.

Proposals to Reform Fannie Mae and Freddie
Mac in the 112th Congress
N. Eric Weiss
Specialist in Financial Economics
May 18, 2011
Congressional Research Service
7-5700
www.crs.gov
R41822
CRS Report for Congress
P
repared for Members and Committees of Congress
c11173008

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Proposals to Reform Fannie Mae and Freddie Mac in the 112th Congress

Summary
As households and taxpayers, Americans have a large stake in the future of Fannie Mae and
Freddie Mac. Homeowners and potential homeowners indirectly depend on Fannie Mae and
Freddie Mac, which at the end of 2010 backed and guaranteed home loans accounting for nearly
half of the outstanding home mortgages in the nation.
Taxpayers have a large investment in Fannie Mae and Freddie Mac. Through the end of 2010, the
Department of the Treasury kept the two insolvent companies in business by providing more than
$150 billion in support. Based on past performance, it is not clear how the enterprises will be able
to repay Treasury out of future earnings. In addition to the $150 billion in direct support, Treasury
and the Federal Reserve (the Fed) purchased nearly $1.4 trillion in GSE-issued and guaranteed
mortgage-backed securities (MBS).
These two entities are stockholder-owned, congressionally chartered companies that purchase
home mortgages, commonly called government-sponsored enterprises (GSEs). In 2008,
increasing mortgage delinquencies and the general financial crisis weakened the two enterprises
to the point that they agreed to a voluntary takeover by the federal government known as
conservatorship.
This report summarizes and analyzes bills introduced in the 112th Congress that seek to enhance
the public accountability of the two enterprises. The bills covered are H.R. 31, H.R. 408, H.R.
463, H.R. 1182, H.R. 1221, H.R. 1222, H.R. 1223, H.R. 1224, H.R. 1225, H.R. 1226, H.R. 1227,
S. 178, and S. 693. Some seek to reduce the cost to the government, while others seek to change
the enterprises’ charters if or when they leave conservatorship. None of the bills introduced
proposes government actions to replace the two enterprises.
Because Fannie Mae and Freddie Mac are under conservatorship, Congress has unusual leverage
to direct the Federal Housing Finance Agency (FHFA), which is both their regulator and
conservator, to implement policy changes. Currently, FHFA has unusual control in that it both
regulates and manages Fannie Mae and Freddie Mac.
This report will be updated as warranted.

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Proposals to Reform Fannie Mae and Freddie Mac in the 112th Congress

Contents
Overview .................................................................................................................................... 1
Financial Difficulties................................................................................................................... 3
Narrowly Focused Proposed Legislation...................................................................................... 4
Broadly Focused Proposed Legislation........................................................................................ 9

Tables
Table 1. Summary and Comparison of GSE Reform Proposals .................................................... 2
Table 2. Comparison of Portfolio Caps ........................................................................................ 7
Table A-1. Summary of Legislative Action ................................................................................ 12

Appendixes
Appendix. Legislative Action .................................................................................................... 12

Contacts
Author Contact Information ...................................................................................................... 13

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Proposals to Reform Fannie Mae and Freddie Mac in the 112th Congress

Overview
The 112th Congress is considering legislative proposals to limit the government’s present and
future risk from Fannie Mae and Freddie Mac. The two entities are government-sponsored
enterprises (GSEs)—congressionally chartered, stockholder-owned companies with special legal
privileges and special obligations to facilitate the flow of mortgage funds. Their basic business
includes purchasing mortgages that have been issued by others, pooling and guaranteeing the
mortgages into mortgage-backed securities (MBS), and either selling the MBS to investors or
holding the MBS “in portfolio” as an investment. At the end of 2010, Fannie Mae and Freddie
Mac together were responsible for nearly half of the nation’s outstanding residential mortgage
debt.1
In 2008, the enterprises’ capital proved to be inadequate as mortgage defaults and foreclosures
increased more than anticipated, and the cost of borrowing to finance their investment portfolios
increased. To support the mortgage markets during the financial crisis of 2008-2009 and to keep
these enterprises in business, the U.S. Department of the Treasury has purchased more than $150
billion of special preferred stock.2 In addition, Treasury and the Federal Reserve (the Fed) have
provided mortgage market support by purchasing nearly $1.4 trillion in MBS from investors in
the open market.
Treasury’s purchase of more than $150 billion in preferred stock is one element in contracts that
require the enterprises to pay an annual 10% cash dividend on the Treasury funds.3 Based on their
past histories, it is not clear that the enterprises could survive without Treasury’s continued
support.
Some of the bills that have been introduced are likely to reduce the enterprises’4 future size by
reducing or eliminating certain advantages conferred by their charters. More specifically, one
category of proposed legislation (e.g., H.R. 1222) would increase their cost of doing business. It
is likely that the increased costs would be passed onto the enterprises’ business partners in the
form of lower prices for mortgages and higher interest rates to borrowers. This would potentially
allow other securitizers to compete more effectively with the enterprises.
A second group of bills (e.g., H.R. 1227) would impose new limitations on the types of mortgages
that the enterprises can purchase, leaving more of the mortgage market to their competition.

