Congress Must Protect Taxpayers From The Menace Of Fannie And Freddie
Congress has a responsibility for oversight of the Executive branch and hold agency officials accountable for their actions. The House Financial Services Oversight Subcommittee is today holding a hearing on the Federal Housing Finance Agency, the regulator of the housing government-sponsored enterprises (GSEs). Chairman Wagner and her colleagues on the Congressional panel need to take the lead on getting answers on behalf of taxpayers. From Fannie Mae’s new headquarters to the prospect of another bailout of the GSEs, everyday Americans who pay the government’s bills have every right to know — and every reason to be concerned — about the future these federally-backed entities face.
Government policies like the affordable housing law and softened credit standards for subprime borrowers grew the housing bubble that wrecked the economy in the late 2000s. As a result, Fannie and Freddie suffered large losses and were on the brink of going under. To prop them up, lawmakers wired them a $187 billion infusion of Treasury funding and placed them into conservatorship, which essentially meant a government takeover of the secondary mortgage market — a foundation of the housing finance system. Since little reform has taken place, the GSEs have remained in conservatorship for a decade, and the federal government is explicitly responsible for their future obligations if they get into trouble again. As a result, how these entities operate, conduct business, and spend their funds matters to taxpayers as well as Fannie’s and Freddie’s shareholders.
A case in point is Fannie’s lavish new digs. Back in 2015 FHFA authorized Fannie Mae to construct a new downtown Washington D.C. headquarters, just 4 miles from their current office. However, the construction of this building has been beleaguered by massive amounts of wasteful spending.
In just over a year since construction first started, construction costs alone have zoomed from $115 million to $171 million, a 50 percent jump. The leasing arrangements add more to that tab, now totaling roughly $770 million over the lifespan of the project. After receiving an anonymous tip regarding some controversial purchases, the FHFA Office of Inspector General (OIG) launched an official investigation into this scheme, and yielded troublesome results.
The OIG report finds that “the FHFA official responsible for overseeing the build-out was unaware of the escalating costs” and was effectively asleep at the wheel. Because of this, OIG believes that the “projected cost of the buildout presented significant financial and reputational risks that warranted ‘immediate, sustained, and comprehensive oversight’ from FHFA.” A strong oversight system is fundamental for taxpayer protection, but FHFA has failed in this regard.
The report also uncovered close to $32 million in “questionable purchases” for extravagant features. Such purchases include $7.7 million for interior finishes like wood veneers, decorative wood paneling, and decorative tiles. Other purchases outlays include $4.1 million for a cafeteria that is likely to be “underutilized,” $2 million for a third (!) glass pedestrian bridge, $250,000 for a single chandelier, and undisclosed funds for multiple spiral staircases.
Fannie Mae is no stranger when it comes to controversy surrounding an extravagant headquarters. Their current beautiful red-brick office was dubbed “Versailles West,” as the interior space was so extravagant that senior Department of Housing and Urban Development officials noted “It’s what Versailles would have looked like if the French king had more money.” These purchases may be an acceptable for a private firm seeking to impress its customers or clients. It is not appropriate for an entity now under government control to run up charges that could very well show up in a weaker bottom line taxpayers may have to cover.
This situation leads into a set of broader questions, many of which should be asked at today’s hearing and ones to follow. Are the GSEs managing other parts of their taxpayer-backed operations efficiently, such as personnel costs? Are Fannie and Freddie properly limited in their functions, or are they actively pursuing “mission creep”? What should the overall role of government in the housing finance sector look like? Fannie and Freddie own or guarantee more than $5 trillion worth of mortgages in the U.S. — all explicitly backed by taxpayers, and well exceeding pre-conservatorship levels. While numerous GSE reform proposals have been placed on the table, Congress and the executive branch must do more to develop and implement procedures for limiting systemic risk.
Though today’s hearing won’t solve the decade-long quandary of Fannie and Freddie, it is another step toward fostering a housing finance system that prioritizes private capital without having to be buoyed by massive taxpayer funds to stay afloat when the market is down. In the meantime, oversight and transparency on the GSEs’ actions are fundamental to defending the interests of taxpayers from poorly designed policy and excessive spending.
Thomas Aiello is a government and policy affairs associate with the National Taxpayers Union, a nonprofit dedicated to protecting taxpayers at all levels of government.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller.