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Republicans to Press Fannie, Freddie Issue

Source: WSJ


Posted on 05 May 2010

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Republicans have complained for months that the Obama administration's financial overhaul push doesn't include any resolution to the government's expensive conservatorship of Fannie Mae and Freddie Mac. Now, three Republicans plan to offer an amendment during the floor debate that would force Democrats to take a politically difficult vote on what to do with the companies.

Sens. John McCain (R., Ariz.), Richard Shelby (R., Ala.), and Judd Gregg (R., N.H.) plan to offer an amendment in the coming days that would force the government to end its conservatorship of Fannie Mae and Freddie Mac after a transition period and make the firms operate “without government subsidies” in the future.

Here’s how their amendment would work:

1) The conservatorships for both companies would end two years after the bill becomes law, though the government would be able to extend it for another six months if necessary.

2) Three years after the conservatorship ends, their government charter would expire. Then the companies would have 10 years to operate under a special holding company so that they can dissolve remaining mortgages or debt obligations they held as government-sponsored enterprises.

3) After the companies leave conservatorship, their mortgage assets would have to steadily decline, capital standards would have to go up, and the size of loans they would be able to purchase would shrink.

4) The companies would have to pay state and local taxes.

5) Fannie Mae and Freddie Mac would have to pay a fee “to recoup full value” of the government guarantee they enjoy.

6) It would reestablish the $200 billion funding limit the government set up for both companies in 2008. On Christmas Eve 2009, the Obama administration lifted that cap to an unspecified level.


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