A Reasonable GSE Solution in Congress

Now, before we start I should note that I generally have the opinion Rep Capuano is less than competent at his job. I do not want anyone to think I’m simply backing the opinion of a hometown guy.

Having seen him in action at countless Congressional Hearings I can without reservation he does NOT do my State of MA proud. I equate him to the drunk guy at the bar who wins every argument simply because he can yell the loudest and because others, realizing you can’t debate someone like this simply nod and wait for him to finish before moving on. His Congressional behavior is typically filled with a 5 min tirade about his outrage of the day followed by an illogical/unanswerable question he then rarely lets the person asked answer before he commences yet an additional rant. The folks in the seats cannot react as I am sure they would like to so they are forced to listen to his ill informed venom. Although, he did come out and defend Elliot Spitzer in 2008 claiming some type of governement conspiracy against the former Gov.

Simply put, 90% of what he says colossal waste of time and resources. But, it plays well with his Boston, Mattapan, Sommerville, Chealsea, Dorchester electorate (see map here…gerrymandering anyone?) 7th District who love to see anyone get yelled at “by our guy”. So, while he wastes everyone time at a hearing, he does pander to folks at home who will elect him again. This is also why he probably immediately dropped out of the US Senate race for Kennedy’s seat, outside of his area folks in MA think he IS that guy in a bar……NOT a US Senator.

But enough about that. I DO have to give credit here where credit is due. Capuano is the first member of Congress that I have seen who has come up with a reasonable and common sense approach to dealing with the GES’s ($FNMA).

There is no “way” currently to dissolve these institutions and not cause havoc in the housing market and then the overall economy. There just isn’t. They were allowed to get to such a size and essentially “become the market” that there isn’t enough private capital available or even willing to step in. At the fringes private mortgage insurers are, ($AIG, $MGIC, $AGO etc) but they are just a spec on the overall market. Further, Dodd-Frank has made sure that capital requirements for those insuring mortgages are such that there isn’t an entity (or group of them) around that could even begin to approach what the $GSE’s do.

The rational thing to do would be to do what Capuano suggests, let them pay back the gov’t. Then they can be forced to compete with private capital on an even playing field and the changes people want can happen over many years without wholesale economic ramifications. There is no reason this has to be rushed now. Housing is in a strong recovery and the overall economy is improving, albeit timidly. Risking that with some dramatic GSE action would be foolish….

Here is a .pdf version: HR 2345 (click for pdf)

Introduced in House (06/19/2013)

[Congressional Bills 113th Congress]
[From the U.S. Government Printing Office]
[H.R. 2435 Introduced in House (IH)]

1st Session
H. R. 2435

To provide for the repayment of amounts borrowed by Fannie Mae and
Freddie Mac from the Treasury of the United States, together with
interest, over a 30-year period, and for other purposes.



June 19, 2013

Mr. Capuano introduced the following bill; which was referred to the
Committee on Financial Services



To provide for the repayment of amounts borrowed by Fannie Mae and
Freddie Mac from the Treasury of the United States, together with
interest, over a 30-year period, and for other purposes.

Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,


This Act may be cited as the “Let the GSEs Pay Us Back Act of


The Secretary of the Treasury and each enterprise (acting through
the conservator for the enterprise appointed pursuant to section 1367
of the Federal Housing Enterprises Financial Safety and Soundness Act
of 1992 (12 U.S.C. 4617)) shall enter into an agreement with that
modifies the Preferred Stock Purchase Agreement for such enterprise to
provide as follows:
(1) Termination of dividends.–That after such
modification, any Senior Preferred Stock purchased under such
Agreement by the Department of the Treasury shall not accrue
further dividends.
(2) Treatment of enterprise draws on treasury.–That any
amounts received, before or after such modification, during a
single year by the enterprise as a draw on the commitment made
by the Department of the Treasury under such an Agreement,
shall be treated as a loan made by the Treasury to the
enterprise that–
(A) was originated on the date of the last such
draw during such year;
(B) has an original principal obligation in an
amount equal to the aggregate amount of such draws;
(C) has a term to maturity of 30 years;
(D) has an annual interest rate of 5 percent for
the entire term of the loan;
(E) has terms that provide for full amortization of
the loan over such term to maturity; and
(F) shall be repaid by the enterprise in accordance
with the amortization schedule established for the loan
pursuant to subparagraph (E) of this paragraph, subject
to paragraph (3).
(3) Treatment of dividends paid.–That any dividends paid
by the enterprise to the Department of the Treasury under the
Senior Preferred Stock Agreement before such modification of
such Agreement shall be treated as payments of principal and
interest due under the loan referred to in paragraph (2), and
shall be credited against payments due under the terms of such
loan (in accordance with the amortization schedule established
for such loan pursuant to paragraph (2)(E)), first to such loan
have the earliest origination date that has not yet been fully
repaid until such loan is repaid, and then to the next such
loan having the next earliest origination date until such loan
is repaid.


For purposes of this Act, the following definitions shall apply:
(1) Enterprise.–The term “enterprise” has the meaning
given such term in section 1303 of the Federal Housing
Enterprises Financial Safety and Soundness Act of 1992 (12
U.S.C. 4502).
(2) Preferred stock purchase agreement.–The term
“Preferred Stock Purchase Agreement” means, with respect to
an enterprise, the Amended and Restated Senior Preferred Stock
Purchase Agreements, dated September 26, 2008, amended May 6,
2009, further amended December 24, 2009, and further amended
December 24, 2009 (as such agreements may be further amended),
between the United States Department of the Treasury and such

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