1U.S. Federal Housing Finance Agency, Enterprise Share of Residential Mortgage Debt Outstanding, 1990-2010 (XLS
file), available at http://www.fhfa.gov/webfiles/20543/
Enterprise%20Share%20of%20Residential%20Mortgage%20Debt%20Outstanding%201990%20-%202010.xls.
2 U.S. Federal Housing Finance Agency, Data as of March 31, 2011 on Treasury and Federal Reserve Purchase
Programs for GSE and Mortgage-Related Securities, available at http://www.fhfa.gov/webfiles/20758/
TreasFED033120111.pdf.
3 U.S. Department of Treasury, Amended and Restated Senior Preferred Stock Purchase Agreement, September 26,
2008 available at http://www.treasury.gov/press-center/press-releases/Documents/
seniorpreferredstockpurchaseagreementfrea.pdf and U.S. Department of Treasury, Amended and Restated Senior
Preferred Stock Purchase Agreement, September 26, 2008 available at http://www.treasury.gov/press-center/press-
releases/Documents/seniorpreferredstockpurchaseagreementfnm1.pdf.
4 The texts of the bills analyzed refer to Fannie Mae and Freddie Mac as enterprises, to distinguish them from the third
housing GSE, the Federal Home Loan Banks. This report will follow this practice.
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Proposals to Reform Fannie Mae and Freddie Mac in the 112th Congress

A third category of changes contained in some of the bills (e.g., H.R. 31 and H.R. 1225) would
increase regulatory oversight and disclosure. The proposed increased capital requirements would
be another source of increased costs, but would also reduce risks. New requirements to file with
the Securities and Exchange Commission (SEC) would eliminate a competitive advantage
enjoyed by the enterprises and require them to adhere to some of the same rules as their
competitors.5
A fourth category of legislative proposals (e.g., two pairs of companion bills H.R. 408/S. 178 and
H.R. 1182/S. 693) would set a deadline for the enterprises to return to stockholder control or to be
dissolved; in the event they were to return to stockholder control, the bills would phase out their
charters.
None of the bills include provisions for government intervention in home mortgages as a
replacement or supplement for the enterprises. Table 1 summarizes and illustrates differences in
provisions of the various bills introduced in the 112th Congress.
Table 1. Summary and Comparison of GSE Reform Proposals
(as of May 2, 2011)
Broadly Focused Bills
Narrowly
H.R. 408 and S. 178
H.R. 1182 and S. 693
Provision
Focused Bills
(Companion Legislation)
(Companion Legislation)
Additional reports from FHFA
H.R. 31
Not Included
Not Included
Subject to FOIA
H.R. 463
Not Included
Not Included
Executive and employee
H.R. 1221
Not Included
Not Included
compensation restrictions
Guarantee fee increase
H.R. 1222
Not Included
Included
Risk retention
H.R. 1223
Not Included
Not Included
Portfolio reduction
H.R. 1224, five years
Included, four years starting
Identical to H.R. 1224
starting one year
one year after leaving
after enactment
conservatorship
Treasury approval of debt
H.R. 1225
Not Included
Not Included
Repeal affordable housing goals H.R. 1226
Included
Included
New product restrictions
H.R. 1227
Not Included
Not Included
Date certain to end
Not Included
24-30 months from enactment
24 months from enactment
conservatorship
Lower conforming loan limit
Not Included
Included
Included
Prohibit dividend reduction on
Not Included
Not Included
Included
Treasury preferred stock

