[House Report 115-648]
[From the U.S. Government Publishing Office]


115th Congress    }                                    {        Report
                        HOUSE OF REPRESENTATIVES
 2d Session       }                                    {       115-648

======================================================================



 
               GSE JUMPSTART REAUTHORIZATION ACT OF 2017

                                _______
                                

 April 24, 2018.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

Mr. Hensarling, from the Committee on Financial Services, submitted the 
                               following

                              R E P O R T

                             together with

                             MINORITY VIEWS

                        [To accompany H.R. 4560]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 4560) to suspend contributions by Fannie Mae and 
Freddie Mac to the Housing Trust Fund during any period that 
the full required dividend payments under the Senior Preferred 
Stock Purchase Agreements for such enterprises are not made, 
and for other purposes, having considered the same, report 
favorably thereon without amendment and recommend that the bill 
do pass.

                          Purpose and Summary

    On December 6, 2017, Representative French Hill introduced 
H.R. 4560, the ``GSE Jumpstart Act Reauthorization'', which 
would reauthorize the GSE Jumpstart Act of 2015 through January 
1, 2019. As enacted into law, the GSE Jumpstart Act of 2015, 
originally sponsored by Senators Corker (R-TN) and Warner (D-
VA), prohibits the sale of Treasury-owned senior preferred 
shares in Government Sponsored Enterprises (GSEs), Fannie Mae 
and Freddie Mac, without congressional approval. Furthermore, 
the 2015 law expresses the sense of Congress that Congress 
``should pass and the President should sign into law 
legislation determining the future of Fannie Mae and Freddie 
Mac, and that notwithstanding the expiration of subsection (b), 
the Secretary should not sell, transfer, relinquish, liquidate, 
divest, or otherwise dispose of any outstanding shares of 
senior preferred stock acquired pursuant to the Senior 
Preferred Stock Purchase Agreement until such legislation is 
enacted.''
    H.R. 4560 would further prohibit payments to the Housing 
Trust Fund and the Capital Magnet Fund for any fiscal year in 
which the GSEs fail to pay any portion of their scheduled 
dividends to Treasury during that year. Specifically, for any 
period that the GSEs do not make their full required dividend 
payments to taxpayers (via the U.S. Treasury through the Senior 
Preferred Stock Purchase Agreements ``PSPAs''), the legislation 
would suspend the GSEs' contributions to the Housing Trust Fund 
and the Capital Magnet Fund for that fiscal year.

