When Fannie Mae and Freddie Mac were given their charters, Congress required that the Treasury Secretary review and approve each issuance of debt by the GSEs. While there has been no change in the law, this practice is no longer followed. In my testimony before the House Financial Services Committee last month I recommended that Congress require Treasury to resume this practice of reviewing GSE debt issuance.
Today I have a commentary recounting some of the history of the debt issuance that has been published on the Reason website. Here are links to the GSE charters showing the legal requirement for Sec. Geithner to review each debt issuance.
The Federal National Mortgage Association (Fannie Mae) charter, updated as of Feb. 1, 2010, reads:
Section 1719 (b): "the corporation is authorized to issue, upon the approval of the Secretary of the Treasury, and have outstanding at any one time obligations having such maturities and bearing such rate or rates of interest as may be determined by the corporation with the approval of the Secretary of the Treasury, to be redeemable at the option of the corporation before maturity in such manner as may be stipulated in such obligations."
U.S. code Title 12, Chapter 13, Subchapter III, section 1719
The Federal Home Loan Mortgage Corporation (Freddie Mac) charter, updated as of July 21, 2010, reads:
Section 306 (j)(1): "Any notes, debentures, or substantially identical types of unsecured obligations of the Corporation evidencing money borrowed, whether general or subordinated, shall be issued upon the approval of the Secretary of the Treasury and shall have such maturities and bear such rate or rates of interest as may be determined by the Corporation with the approval of the Secretary of the Treasury."
Federal Home Loan Mortgage Corporation Act, section 306
To read the commentary, see here.
Here is a list of other short-term, non-partisan ideas that Congress could pursue to start the housing finance reform process.