September 29, 2021

Toomey Urges Biden Administration to Preserve Taxpayer Protections Against Fannie and Freddie Bailouts

Washington, D.C. – U.S. Senate Banking Committee Ranking Member Pat Toomey (R-Pa.) is urging the Department of the Treasury and the Federal Housing Finance Agency (FHFA) to retain taxpayer protections that were created by the last administration to guard against future bailouts of Fannie Mae and Freddie Mac (the GSEs).

On September 14, 2021, Treasury and FHFA suspended certain restrictions on Fannie and Freddie’s risk taking and footprints that were added in January 2021 to agreements between Treasury and the GSEs, known as the Preferred Stock Purchase Agreements (PSPAs). The next day, FHFA proposed reducing the amount of capital required to be held by Fannie and Freddie to absorb future losses.

In his letter to Secretary Yellen, Ranking Member Toomey expressed particular concern over the decision to allow the GSEs to take on higher risk loans, especially as the U.S. is already facing a housing supply shortage and the rise in home prices is vastly outpacing income growth.

“Besides increasing the risk of another bailout, this suspension will likely put less creditworthy borrowers into highly leveraged homeownership at what could be the market’s peak,” Toomey wrote. “That will not materially change homeownership rates, but it will put low-income, first-time, and minority borrowers at risk of foreclosures that again wipe out generational wealth.”

As the senator points out, in September 2020, the Financial Stability Oversight Council (FSOC) concluded that a material reduction in the GSEs’ capital requirements could pose a risk to financial stability.

On September 14, Ranking Member Toomey criticized the Biden administration’s decision to roll back taxpayer protections against Fannie and Freddie losses, saying in a statement:

“Housing is cyclical, and so are failed liberal housing policies.

“In the 2000s, flawed federal policy steered many borrowers, especially low and middle-income borrowers, into purchasing homes they could not afford. When the bubble burst, those homebuyers, many of whom were minorities and first-time homeowners, suffered severe losses in generational wealth.

“Fifteen years later, the Biden administration is repeating the very same mistakes. Relaxing restrictions on risky mortgages when housing supply is near a record low risks overheating an already-hot market. Unfortunately, we know how this ends: wiped-out homeowners, and another wave of taxpayer bailouts.”

To read Senator Toomey’s letter to Treasury, click here.

To read Senator Toomey’s letter to FHFA, click here.