                  Background and Need for Legislation

    The goal of H.R. 4560 is to reauthorize the GSE Jumpstart 
Act of 2015 for one additional year and to ensure that the GSEs 
pay their full required dividend payment to taxpayers before 
allocating funds to the Housing Trust Fund and the Capital 
Magnet Fund.
    Pursuant to the Third Amendment to the PSPAs, the 
Applicable Capital Reserve Amount for the GSEs will fall to $0 
on January 1, 2018. After this date, the GSEs will not retain 
any capital and their entire net worth amount will be swept to 
the U.S. Treasury on behalf of the taxpayers. Former Federal 
Housing Finance Agency (FHFA) Director Ed DeMarco said in 2012 
the purpose of the Third Amendment to the PSPAs was to ``ensure 
stability'' and ``fully capture financial benefits for 
taxpayers.''\1\
---------------------------------------------------------------------------
    \1\``Changes to Fannie Mae and Freddie Mac Preferred Stock Purchase 
Agreements,'' Statement by Acting FHFA Director Ed DeMarco, October 17, 
2012, available at: https://www.fhfa.gov/Media/PublicAffairs/Pages/
Statement-of-FHFA-Acting-Director-Edward-J-DeMarco-on-Changes-to-
Fannie-Mae-and-Freddie-Mac-Preferred-Stock-Purchas.aspx.
---------------------------------------------------------------------------
    Although the GSEs' capital would fall to $0 on January 1, 
2018, the GSEs still have a $258 billion line of credit with 
the U.S. Treasury. According to the Congressional Budget 
Office, that $258 billion line of credit already ``serves as an 
effective capital cushion and ensures that, under most 
circumstances, the GSEs would be able to pay investors who held 
their debt and mortgage backed securities.''\2\
---------------------------------------------------------------------------
    \2\``The Effects of Increasing Fannie Mae's and Freddie Mac's 
Capital,'' Congressional Budget Office, October 2016, p. 7, available 
at: https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/
reports/52089-gse-report.pdf.
---------------------------------------------------------------------------
    In the estimation of CBO, allowing the GSEs to retain 
earnings would in effect convert a potential future draw on 
federal funds into an immediate one.\3\ Furthermore, CBO notes 
that ``the explicit federal backing--and ultimately the risk 
that taxpayers bear--would effectively be increased by the 
amount of earnings that the GSEs retained.''\4\
---------------------------------------------------------------------------
    \3\Id.
    \4\Id.
---------------------------------------------------------------------------
    On December 21, 2017, FHFA Director Melvin Watt announced 
the FHFA and the Treasury Department reached an agreement to 
deprive taxpayers of the compensation to which they are legally 
entitled under the ongoing GSE conservatorship. This agreement 
alters the practice that has been in place for more than half a 
decade to determine how to compensate taxpayers for the risk of 
their continued financial backing of these failed mortgage 
companies. Under the December 21, 2017 agreement, the GSEs 
increase the allowable amount of net capital they can hold in 
2018 and beyond from zero dollars to $3 billion each--revenue 
that should be going to taxpayers--meaning the ongoing cost of 
the conservatorship will increase to $119.1 billion for Fannie 
Mae and $74.3 billion for Freddie Mac. This FHFA announcement 
makes clear that H.R. 4560 is absolutely necessary to protect 
taxpayers.

                                Hearings

    The Committee on Financial Services held a hearing 
examining matters relating to H.R. 4560 on October 3, 2017.

                        Committee Consideration

    The Committee on Financial Services met in open session on 
December 13, 2017, and ordered H.R. 4560 to be reported 
favorably to the House as amended by a recorded vote of 33 yeas 
to 26 nays (recorded vote no. FC-134), a quorum being present.

                            Committee Votes

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the motion to report legislation and amendments thereto.
    The first recorded vote was on an amendment, no. 1, offered 
by Ranking Members Waters to strike Section 3 of H.R. 4560. The 
amendment was NOT AGREED TO by a recorded vote of 26 ayes and 
34 nays (Record vote no. FC-133). The second recorded vote 
ordered H.R. 4560 to be reported favorably to the House as 
amended by a recorded vote of 33 yeas to 27 nays. (Record vote 
no. FC-134), a quorum being present.


                      Committee Oversight Findings

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the findings and recommendations of 
the Committee based on oversight activities under clause 
2(b)(1) of rule X of the Rules of the House of Representatives, 
are incorporated in the descriptive portions of this report.

                    Performance Goals and Objectives

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House of Representatives, the Committee states that H.R.4560 
will protect taxpayers by requiring the Director of the Federal 
Housing Finance Agency to suspend allocations by a Government 
Sponsored Enterprise (GSE) to the Housing Trust Fund and the 
Capital Magnet Fund if such GSE does not make its full required 
dividend payment to the U.S. Treasury pursuant to the Third 
Amendment of Treasury's Senior Preferred Stock Purchase 
Agreement with each GSE.

   New Budget Authority, Entitlement Authority, and Tax Expenditures

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee adopts as its 
own the estimate of new budget authority, entitlement 
authority, or tax expenditures or revenues contained in the 
cost estimate prepared by the Director of the Congressional 
Budget Office pursuant to section 402 of the Congressional 
Budget Act of 1974.

