WASHINGTON, DC- In a letter to U.S. Treasury Secretary Henry Paulson, U.S. Senator Bob Casey (D-PA) today outlined steps that could make Fannie Mae and Freddie Mac more accountable to taxpayers, reign in bonuses and salaries paid to executives as well as new measures to compensate taxpayers for their support when the entities fortunes turn around. Senator Casey hopes that these new measures can be included in a final package of Treasury authority for Fannie Mae and Freddie Mac.
“Regardless of one’s ideological leanings on this type of government intervention, failure to act will result in too many Americans being unable to refinance mortgages they cannot afford, and the foreclosure crisis will expand even more,” Senator Casey wrote. “However, while I am supportive of your efforts to find common ground, I must express some concerns with the legislative proposal as presented earlier this week.”
Senator Casey has been at the forefront of the congressional response to the subprime mortgage crisis. He joined Senators Charles Schumer (D-NY) and Sherrod Brown (D-OH) in introducing the first major legislation to deal with the crisis. Senator Casey cosponsored the Homeownership Preservation and Protection Act introduced by Banking Committee Chairman Senator Chris Dodd. This legislation would help put an end to abusive practices and would provide stronger enforcement to ensure that borrowers are protected from predatory practices.
Senator Casey also helped secure the first $180 million in foreclosure prevention counseling funding last year and encouraged Chairman Dodd to hold a Banking Committee field hearing to explore predatory lending in Philadelphia.
Full text of the letter is below:
Dear Secretary Paulson:
As we pass another week of consideration of bipartisan housing legislation, I want to thank you for your involvement and efforts at consultation throughout the process. In the coming days, I know that you and Chairman Dodd, Chairman Frank, and others will be working to fashion a bipartisan package that will finally provide some relief to American families that are suffering in the current economic climate that is rooted in the catastrophic mortgage markets.
I believe that we must act upon your recent Government Sponsored Entities proposal to ensure that Fannie and Freddie remain solvent and include some version of it in the legislation already passed by the Senate. Regardless of one’s ideological leanings on this type of government intervention, failure to act will result in too many Americans being unable to refinance mortgages they cannot afford, and the foreclosure crisis will expand even more. However, while I am supportive of your efforts to find common ground, I must express some concerns with the legislative proposal as presented earlier this week.
Fannie Mae and Freddie Mac are a stabilizing force in the troubled mortgage markets and remain central to its continued operation. They have helped bring millions of dollars in capital into our cities and states to help families purchase homes. However, on the heels of the accounting scandals of 2003 and 2004, Fannie and Freddie have had their hard won credibility undermined in recent weeks. While the subprime mortgage crisis is hardly the fault of these companies, past practices of awarding huge bonuses and higher executive salaries calls into question the prudence of extending an unlimited credit line of taxpayer money to the companies whose management practices have been questionable over recent years.
To that end, I suggest the following actions in conjunction with the use of a line of credit at Treasury or any purchase of equity:
(1) That the respective GSE Boards pursue vigorous litigation to recover executive bonuses paid in recent years; and
(2) That executive pay be capped at reasonable levels until the companies can prove that their safety and soundness eliminates the need for further assistance from the Treasury Department and Federal Reserve.
In addition, although the entities have enjoyed advantages that come with an implicit government guarantee, they are private entities. Therefore, I believe language should be inserted into your proposal ensuring that should Treasury enter into a transaction to purchase equity or debt, it would also pursue some reasonable “upside” potential that would be customary in a private transaction. For example, you should consider requiring warrants at a reasonable strike price and any other measures you deem appropriate to accompany the equity or debt purchased by Treasury. In addition to balancing taxpayer risks with potential rewards, including these provisions would strongly signal the bullish outlook we all have regarding the long term viability of Fannie Mae and Freddie Mac.
Thank you again for your service in this volatile and unpredictable time. I appreciate your efforts and promises to continue to consult with Congress about the actions under consideration at the Treasury Department.
Sincerely,
Robert P. Casey
United States Senator
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“Regardless of one’s ideological leanings on this type of government intervention, failure to act will result in too many Americans being unable to refinance mortgages they cannot afford, and the foreclosure crisis will expand even more,” Senator Casey wrote. “However, while I am supportive of your efforts to find common ground, I must express some concerns with the legislative proposal as presented earlier this week.”
Senator Casey has been at the forefront of the congressional response to the subprime mortgage crisis. He joined Senators Charles Schumer (D-NY) and Sherrod Brown (D-OH) in introducing the first major legislation to deal with the crisis. Senator Casey cosponsored the Homeownership Preservation and Protection Act introduced by Banking Committee Chairman Senator Chris Dodd. This legislation would help put an end to abusive practices and would provide stronger enforcement to ensure that borrowers are protected from predatory practices.
Senator Casey also helped secure the first $180 million in foreclosure prevention counseling funding last year and encouraged Chairman Dodd to hold a Banking Committee field hearing to explore predatory lending in Philadelphia.
Full text of the letter is below:
Dear Secretary Paulson:
As we pass another week of consideration of bipartisan housing legislation, I want to thank you for your involvement and efforts at consultation throughout the process. In the coming days, I know that you and Chairman Dodd, Chairman Frank, and others will be working to fashion a bipartisan package that will finally provide some relief to American families that are suffering in the current economic climate that is rooted in the catastrophic mortgage markets.
I believe that we must act upon your recent Government Sponsored Entities proposal to ensure that Fannie and Freddie remain solvent and include some version of it in the legislation already passed by the Senate. Regardless of one’s ideological leanings on this type of government intervention, failure to act will result in too many Americans being unable to refinance mortgages they cannot afford, and the foreclosure crisis will expand even more. However, while I am supportive of your efforts to find common ground, I must express some concerns with the legislative proposal as presented earlier this week.
Fannie Mae and Freddie Mac are a stabilizing force in the troubled mortgage markets and remain central to its continued operation. They have helped bring millions of dollars in capital into our cities and states to help families purchase homes. However, on the heels of the accounting scandals of 2003 and 2004, Fannie and Freddie have had their hard won credibility undermined in recent weeks. While the subprime mortgage crisis is hardly the fault of these companies, past practices of awarding huge bonuses and higher executive salaries calls into question the prudence of extending an unlimited credit line of taxpayer money to the companies whose management practices have been questionable over recent years.
To that end, I suggest the following actions in conjunction with the use of a line of credit at Treasury or any purchase of equity:
(1) That the respective GSE Boards pursue vigorous litigation to recover executive bonuses paid in recent years; and
(2) That executive pay be capped at reasonable levels until the companies can prove that their safety and soundness eliminates the need for further assistance from the Treasury Department and Federal Reserve.
In addition, although the entities have enjoyed advantages that come with an implicit government guarantee, they are private entities. Therefore, I believe language should be inserted into your proposal ensuring that should Treasury enter into a transaction to purchase equity or debt, it would also pursue some reasonable “upside” potential that would be customary in a private transaction. For example, you should consider requiring warrants at a reasonable strike price and any other measures you deem appropriate to accompany the equity or debt purchased by Treasury. In addition to balancing taxpayer risks with potential rewards, including these provisions would strongly signal the bullish outlook we all have regarding the long term viability of Fannie Mae and Freddie Mac.
Thank you again for your service in this volatile and unpredictable time. I appreciate your efforts and promises to continue to consult with Congress about the actions under consideration at the Treasury Department.
Sincerely,
Robert P. Casey
United States Senator
###