5 A report in 2003 by Treasury, the Office of Federal Housing Enterprise Oversight, and the Securities and Exchange
Commission recommended that Fannie Mae, Freddie Mac, and Ginnie Mae should increase their disclosure about
MBS, but did not recommend SEC registration of MBS. See Task Force on Mortgage-Backed Securities Disclosure,
Staff Report: Enhancing Disclosure in the Mortgage-Backed Securities Markets, January 2003, available at
http://www.treasury.gov/resource-center/fin-mkts/Documents/disclosure.pdf.
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Proposals to Reform Fannie Mae and Freddie Mac in the 112th Congress

Broadly Focused Bills
Narrowly
H.R. 408 and S. 178
H.R. 1182 and S. 693
Provision
Focused Bills
(Companion Legislation)
(Companion Legislation)
Increase minimum capital
Not Included
Included
Included
Increase borrower minimum
Not Included
Included
Included
downpayment
Repeal exemption from state
Not Included
Included
Included
and local taxes
Require SEC registration
Not Included
MBS
MBS and subordinated debt
Recoup value of federal
Not Included
Included
Not Included
guarantee
Charter repeal
Not Included
Included
Included
Source: CRS with information obtained from the Legislative Information System available at
http://www.congress.gov/.
Financial Difficulties
The enterprises came to their current financial difficulties following a period of increasing losses
due to mortgage delinquencies, coupled with inadequate capital. In September 2008, Fannie Mae
and Freddie Mac separately agreed to enter voluntary conservatorship, which entailed giving their
regulator, the Federal Housing Finance Agency (FHFA), management and control of the
enterprises. At the same time, the Treasury signed separate contracts with Fannie Mae and
Freddie Mac to provide whatever financial support might be needed to keep them solvent.6
Homeowners and potential homeowners indirectly depend on Fannie Mae and Freddie Mac as a
source of mortgage money. The enterprises are prohibited from making loans directly to
borrowers; instead, they purchase mortgages that lenders have already made. They package the
mortgages into MBS and either keep them “in portfolio” or sell them to institutional investors.
Sometimes the originator “swaps” the mortgages for an MBS backed by the same loans. The
advantage of a swap is the addition of the enterprise’s guarantee that the loans will be repaid. At
the end of 2010, Fannie Mae and Freddie Mac backed 46.7% of the home mortgages in the
nation.7
The Obama Administration’s report on the future of the enterprises and the housing finance
system presents three broad alternatives:8

6 CRS Report RL34661, Fannie Mae’s and Freddie Mac’s Financial Problems, by N. Eric Weiss provides more details
on the enterprises’ financial problems.
7 U.S. Federal Housing Finance Agencies, Enterprise Share of Residential Mortgage Debt Outstanding, 1990-2010,
available at http://www.fhfa.gov/webfiles/20543/
Enterprise%20Share%20of%20Residential%20Mortgage%20Debt%20Outstanding%201990%20-%202010.xls.
8 U.S. Department of the Treasury and Department of Housing and Urban Development, “Reforming America’s
Housing Finance Market: A Report to Congress,” February 2011, p. 12, available at http://www.treasury.gov/
initiatives/Documents/Reforming%20America's%20Housing%20Finance%20Market.pdf.
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Proposals to Reform Fannie Mae and Freddie Mac in the 112th Congress