                 Congressional Budget Office Estimates

    Pursuant to clause 3(c)(3) of rule XIII of the Rules of the 
House of Representatives, the following is the cost estimate 
provided by the Congressional Budget Office pursuant to section 
402 of the Congressional Budget Act of 1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                  Washington, DC, February 8, 2018.
Hon. Jeb Hensarling,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 4560, the GSE 
Jumpstart Reauthorization Act of 2017.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Aurora 
Swanson.
            Sincerely,
                                                Keith Hall,
                                                          Director.
    Enclosure.

H.R. 4560--GSE Jumpstart Reauthorization Act of 2017

    H.R. 4560 would prohibit the U.S. Treasury from selling the 
senior preferred stock issued by Fannie Mae and Freddie Mac 
until January 1, 2019. The bill also would direct those 
entities to suspend annual contributions to affordable housing 
trust funds if they withhold any of their profits from the 
Treasury during any quarter in a calendar year.
    Using information from the agencies' regulator, the Federal 
Housing Finance Agency (FHFA), CBO estimates that enacting the 
bill would not affect the federal budget; therefore, pay-as-
you-go procedures do not apply.
    In recent years, FHFA has directed Fannie Mae and Freddie 
Mac to contribute to affordable housing trust funds. Annual 
contributions to those funds have averaged about $300 million 
in the recent past. FHFA can direct Fannie Mae or Freddie Mac 
to suspend contributions if either entity has a negative net 
worth. Under H.R. 4560, if either entity withheld profits from 
the Treasury for any quarter during a calendar year, it would 
be required to suspend contributions to the trust funds for 
that year.
    CBO estimates that implementing H.R. 4560 would not affect 
contributions to the affordable housing trust funds because, 
according to FHFA, there are no plans to direct the entities to 
withhold future profits from the Treasury.
    In addition, according to FHFA, the federal government has 
no plans to sell the preferred stock issued by the entities. 
Therefore, prohibiting the sale of the preferred stock until 
after January 1, 2019, would not affect the federal budget.
    On December 21, 2017, FHFA and the Secretary of the 
Treasury directed Fannie Mae and Freddie Mac to withhold some 
of their profits from the Treasury and to establish capital 
reserves of $3 billion each. The entities must maintain those 
capital reserves and continue to send any excess quarterly 
profits to the Treasury. Withholding profit solely for that 
purpose would not require the entities to suspend contributions 
to the affordable housing trust funds under the bill because 
the direction to establish the capital reserves occurred before 
enactment of H.R. 4650 and, under the bill, would be considered 
a part of the existing agreement between Fannie Mae, Freddie 
Mac, and the Department of the Treasury that determines how the 
entities' profits are used.
    CBO estimates that enacting the bill would not increase net 
direct spending or on-budget deficits in any of the four 
consecutive 10-year periods beginning in 2028.
    H.R. 4560 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act.
    The CBO staff contact for this estimate is Aurora Swanson. 
The estimate was approved by H. Samuel Papenfuss, Deputy 
Assistant Director for Budget Analysis.

                       Federal Mandates Statement

    This information is provided in accordance with section 423 
of the Unfunded Mandates Reform Act of 1995.
    The Committee has determined that the bill does not contain 
Federal mandates on the private sector. The Committee has 
determined that the bill does not impose a Federal 
intergovernmental mandate on State, local, or tribal 
governments.

                      Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                  Applicability to Legislative Branch

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of the section 
102(b)(3) of the Congressional Accountability Act.

                         Earmark Identification

    With respect to clause 9 of rule XXI of the Rules of the 
House of Representatives, the Committee has carefully reviewed 
the provisions of the bill and states that the provisions of 
the bill do not contain any congressional earmarks, limited tax 
benefits, or limited tariff benefits within the meaning of the 
rule.

