Federal Government Now Using Fannie and Freddie to Extract 'Revenues' from Homeowners

Government bureaucrats seem to find all kinds of ways to extract “revenue” from citizens and, increasingly, their preferred avenues are such that they mask these big government motives. That is certainly the case behind new changes to Fannie Mae and Freddie Mac – the Government Sponsored Enterprises (GSEs) that still owe American taxpayers $142 billion.

In August, the Treasury Department announced that it was changing the fundamental structure of these entities, just as the GSEs began to report quarterly profits. No longer will the government require Fannie and Freddie to pay a 10 percent annual dividend, rather the companies owe their entire quarterly profits to the government. In times when there are no profits, nothing is owed – and that is the catch.

Instead of guaranteeing taxpayers are repaid for their loans through regular installments, the Treasury’s move does the opposite. Mark Calabria from the Cato Institute notes that the GSEs “have never had a year where their profits would have covered the dividend payments” and this change “definitely means the taxpayer’s potential recoupment is lower.” Worse yet, the Treasury has put Fannie and Freddie’s other creditors ahead of the U.S. taxpayers.

Not only does this move diminish the probability that taxpayers will ever be paid back for their generosity, it also gives the government a source of revenue that it can secretly pass on – this time to unsuspecting homeowners. Homeowners are already financing the payroll tax holiday. Now the federal regulator in charge of the GSEs is requiring them to hike some fees. And because of the earlier Treasury decision, the proceeds from those fee hikes go to the federal government. Does anyone in their right mind think the federal government will use those fee proceeds to lighten the load on American taxpayers? Of course not. Washington will spend that money as soon as they have it, if the politicians haven’t spent it already.

It’s not hard to see where this is going. Representative Spencer Baucus calls the new arrangement a “permanent, off-budget source of funding for housing that [the Administration] will control.”

This new source of revenue is dangerous for the American taxpayer and for homeowners. Fannie and Freddie control more than $5 trillion in home mortgages, which touch 31 million homeowners. That equates to 90 percent of all new residential loans.

Now that the government’s hand is in the cookie jar, it’s unlikely that there will be anything more than crumbs left for taxpayers.