• a privatized system with existing government mortgage programs (Federal
Housing Authority, Veterans Affairs, and U.S. Department of Agriculture) more
narrowly targeted toward groups based on income or first-time homebuyer status;
• a privatized system with a government guarantee only during a crisis; and
• a privatized system with backup government reinsurance of private mortgage
insurance.
As of this writing, no legislation has been introduced to implement any of the Administration’s
proposals; therefore, they are not discussed further in this report. If and when legislation is
introduced, it will be incorporated into this report. More detail on the proposals is contained in
CRS Report R41719, The Obama Administration’s Report on “Reforming America’s Housing
Finance Market”: Implications for Fannie Mae and Freddie Mac, by Mark Jickling.
This report continues with summaries of legislation that has been introduced in the 112th
Congress. Most of the bills address individual areas of concern, such as executive compensation,
but two pairs of companion bills would reform a number of areas.
Narrowly Focused Proposed Legislation
This section analyzes legislation that has been introduced and that would make changes to a
single area of the enterprises’ operations.
H.R. 31, Fannie Mae and Freddie Mac Accountability and Transparency for Taxpayers Act
of 2011, would require the director of FHFA to make quarterly reports on Fannie Mae and
Freddie Mac in 12 specific areas:
1. total liabilities and the risk to the federal government;
2. executive compensation and bonuses;
3. the impact of reducing the conforming loan limits at the end of FY2011;
4. foreclosure mitigation efforts;
5. mortgage fraud prevention efforts;
6. communications with the Federal Reserve and Treasury regarding the purchase or
sale of enterprise securities;
7. enterprise investments outside of their mission;
8. reasons for equity (preferred stock) investments by Treasury;
9. capital levels, portfolio size and their impacts on the safety and soundness of the
enterprises;
10. underwriting standards;
11. mortgage buyback policies; and
12. the enterprises’ actions that affected enterprise securities, in particular, preferred
stock issued before September 6, 2008.
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Proposals to Reform Fannie Mae and Freddie Mac in the 112th Congress

The director could include additional information that he “considers relevant or important with
respect to the enterprise, and the activities and condition of the enterprise.” The FHFA inspector
general (IG) would be required to review the reports and inform Congress of his findings. The bill
would require both the reports and the IG’s comments to be posted on the FHFA website.
The bill would also require the IG to examine FHFA’s loss mitigation policies, including the
impact of principal reduction on the enterprises’ financial condition and the nationwide
foreclosure rate.
There is some overlap between these reporting requirements and current reports. For example, the
FHFA’s quarterly Report on the Enterprises’ Financial Performance covers capital, investments,
and loss mitigation activities.9 The FHFA’s monthly Foreclosure Prevention and Refinance
Report also covers loss mitigation efforts. FHFA has issued a report on the effect of reducing the
conforming loan limit.10
On April 5 and 6, 2011, the House Subcommittee on Capital Markets and Government-Sponsored
Enterprises of the Committee on Financial Services marked up H.R. 31 and forwarded it to the
full committee.
Even without this legislation, FHFA could send such quarterly reports to Congress, and the IG
could review the reports. The bill indicates to FHFA and the FHFA IG that Congress attaches
particular importance to these areas of oversight.
H.R. 463, Fannie Mae and Freddie Mac Transparency Act of 2011, would make the
enterprises subject to Freedom of Information Act (FOIA) requests by making them federal
agencies for the purpose of FOIA compliance. No action has been taken on H.R. 463.
H.R. 1221, Equity in Government Compensation Act of 2011, would limit the pay of the
enterprises’ employees. Current executive compensation packages, previously approved by
FHFA, would be suspended and declared to be the sense of Congress that any pay in 2010
exceeding Level I of the Executive Schedule ($199,700)11 or the Senior Executive Service
($179,700)12 should be turned over to the Treasury. Other employees of the enterprises would be
paid according to the federal government’s general schedule (GS), with a maximum pay in the
Washington, DC, area in 2011 of $155,500.13 Executive compensation would be based in part on
the enterprise’s profitability. The enterprises would be covered by Troubled Asset Relief Program
(TARP) provisions on executive compensation and corporate governance.14 The bill states that
enterprise employees shall not be considered federal employees.