                    Duplication of Federal Programs

    In compliance with clause 3(c)(5) of rule XIII of the Rules 
of the House of Representatives, the Committee states that no 
provision of the bill establishes or reauthorizes: (1) a 
program of the Federal Government known to be duplicative of 
another Federal program; (2) a program included in any report 
from the Government Accountability Office to Congress pursuant 
to section 21 of Public Law 111-139; or (3) a program related 
to a program identified in the most recent Catalog of Federal 
Domestic Assistance, published pursuant to the Federal Program 
Information Act (Pub. L. No. 95-220, as amended by Pub. L. No. 
98-169).

                   Disclosure of Directed Rulemaking

    Pursuant to section 3(i) of H. Res. 5, (115th Congress), 
the following statement is made concerning directed 
rulemakings: The Committee estimates that the bill requires no 
directed rulemakings within the meaning of such section.

             Section-by-Section Analysis of the Legislation


Section 1. Short title

    This Section cites H.R. 4560 as the ``GSE Jumpstart 
Reauthorization Act of 2017''

Section 2. Extension of limitation on sale of preferred stock

    This Section extends for one additional year the ``GSE 
Jumpstart Act of 2015'' as enacted into law. Specifically, 
Section 2 strikes ``January 1, 2018'' and inserts ``January 1, 
2019'' in subsection (b) of section 702 of division O of the 
Consolidated Appropriations Act, 2016 (Public Law 114-113; 129 
Stat. 3025).

Section 3. Conservation of capital during periods of low net worth

    This Section broadens the authority of the Director of the 
Federal Housing Finance Agency (FHFA) with respect to 
suspending allocations to the Housing Trust Fund and Capital 
Magnet Funds. Specifically, Section 3 would require the 
Director to suspend allocations made by the GSEs to these Funds 
``for a fiscal year, if, for any Dividend Period ending during 
such fiscal year, the holders of outstanding shares of Senior 
Preferred Stock of such enterprise do not receive cumulative 
cash dividends in an equal amount to the Dividend Amount for 
such Dividend Period.''

         Changes in Existing Law Made by the Bill, as Reported

    In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, and existing law in which no 
change is proposed is shown in roman):

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, and existing law in which no 
change is proposed is shown in roman):

CONSOLIDATED APPROPRIATIONS ACT, 2016

           *       *       *       *       *       *       *



DIVISION O--OTHER MATTERS

           *       *       *       *       *       *       *



                               TITLE VII


FINANCIAL SERVICES

           *       *       *       *       *       *       *



SEC. 702. LIMITATIONS ON SALE OF PREFERRED STOCK.

  (a) Definitions.--In this section:
          (1) Secretary.--The term ``Secretary'' means the 
        Secretary of the Treasury.
          (2) Senior preferred stock purchase agreement.--The 
        term ``Senior Preferred Stock Purchase Agreement'' 
        means--
                  (A) the Amended and Restated Senior Preferred 
                Stock Purchase Agreement, dated September 26, 
                2008, as such Agreement has been amended on May 
                6, 2009, December 24, 2009, and August 17, 
                2012, respectively, and as such Agreement may 
                be further amended and restated, entered into 
                between the Department of the Treasury and each 
                enterprise, as applicable; and
                  (B) any provision of any certificate in 
                connection with such Agreement creating or 
                designating the terms, powers, preferences, 
                privileges, limitations, or any other 
                conditions of the Variable Liquidation 
                Preference Senior Preferred Stock of an 
                enterprise issued or sold pursuant to such 
                Agreement.
  (b) Limitations on Sale of Preferred Stock.--Notwithstanding 
any other provision of law or any provision of the Senior 
Preferred Stock Purchase Agreement, until at least [January 1, 
2018] January 1, 2019, the Secretary may not sell, transfer, 
relinquish, liquidate, divest, or otherwise dispose of any 
outstanding shares of senior preferred stock acquired pursuant 
to the Senior Preferred Stock Purchase Agreement, unless 
Congress has passed and the President has signed into law 
legislation that includes a specific instruction to the 
Secretary regarding the sale, transfer, relinquishment, 
liquidation, divestiture, or other disposition of the senior 
preferred stock so acquired.
  (c) Sense of Congress.--It is the Sense of Congress that 
Congress should pass and the President should sign into law 
legislation determining the future of Fannie Mae and Freddie 
Mac, and that notwithstanding the expiration of subsection (b), 
the Secretary should not sell, transfer, relinquish, liquidate, 
divest, or otherwise dispose of any outstanding shares of 
senior preferred stock acquired pursuant to the Senior 
Preferred Stock Purchase Agreement until such legislation is 
enacted.

