The wasteful spending at Fannie Mae and Freddie Mac must end

As the 10-year anniversary on Sept. 6, 2018 of placing Fannie Mae and Freddie Mac into conservatorship draws closer, it is long past time for meaningful reform and an end to the wasteful spending and lack of transparency that permeate the organizations.

The Federal Housing Financial Agency (FHFA), which regulates Fannie Mae and Freddie Mac, has not been the strong independent overseer that Congress envisioned. It has failed to stop the government-sponsored entities (GSEs) from overspending, overreaching and crowding out private market participants in the housing finance system. If the FHFA will not serve as Fannie and Freddie’s necessary warden, then Congress must.

{mosads}Fortunately, the House Financial Services Committee is holding an oversight hearing on the FHFA this week. There are many questions that should be addressed and answered at the hearing. The committee is undoubtedly aware that the GSEs are taking reckless actions that look very similar to what occurred prior to the housing market crash and 2008 financial crisis.

The financial crisis and its aftermath required a $187 billion taxpayer-funded bailout of the GSEs. In February, the Fannie Mae and Freddie Mac were forced to request a bailout of $4 billion. Last year, an FHFA stress test report on the GSEs found that they may need up to $100 billion in new bailout money if there are changes in interest rates or any serious economic volatility. Despite the prior bailouts and the potential for a significant future bailout, the GSEs continue to engage in excessive spending.

The construction of Fannie Mae’s new headquarters is enough to make any taxpayer’s head spin. According to a 2017 FHFA inspector general report, the project’s cost skyrocketed by 53 percent from January 2015 to March 2016. This reckless spending included a $250,000 chandelier and $1.2 million worth of “decorative wood slatted ceilings.” This sort of opulence is appalling and should leave taxpayers enraged.

The report noted that the FHFA official responsible for overseeing the project was “unaware of escalating costs” and that the projected cost of the construction presented significant financial and reputational risks that warranted “immediate, sustained and comprehensive oversight” by the FHFA. Yet, just a few blocks from the White House, cranes continue to adorn the massive building with panes of shiny glass and the beginnings of a three-tiered walkway between the two buildings. Construction is bustling throughout the day.

Fannie Mae’s reckless spending on its new headquarters and the lackadaisical oversight by its regulator is alarming and should be the subject of pointed questions for the FHFA inspector general at the April 12 hearing. Rep. Ed Royce (R-Calif.) sees parallels between what is happening today and the type of fiscal behavior that characterized Fannie Mae in the years prior to its financial implosion and conservatorship in 2008.

Regarding the cost overruns and lack of transparency related to the headquarters building in 2016, Royce stated, “It’s paradoxical that an organization overseeing a huge chunk of the mortgage market can’t get a simple construction project right.” He continued, “It’s time to put aside the conversation about releasing this enterprise and instead refocus on how to wind it down.”

The GSEs have shown over the past 10 years that they have not learned their lesson and their regulator is not up to the task of rigorously overseeing them. This pattern could once again expose the American taxpayers and the government to undue risk. The hearing on April 12 is an opportunity for Congress to rein in the wasteful spending and lack of transparency at Fannie Mae and Freddie Mac. It is time to embark on meaningful reform to fix this broken system and help prevent another massive bailout.

Leslie K. Paige is vice president of policy and communications for Citizens Against Government Waste.