain those
capital reserves and continue to send any excess quarterly
profits to the Treasury. Withholding profit solely for that
purpose would not require the entities to suspend contributions
to the affordable housing trust funds under the bill because
the direction to establish the capital reserves occurred before
enactment of H.R. 4650 and, under the bill, would be considered
a part of the existing agreement between Fannie Mae, Freddie
Mac, and the Department of the Treasury that determines how the
entities' profits are used.
CBO estimates that enacting the bill would not increase net
direct spending or on-budget deficits in any of the four
consecutive 10-year periods beginning in 2028.
H.R. 4560 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act.
The CBO staff contact for this estimate is Aurora Swanson.
The estimate was approved by H. Samuel Papenfuss, Deputy
Assistant Director for Budget Analysis.
Federal Mandates Statement
This information is provided in accordance with section 423
of the Unfunded Mandates Reform Act of 1995.
The Committee has determined that the bill does not contain
Federal mandates on the private sector. The Committee has
determined that the bill does not impose a Federal
intergovernmental mandate on State, local, or tribal
governments.
Advisory Committee Statement
No advisory committees within the meaning of section 5(b)
of the Federal Advisory Committee Act were created by this
legislation.
Applicability to Legislative Branch
The Committee finds that the legislation does not relate to
the terms and conditions of employment or access to public
services or accommodations within the meaning of the section
102(b)(3) of the Congressional Accountability Act.
Earmark Identification
With respect to clause 9 of rule XXI of the Rules of the
House of Representatives, the Committee has carefully reviewed
the provisions of the bill and states that the provisions of
the bill do not contain any congressional earmarks, limited tax
benefits, or limited tariff benefits within the meaning of the
rule.
Duplication of Federal Programs
In compliance with clause 3(c)(5) of rule XIII of the Rules
of the House of Representatives, the Committee states that no
provision of the bill establishes or reauthorizes: (1) a
program of the Federal Government known to be duplicative of
another Federal program; (2) a program included in any report
from the Government Accountability Office to Congress pursuant
to section 21 of Public Law 111-139; or (3) a program related
to a program identified in the most recent Catalog of Federal
Domestic Assistance, published pursuant to the Federal Program
Information Act (Pub. L. No. 95-220, as amended by Pub. L. No.
98-169).
Disclosure of Directed Rulemaking
Pursuant to section 3(i) of H. Res. 5, (115th Congress),
the following statement is made concerning directed
rulemakings: The Committee estimates that the bill requires no
directed rulemakings within the meaning of such section.
Section-by-Section Analysis of the Legislation
Section 1. Short title
This Section cites H.R. 4560 as the ``GSE Jumpstart
Reauthorization Act of 2017''
Section 2. Extension of limitation on sale of preferred stock
This Section extends for one additional year the ``GSE
Jumpstart Act of 2015'' as enacted into law. Specifically,
Section 2 strikes ``January 1, 2018'' and inserts ``January 1,
2019'' in subsection (b) of section 702 of division O of the
Consolidated Appropriations Act, 2016 (Public Law 114-113; 129
Stat. 3025).
Section 3. Conservation of capital during periods of low net worth
This Section broadens the authority of the Director of the
Federal Housing Finance Agency (FHFA) with respect to
suspending allocations to the Housing Trust Fund and Capital
Magnet Funds. Specifically, Section 3 would require the
Director to suspend allocations made by the GSEs to these Funds
``for a fiscal year, if, for any Dividend Period ending during
such fiscal year, the holders of outstanding shares of Senior
Preferred Stock of such enterprise do not receive cumulative
cash dividends in an equal amount to the Dividend Amount for
such Dividend Period.''
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, and existing law in which no
change is proposed is shown in roman):
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, and existing law in which no
change is proposed is shown in roman):
CONSOLIDATED APPROPRIATIONS ACT, 2016
* * * * * * *
DIVISION O--OTHER MATTERS
* * * * * * *
TITLE VII
FINANCIAL SERVICES
* * * * * * *
SEC. 702. LIMITATIONS ON SALE OF PREFERRED STOCK.
(a) Definitions.--In this section:
(1) Secretary.--The term ``Secretary'' means the
Secretary of the Treasury.