           *       *       *       *       *       *       *

                              ----------                              


FEDERAL HOUSING ENTERPRISES FINANCIAL SAFETY AND SOUNDNESS ACT OF 1992

           *       *       *       *       *       *       *



TITLE XIII--GOVERNMENT SPONSORED ENTERPRISES

           *       *       *       *       *       *       *


Subtitle A--Supervision and Regulation of Enterprises

           *       *       *       *       *       *       *


PART 2--ADDITIONAL AUTHORITIES OF THE DIRECTOR

           *       *       *       *       *       *       *


Subpart B--Housing Goals

           *       *       *       *       *       *       *


SEC. 1337. AFFORDABLE HOUSING ALLOCATIONS.

  (a) Set Aside and Allocation of Amounts by Enterprises.--
Subject to subsection (b), in each fiscal year--
          (1) the Federal Home Loan Mortgage Corporation 
        shall--
                  (A) set aside an amount equal to 4.2 basis 
                points for each dollar of the unpaid principal 
                balance of its total new business purchases; 
                and
                  (B) allocate or otherwise transfer--
                          (i) 65 percent of such amounts to the 
                        Secretary of Housing and Urban 
                        Development to fund the Housing Trust 
                        Fund established under section 1338; 
                        and
                          (ii) 35 percent of such amounts to 
                        fund the Capital Magnet Fund 
                        established pursuant to section 1339; 
                        and
          (2) the Federal National Mortgage Association shall--
                  (A) set aside an amount equal to 4.2 basis 
                points for each dollar of unpaid principal 
                balance of its total new business purchases; 
                and
                  (B) allocate or otherwise transfer--
                          (i) 65 percent of such amounts to the 
                        Secretary of Housing and Urban 
                        Development to fund the Housing Trust 
                        Fund established under section 1338; 
                        and
                          (ii) 35 percent of such amounts to 
                        fund the Capital Magnet Fund 
                        established pursuant to section 1339.
  (b) Suspension of Contributions.--[The Director] 
Notwithstanding any other provision of law, the Director shall 
temporarily suspend allocations under subsection (a) [by an 
enterprise upon a finding] by an enterprise--
          (1) upon a finding  by the Director that such 
        allocations--
                  [(1)] (A) are contributing, or would 
                contribute, to the financial instability of the 
                enterprise;
                  [(2)] (B) are causing, or would cause, the 
                enterprise to be classified as 
                undercapitalized; or
                  [(3)] (C) are preventing, or would prevent, 
                the enterprise from successfully completing a 
                capital restoration plan under section 
                1369C[.]; or
          (2) for a fiscal year, if, for any Dividend Period 
        ending during such fiscal year, the holders of 
        outstanding shares of Senior Preferred Stock of such 
        enterprise do not receive cumulative cash dividends in 
        an amount equal to the Dividend Amount for such 
        Dividend Period.
For purposes of paragraph (2), the terms ``Dividend Period'', 
``Senior Preferred Stock'', and ``Dividend Amount'' shall, with 
respect to an enterprise, have the meanings given such terms 
for purposes of the Amended and Restated Senior Preferred Stock 
Purchase Agreement, dated September 26, 2008, and entered into 
between the Department of the Treasury and such enterprise, as 
such Agreement has been amended on May 6, 2009, December 24, 
2009, and August 17, 2012, but such meanings shall not take 
into consideration any additional amendment to such Agreement 
made after the date of the enactment of the GSE Jumpstart 
Reauthorization Act of 2017.
  (c) Prohibition of Pass-Through of Cost of Allocations.--The 
Director shall, by regulation, prohibit each enterprise from 
redirecting the costs of any allocation required under this 
section, through increased charges or fees, or decreased 
premiums, or in any other manner, to the originators of 
mortgages purchased or securitized by the enterprise.
  (d) Enforcement of Requirements on Enterprise.--Compliance by 
the enterprises with the requirements under this section shall 
be enforceable under subpart C. Any reference in such subpart 
to this part or to an order, rule, or regulation under this 
part specifically includes this section and any order, rule, or 
regulation under this section.
  (e) Required Amount for HOPE Reserve Fund.--Of the aggregate 
amount allocated under subsection (a), 25 percent shall be 
deposited into a fund established in the Treasury of the United 
States by the Secretary of the Treasury for such purpose.
  (f) Limitation.--No funds under this title may be used in 
conjunction with property taken by eminent domain, unless 
eminent domain is employed only for a public use, except that, 
for purposes of this section, public use shall not be construed 
to include economic development that primarily benefits any 
private entity.