9 FHFA publishes most of its reports at http://www.fhfa.gov/Default.aspx?Page=172.
10 See U.S. Federal Housing Finance Agency, Mortgage Market Note: Possible Declines in Conforming Loan Limit,
Mortgage Market Note 11-1, March 29, 2011, available at http://www.fhfa.gov/webfiles/20671/MMNote_2011-
01_LoanLimit.pdf. Presumably the changes proposed in this bill would be greater.
11 U.S. Office of Personnel Management, Salaries and Wages: Salary Table No. 2010-EX, available at
http://www.opm.gov/oca/10tables/html/ex.asp.
12 U.S. Office of Personnel Management, Salaries and Wages: Salary Table 2011-ES, available at
http://www.opm.gov/oca/11tables/pdf/es.pdf.
13 U.S. Office of Personnel Management, Salaries and Wages: Salary Table 2011-DCB, available at
http://www.opm.gov/oca/11tables/html/dcb.asp.
14 For implementation details see 31 C.F.R. 30.0-31 C.F.R. 30.17.
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On April 5 and 6, 2011, the House Subcommittee on Capital Markets and Government-Sponsored
Enterprises of the Committee on Financial Services marked up H.R. 1221 and forwarded it to the
full committee.
As conservator, FHFA currently has the authority to reject enterprise salaries without this
legislation, but this bill would remove FHFA’s discretion. As regulator, 12 U.S.C. 4518 authorizes
FHFA to prohibit and order an enterprise to withhold executive compensation that is “not
reasonable and comparable” to that provided by similar companies. The same section prohibits
FHFA from actually setting salaries or salary ranges.
H.R. 1222, GSE Subsidy Elimination Act of 2011, would require the enterprises to charge a
guarantee fee that reflects the risk of the mortgages purchased and the cost of capital that a totally
private company would charge. FHFA would have the option to either phase in the higher fee
over two years or to impose it at the higher level two years after enactment.
On April 5 and 6, 2011, the House Subcommittee on Capital Markets and Government-Sponsored
Enterprises of the Committee on Financial Services marked up H.R. 1222 and forwarded it to the
full committee.
As conservator or receiver, FHFA has the authority to implement these provisions. As regulator, it
appears that FHFA could not require guarantee fees consistent with the provisions of H.R. 1222
unless necessary for the safety and soundness of the enterprises.
H.R. 1223, GSE Credit Risk Equitable Treatment Act of 2011, would prohibit treating
mortgage-backed securities issued by the enterprises differently from similar MBS issued by an
otherwise identical company. The bill would require that regulatory determinations as to what is a
mortgage with a low risk of default, called a “qualified residential mortgage” (QRM) in the
Dodd-Frank Wall Street Reform and Consumer Protection Act, “Dodd-Frank,” (P.L. 111-203, 124
Stat. 1376 et seq.), not be based solely on the enterprises’ role in the securitization.
Dodd-Frank requires the federal banking regulators, the SEC, the Department of Housing and
Urban Development (HUD), and FHFA to issue joint regulations to implement the act’s risk
retention requirements for mortgages included in MBS. Under Dodd-Frank, QRMs would be
exempt from this risk retention requirement.
On April 5 and 6, 2011, the House Subcommittee on Capital Markets and Government-Sponsored
Enterprises of the Committee on Financial Services marked up H.R. 1223 and forwarded it to the
full committee.
Scott G. Alvarez, the Federal Reserve’s general counsel, has testified that Dodd-Frank does not
exempt the enterprises from the risk retention requirement, and that their 100% guarantee of
timely payment of principal and interest on their MBS is “generally in the form of an unfunded
guarantee, which would not satisfy the risk retention requirements of the proposed rules.”15
Nevertheless, he said that the proposed rules would allow the enterprises’ guarantees to satisfy the
risk retention requirements as long as the enterprises were in conservatorship or receivership.

15 U.S. Congress, House Committee on Financial Services, Subcommittee on Capital Markets and Government-
Sponsored Enterprises, Testimony of Scott G. Alvarez, General Counsel of the Board of Governors of the Federal
Reserve, “Statement,” Hearing on Understanding the Implications and Consequences of the Proposed Rule on Risk
Retention, April 14, 2011, available at http://financialservices.house.gov/media/pdf/041411alvarez.pdf.
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Proposals to Reform Fannie Mae and Freddie Mac in the 112th Congress

H.R. 1224, GSE Portfolio Risk Reduction Act of 2011, would require the enterprises to
accelerate the reduction of their portfolios over five years to $250 billion each. At the end of
2010, Fannie Mae’s portfolio was $789 billion and Freddie Mac’s was $697 billion.16 The
financial support agreements between Treasury and the GSEs require the GSEs to reduce their
mortgage portfolios to stay within a cap that started at $900 billion at the end of 2009 and
decreases 10% annually reaching $250 billion in 2022. The companion bills H.R. 1182 and S. 693
would reduce the enterprises’ portfolios on the same five-year schedule as H.R. 1224. The
companion bills H.R. 408 and S. 178 would reduce the portfolios over four years. Table 2
compares the portfolio caps under the current agreement, H.R. 1224, and the pairs of companion
bills.
Table 2. Comparison of Portfolio Caps
(billions of dollars)
H.R. 408/S. 178
Assuming
H.R. 1224, and H.R.
Enactment in 2011
Treasury-
1182/S. 693
and Leaving
Year Ending
Enterprise
Assuming
Conservatorship in
December 31
Contracts
Enactment in 2011
2013
2009 $900