(2) Senior preferred stock purchase agreement.--The
term ``Senior Preferred Stock Purchase Agreement''
means--
(A) the Amended and Restated Senior Preferred
Stock Purchase Agreement, dated September 26,
2008, as such Agreement has been amended on May
6, 2009, December 24, 2009, and August 17,
2012, respectively, and as such Agreement may
be further amended and restated, entered into
between the Department of the Treasury and each
enterprise, as applicable; and
(B) any provision of any certificate in
connection with such Agreement creating or
designating the terms, powers, preferences,
privileges, limitations, or any other
conditions of the Variable Liquidation
Preference Senior Preferred Stock of an
enterprise issued or sold pursuant to such
Agreement.
(b) Limitations on Sale of Preferred Stock.--Notwithstanding
any other provision of law or any provision of the Senior
Preferred Stock Purchase Agreement, until at least [January 1,
2018] January 1, 2019, the Secretary may not sell, transfer,
relinquish, liquidate, divest, or otherwise dispose of any
outstanding shares of senior preferred stock acquired pursuant
to the Senior Preferred Stock Purchase Agreement, unless
Congress has passed and the President has signed into law
legislation that includes a specific instruction to the
Secretary regarding the sale, transfer, relinquishment,
liquidation, divestiture, or other disposition of the senior
preferred stock so acquired.
(c) Sense of Congress.--It is the Sense of Congress that
Congress should pass and the President should sign into law
legislation determining the future of Fannie Mae and Freddie
Mac, and that notwithstanding the expiration of subsection (b),
the Secretary should not sell, transfer, relinquish, liquidate,
divest, or otherwise dispose of any outstanding shares of
senior preferred stock acquired pursuant to the Senior
Preferred Stock Purchase Agreement until such legislation is
enacted.
* * * * * * *
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FEDERAL HOUSING ENTERPRISES FINANCIAL SAFETY AND SOUNDNESS ACT OF 1992
* * * * * * *
TITLE XIII--GOVERNMENT SPONSORED ENTERPRISES
* * * * * * *
Subtitle A--Supervision and Regulation of Enterprises
* * * * * * *
PART 2--ADDITIONAL AUTHORITIES OF THE DIRECTOR
* * * * * * *
Subpart B--Housing Goals
* * * * * * *
SEC. 1337. AFFORDABLE HOUSING ALLOCATIONS.
(a) Set Aside and Allocation of Amounts by Enterprises.--
Subject to subsection (b), in each fiscal year--
(1) the Federal Home Loan Mortgage Corporation
shall--
(A) set aside an amount equal to 4.2 basis
points for each dollar of the unpaid principal
balance of its total new business purchases;
and
(B) allocate or otherwise transfer--
(i) 65 percent of such amounts to the
Secretary of Housing and Urban
Development to fund the Housing Trust
Fund established under section 1338;
and
(ii) 35 percent of such amounts to
fund the Capital Magnet Fund
established pursuant to section 1339;
and
(2) the Federal National Mortgage Association shall--
(A) set aside an amount equal to 4.2 basis
points for each dollar of unpaid principal
balance of its total new business purchases;
and
(B) allocate or otherwise transfer--
(i) 65 percent of such amounts to the
Secretary of Housing and Urban
Development to fund the Housing Trust
Fund established under section 1338;
and
(ii) 35 percent of such amounts to
fund the Capital Magnet Fund
established pursuant to section 1339.
(b) Suspension of Contributions.--[The Director]
Notwithstanding any other provision of law, the Director shall
temporarily suspend allocations under subsection (a) [by an
enterprise upon a finding] by an enterprise--
(1) upon a finding by the Director that such
allocations--
[(1)] (A) are contributing, or would
contribute, to the financial instability of the
enterprise;
[(2)] (B) are causing, or would cause, the
enterprise to be classified as
undercapitalized; or
[(3)] (C) are preventing, or would prevent,
the enterprise from successfully completing a
capital restoration plan under section
1369C[.]; or
(2) for a fiscal year, if, for any Dividend Period
ending during such fiscal year, the holders of
outstanding shares of Senior Preferred Stock of such
enterprise do not receive cumulative cash dividends in
an amount equal to the Dividend Amount for such
Dividend Period.