           *       *       *       *       *       *       *


                             MINORITY VIEWS

    H.R. 4560 would require the Director of the Federal Housing 
Finance Agency (FHFA) to suspend contributions to the National 
Housing Trust Fund (HTF) and the Capital Magnet Fund (CMF) for 
any fiscal year in which Fannie Mae or Freddie Mac 
(collectively, the Enterprises) withhold any dividends owed to 
Treasury. On December 21, 2017, the FHFA Director and Treasury 
Secretary announced that they will allow the Enterprises to 
each withhold $3 billion from their 2017 fourth quarter 
dividend payments in order to retain modest capital reserves. 
This decision will help the Enterprises absorb small quarterly 
losses moving forward, thereby reducing the chances that either 
Enterprise will need an additional draw from Treasury. However, 
this bill would likely require suspension of funding for the 
HTF and CMF for 2018, and would likely require suspension of 
funding for these programs in every year thereafter in which 
the Enterprises retain any level of capital. In short, this 
bill is a thinly disguised attack on key affordable housing 
programs that have long been a priority for Democrats.
    We support the decision made by the FHFA Director and the 
Treasury Secretary to allow the Enterprises to retain modest 
capital reserves. This was an important step to protect the 
safety and soundness of our housing finance system, and there 
is no need for Congress to intervene at this time. Under 
existing law, the FHFA Director is already required to suspend 
contributions if he believes that such a decision is warranted 
on the basis of the financial instability of the Enterprises, 
or other reasons stipulated in statute. The Enterprises are in 
strong financial condition, having consistently reported net 
yearly profits since 2012. Further, our country is in the midst 
of one of the worst rental housing crises that we have ever 
seen, with approximately half of all renters paying over 30 
percent of their income on rent, and approximately one quarter 
of all renters paying over 50 percent of their income on rent. 
This is simply not She time to arbitrarily halt funding for key 
affordable housing programs.
    During the Committee's consideration of H.R. 4560, Ranking 
Member Waters offered an amendment to strip the harmful 
provisions of this bill (Section 3), while preserving the 
provision that would simply extend the Jumpstart GSE Reform Act 
by an additional year (Section 2). This amendment was 
unanimously supported by Committee Democrats, and unanimously 
rejected by Committee Republicans. H.R. 4560 does nothing to 
support the housing finance system, and instead threatens 
funding for key affordable housing programs. For these reasons 
we oppose H.R. 4560.

                                   Maxine Waters.
                                   Joyce Beatty.
                                   Daniel T. Kildee.
                                   Juan Vargas.
                                   Michael E. Capuano.
                                   Carolyn B. Maloney.
                                   Nydia Velazquez.
                                   Al Green.
                                   Emanuel Cleaver.
                                   Gwen Moore.
                                   Stephen F. Lynch.
                                   Brad Sherman.
                                   Keith Ellison.

                                  [all]