2010 $810


2011 $729


2012 $656 $700

2013 $590 $600

2014 $531 $475 $850
2015 $478 $350 $700
2016 $430 $250 $500
2017 $387 $250 $250
2018 $349 $250 $250
2019 $314 $250 $250
2020 $282 $250 $250
2021 $254 $250 $250
2022 $250 $250 $250
Source: CRS calculations based on U.S. Federal Housing Finance Agency, Mortgage Market Note: U.S. Treasury
Support for Fannie Mae and Freddie Mac, Mortgage Market Note 10-1, January 10, 2010, http://www.fhfa.gov/
webfiles/15362/MMNote_10-1_revision_of_MMN_09-1A_01192010r.pdf and H.$. 1224.
Note: H.R. 1224 excludes unknown amounts that Fannie Mae and Freddie Mac are required by contract to
repurchase from investors (mainly nonperforming mortgages).
H.R. 1224 would not count delinquent mortgages that were repurchased to fulfill an enterprise’s
guarantee against the portfolio limits.

16 Fannie Mae, Monthly Summary, http://www.fanniemae.com/ir/pdf/monthly/2010/123110.pdf; Freddie Mac, Monthly
Volume Summary, available at http://www.freddiemac.com/investors/volsum/pdf/1210mvs.pdf.
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On April 5 and 6, 2011, the House Subcommittee on Capital Markets and Government-Sponsored
Enterprises of the Committee on Financial Services marked up H.R. 1224 and forwarded it to the
full committee.
As regulator, FHFA could order the enterprises to reduce their risk by reducing their portfolios
more rapidly than the current contract provides.
H.R. 1225, GSE Debt Issuance Approval Act of 2011, would require the enterprises to request
in writing permission from the Secretary of the Treasury to issue new debt. The Secretary would
announce his decision and reasons in writing to the enterprise, FHFA, and Congress. There would
be a seven-day waiting period following Treasury’s approval before the enterprise could issue the
debt.
On April 5 and 6, 2011, the House Subcommittee on Capital Markets and Government-Sponsored
Enterprises of the Committee on Financial Services marked up H.R. 1225 and forwarded it to the
full committee.
Fannie Mae’s and Freddie Mac’s charters currently provide the Secretary of the Treasury this
authority. According to FHFA staff, it was used in the past to prevent the enterprises from issuing
large amounts of debt too close to Treasury debt sales, but this practice fell into disuse. Former
Assistant Secretary of the Treasury Emil Henry has written that there was a more formal process
until the mid-1990s.17
Arguably, the Secretary of the Treasury could assert the existing review authority contained in the
enterprises’ charters.18 The requirements that the enterprises make the requests for approval in
writing, that the secretary publish his decision, and that there be a seven-day waiting period
would formalize the process.
H.R. 1226, GSE Mission Improvement Act, would repeal the affordable housing goals first
established by the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (P.L.
102-550, 106 Stat. 3672 et seq.) and amended by the Housing and Economic Recovery Act of
2008 (P.L. 110-289, 122 Stat. 2654 et seq.). It would repeal, also, the duty to serve underserved
markets, and funding for both the housing trust fund and the capital magnet fund.
FHFA would have six months to submit a report to Congress on this bill’s effect on multifamily
properties, loans to low-income borrowers, and loans to borrowers in rural areas. The report
would contain recommendations on increasing mortgage credit in these areas.
On April 5 and 6, 2011, the House Subcommittee on Capital Markets and Government-Sponsored
Enterprises of the Committee on Financial Services marked up H.R. 1226 and forwarded it to the
full committee.
Unless the housing goals are repealed, the enterprises will continue to be required to meet them.19