For purposes of paragraph (2), the terms ``Dividend Period'',
``Senior Preferred Stock'', and ``Dividend Amount'' shall, with
respect to an enterprise, have the meanings given such terms
for purposes of the Amended and Restated Senior Preferred Stock
Purchase Agreement, dated September 26, 2008, and entered into
between the Department of the Treasury and such enterprise, as
such Agreement has been amended on May 6, 2009, December 24,
2009, and August 17, 2012, but such meanings shall not take
into consideration any additional amendment to such Agreement
made after the date of the enactment of the GSE Jumpstart
Reauthorization Act of 2017.
(c) Prohibition of Pass-Through of Cost of Allocations.--The
Director shall, by regulation, prohibit each enterprise from
redirecting the costs of any allocation required under this
section, through increased charges or fees, or decreased
premiums, or in any other manner, to the originators of
mortgages purchased or securitized by the enterprise.
(d) Enforcement of Requirements on Enterprise.--Compliance by
the enterprises with the requirements under this section shall
be enforceable under subpart C. Any reference in such subpart
to this part or to an order, rule, or regulation under this
part specifically includes this section and any order, rule, or
regulation under this section.
(e) Required Amount for HOPE Reserve Fund.--Of the aggregate
amount allocated under subsection (a), 25 percent shall be
deposited into a fund established in the Treasury of the United
States by the Secretary of the Treasury for such purpose.
(f) Limitation.--No funds under this title may be used in
conjunction with property taken by eminent domain, unless
eminent domain is employed only for a public use, except that,
for purposes of this section, public use shall not be construed
to include economic development that primarily benefits any
private entity.
* * * * * * *
MINORITY VIEWS
H.R. 4560 would require the Director of the Federal Housing
Finance Agency (FHFA) to suspend contributions to the National
Housing Trust Fund (HTF) and the Capital Magnet Fund (CMF) for
any fiscal year in which Fannie Mae or Freddie Mac
(collectively, the Enterprises) withhold any dividends owed to
Treasury. On December 21, 2017, the FHFA Director and Treasury
Secretary announced that they will allow the Enterprises to
each withhold $3 billion from their 2017 fourth quarter
dividend payments in order to retain modest capital reserves.
This decision will help the Enterprises absorb small quarterly
losses moving forward, thereby reducing the chances that either
Enterprise will need an additional draw from Treasury. However,
this bill would likely require suspension of funding for the
HTF and CMF for 2018, and would likely require suspension of
funding for these programs in every year thereafter in which
the Enterprises retain any level of capital. In short, this
bill is a thinly disguised attack on key affordable housing
programs that have long been a priority for Democrats.
We support the decision made by the FHFA Director and the
Treasury Secretary to allow the Enterprises to retain modest
capital reserves. This was an important step to protect the
safety and soundness of our housing finance system, and there
is no need for Congress to intervene at this time. Under
existing law, the FHFA Director is already required to suspend
contributions if he believes that such a decision is warranted
on the basis of the financial instability of the Enterprises,
or other reasons stipulated in statute. The Enterprises are in
strong financial condition, having consistently reported net
yearly profits since 2012. Further, our country is in the midst
of one of the worst rental housing crises that we have ever
seen, with approximately half of all renters paying over 30
percent of their income on rent, and approximately one quarter
of all renters paying over 50 percent of their income on rent.
This is simply not She time to arbitrarily halt funding for key
affordable housing programs.
During the Committee's consideration of H.R. 4560, Ranking
Member Waters offered an amendment to strip the harmful
provisions of this bill (Section 3), while preserving the
provision that would simply extend the Jumpstart GSE Reform Act
by an additional year (Section 2). This amendment was
unanimously supported by Committee Democrats, and unanimously
rejected by Committee Republicans. H.R. 4560 does nothing to
support the housing finance system, and instead threatens
funding for key affordable housing programs. For these reasons
we oppose H.R. 4560.
Maxine Waters.
Joyce Beatty.
Daniel T. Kildee.
Juan Vargas.
Michael E. Capuano.
Carolyn B. Maloney.
Nydia Velazquez.
Al Green.
Emanuel Cleaver.
Gwen Moore.
Stephen F. Lynch.
Brad Sherman.
Keith Ellison.
[all]