WASHINGTON -- The Government Accountability Office this week warned that Fannie Mae and Freddie Mac, in addition to other government agencies, are exposing taxpayers to potential losses in the trillions of dollars.
The government's non-partisan auditing agency released its biennial "high risk" report Wednesday for 35 different areas within the federal bureaucracy that may pose a health, financial or national security risk to Americans. While the GAO has established the federal role in the housing lending market as "high risk" since 2013, this year's report separated the issue from the area of modernizing the U.S. financial regulatory system because of "significance and risk."
"Through enterprises, [the Federal Housing Administration], and Ginnie Mae, the federal government is exposed to potential losses on several trillion dollars in mortgage debt," wrote GAO Director Gene Dodaro in his prepared testimony before the House Committee on Oversight and Reform. "A severe economic downturn could trigger significant taxpayer assistance to one or more of these entities."
The federal government took control, called "conservatorship," of Fannie Mae and Freddie Mac during the financial crisis of 2008. This means the government, thus taxpayers, is responsible for all losses incurred.
Now, about 70 percent of loans are supported either directly or indirectly by the federal government.
These facts are not new to Joel Griffith, senior researcher from conservative think tank, the Heritage Foundation.
"I'm glad they're reminding Congress of the need to act, but it's basically a report card on Congress," he said of the report. "Congress has failed in their duty to reform the housing system. This is an embarrassment."
He said he found it promising that the report pointed out the inadequacies in preparing for another economic downturn. Griffith said he would like to see the immediate transfer of Fannie Mae and Freddie Mac to private control because he said it would lower housing costs.
But Michela Zonta, senior policy analyst for the liberal think tank, Center for American Progress, said the conservatorship has helped underserved communities.
"Blaming the federal government for rising housing prices to me doesn't make any sense," Zonta said. "By providing more access to low-income communities, by serving a larger market helps the housing market come back from where it was in 2008."
Meanwhile, the GAO highlighted the lengthy time the government-run mortgage companies have been backed by the federal government.
"More than 10 years after entering federal conservatorships, the enterprises' futures remain uncertain and billions of taxpayer dollars remain at risk," Dodaro said in his testimony. "In addition, prolonged conservatorships could hinder development of the broader mortgage securities market by creating uncertainty and crowding out private investment."
Several of the GAO recommendations, which both Zonta and Griffith called vague, said lawmakers need to act.
No members of the oversight and reform panel hearing on the report asked about the federal government's involvement in the housing market. Instead, they focused on other issues raised, including delays on personnel security clearances, climate change and veterans affairs.