17 Emil W. Henry Jr., “How to Shut down Fannie and Freddie,” Wall Street Journal, December 3, 2010, available at
http://online.wsj.com/article/SB10001424052748704635704575604570042260954.html.
18 Fannie Mae, 12 U.S.C. 1717a; Freddie Mac, 12 U.S.C. 1455(j)(1).
19 U.S. Federal Housing Finance Agency, “2010–2011 Enterprise Housing Goals; Enterprise Book-entry Procedures,”
75 Federal Register 55892-55939, September 14, 2010.
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H.R. 1227, GSE Risk and Activities Limitation Act of 2011, would prohibit FHFA from
approving any new products while an enterprise is in conservatorship or receivership unless
FHFA determined the new products were necessary to preserve the enterprises’ assets or reduce
losses. When the enterprises are not in conservatorship or receivership, the FHFA would retain its
existing new product approval authority.
On April 5 and 6, 2011, the House Subcommittee on Capital Markets and Government-Sponsored
Enterprises of the Committee on Financial Services marked up H.R. 1227 and forwarded it to the
full committee.
Arguably, FHFA could announce a new policy that would restrict new product approvals while
the GSEs are in conservatorship.
Broadly Focused Proposed Legislation
Two pairs of broader companion bills have been introduced in the 112th Congress. The first pair is
Title VI of H.R. 408 and Title VI of S. 178; the second pair is H.R. 1182 and S. 693. The two sets
of companion legislation have some different provisions pertaining to the enterprises and include
some, but not all, of the provisions of H.R. 1221 through H.R. 1227.
H.R. 408 and S. 178, both titled the Spending Reduction Act of 2011, are identical and address
many other issues besides reforming Fannie Mae and Freddie Mac. These unrelated concerns are
not addressed in this report. Title VI, the GSE Bailout Elimination and Taxpayer Protection Act,
of these two bills would terminate the enterprises’ conservatorships in 24 months (or six months
later if FHFA determines that financial markets would be adversely affected by the termination
and so notifies Congress).
At the end of the conservatorship, the enterprises would either go into receivership and be
dissolved or would continue under revised charters. These revisions would impose the following
changes:
• Starting one year after leaving conservatorship, the enterprises would have to
reduce their portfolios to $250 billion each over four years; H.R. 1224 provides
for five years, starting one year after enactment. (Section 604(2))
• The enterprises would no longer have housing goals (including the housing trust
fund and the magnet fund contributions). This is similar to H.R. 1226. (Section
604(1))
Certain provisions in H.R. 408 and S. 178 are not included in the more narrowly focused bills:
• The enterprises would leave conservatorship 24-30 months after enactment. They
would either be returned to stockholder control or be dissolved under
receivership. (Section 603)
• Three years after the enterprises return to stockholder control, their charters
would be repealed as applied to new business. There would be a 10-year wind-
down period followed by their dissolution, which would make provisions for
continued payment of each enterprise’s financial obligations such as debts and
MBS. (Section 606)
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• FHFA would have strengthened authority to set and to enforce minimum capital
levels. (Section 604(3))
• The conforming loan limit would be set at $417,000 nationwide with no high-
cost exceptions and the enterprises could not purchase homes selling for more
than the area median home price.20 The conforming loan limit would only
increase in future years to reflect increasing house prices. The conforming loan
limit is currently $417,000, except in high-cost areas where the limit is higher
with a maximum of $729,750. (Section 604(4))
• The enterprises would be prohibited from purchasing mortgages greater than the
area median home price. (Section 604(4)(F))
• The minimum downpayment for mortgages purchased by the enterprises would
be 5% during the 12 months after leaving conservatorship, 7.5% during the
second 12 months and 10% afterward. Currently, the required downpayment is
flexible as part of the mortgage underwriting process and may affect the interest
rate paid by the borrower. (Section 604(5))
• The enterprises would be required to pay all state and local taxes. Currently, they
pay only state and local property taxes. (Section 604(6))
• The enterprises would be required to register all stocks and public offerings with
the Securities and Exchange Commission (SEC). (Section 604(7))
• FHFA would charge each enterprise for the value of the benefits provided by the
government. (Section 604(8))
The other pair of companion bills (H.R. 1182 and S. 693) contains all the provisions of H.R. 408
and S. 178 (except for the recovery of the value of the federal guarantee), and has two additional
provisions. More specifically, compared with H.R. 408 and S. 178, H.R. 1182 and S. 693 would
• add the guarantee fee increase also contained in H.R. 1222 (Section 4(a)(4));
• require the enterprises to reduce their portfolios to $250 billion each over five
years like H.R. 1224, but unlike the four years in H.R. 408 and S. 178 (Section
4(a)(2)); and
• repeal the affordable housing goals like H.R. 1226 and the other pair of
companion bills (Section 4(a)(1)).
Provisions in H.R. 1182 and S. 693 not contained in any of the narrowly focused bills but
contained in H.R. 408 and S. 178 would
• end the enterprises’ conservatorship in 24 months (without the option for FHFA
to grant a six month extension) (Section 3);
• start the phase-out the enterprises’ charters as pertains to new business three
years after they leave conservatorship (Section 5);

20 FHFA has analyzed the impact of reducing the high-cost area conforming limit from $729,750 to $625,500. See U.S.
Federal Housing Finance Agency, Mortgage Market Note: Possible Declines in Conforming Loan Limit, Mortgage
Market Note 11-1, March 29, 2011, available at http://www.fhfa.gov/webfiles/20671/MMNote_2011-
01_LoanLimit.pdf. Presumably the changes proposed in this bill would be greater.
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• repeal the enterprises’ exemption from SEC registration as pertains to MBS and
subordinated debt (Section 4(b)(4));
• lower the conforming loan limit to $417,000, eliminate the high-cost areas limit,
and increase in future years to reflect increasing house prices (Section 4(a)(3));
• direct FHFA to increase the minimum capital required of the enterprises (Section
4(b)(1));
• increase borrower downpayment requirements (Section 4(b)(2)); and
• require the enterprises to pay all state and local taxes (Section 4(b)(3)).
In addition, H.R. 1182 and S. 693 would prohibit a reduction in the 10% annual cash dividend
paid to Treasury under terms of the support contracts with the enterprises (Section 4(a)(5)).

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Appendix. Legislative Action
Table A-1. Summary of Legislative Action
As of May 2, 2011
Bill
Latest House Action
Latest Senate Action
H.R. 31, Fannie Mae and Freddie Mac Forwarded to full committee as

Accountability and Transparency for
amended (voice vote) to full
Taxpayers Act of 2011
committee, April 6, 2011.
Companion bills H.R. 408 Title VI
H.R. 408 referred to subcommittee,
S. 178 referred to Senate Finance
and S. 178 Title VI, Fannie Mae and
March 23, 2011.
Committee, January 25, 2011.
Freddie Mac Transparency Act of
2011
H.R. 463, Fannie Mae and Freddie
Referred to subcommittee, March

Mac Transparency Act of 2011
23, 2011.
Companion bills H.R. 1182 and S.
H.R. 1182 referred to subcommittee, S. 693 referred to Senate Banking,
693, GSE Bailout Elimination and
April 4, 2011.
Housing, and Urban Affairs
Taxpayer Protection Act
Committee, March 31, 2011.
H.R. 1221, Equity in Government
Forwarded to full committee as

Compensation Act of 2011
amended (27-6), April 6, 2011.
H.R. 1222, GSE Subsidy Elimination
Forwarded to full committee (25-9),

Act of 2011
April 6, 2011.
H.R. 1223, GSE Credit Risk Equitable Forwarded to full committee as

Treatment Act of 2011
amended (34-0), April 6, 2011.
H.R. 1224, GSE Portfolio Risk
Forwarded to full committee as

Reduction Act of 2011
amended (20-14), April 6, 2011.
H.R. 1225, GSE Debt Issuance
Forwarded to full committee as

Approval Act of 2011
amended (18-0), April 6, 2011
H.R. 1226, GSE Mission
Forwarded to full committee as

Improvement Act of 2011
amended (voice vote), April 6, 2011.
H.R. 1227, GSE Risk and Activities
Forwarded to full committee (voice

Limitation Act of 2011
vote), April 6, 2011.
Source: CRS with information obtained from the Legislative Information System available at
http://www.congress.gov/.
Note: House subcommittee is Subcommittee on Capital Markets and Government Sponsored Enterprises of the
Committee on Financial Services. House full committee is Committee on Financial Services. Senate
subcommittee (if any) has not been determined.
S. 178 and H.R. 408 (Title VI of each are concerned with Fannie Mae and Freddie Mac) are companion bills that
have been introduced and referred to committee or subcommittee. H.R. 1182 and S. 693 are companion bills
that have been introduced and referred to committee or subcommittee.


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Author Contact Information

N. Eric Weiss

Specialist in Financial Economics
eweiss@crs.loc.gov, 7-6209


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