Dennis Diaz: It’s still illegal even when the government does it

Even with a new Congress elected and talk of major reforms in the coming year, there remain administrative solutions that could fix some of the nation’s problems, especially in the area of housing policy.

Housing policy, which impacts nearly every American, has been tossed back and forth but, unsurprisingly, has been held up due to a lack of consensus on how to move forward. Thankfully, there is an administrative solution that the Obama Administration can take to fix one important matter.

In the immediate aftermath of the 2008 financial crisis, government officials put measures in place to contain threats to the nation’s housing market, an important part of the nation’s economy. Among the actions taken in those panicky days was an immediate infusion of government funds into Fannie Mae and Freddie Mac — government-sponsored enterprises, or GSEs — to ensure they did not fail and bring the U.S. economy down with them. This was important because Fannie and Freddie insure the bulk of mortgages in our country; without them, the 30-year mortgage would not be possible and the American dream of homeownership would be unattainable for so many people.

The amount of the money loaned to the GSEs totaled $187.4 billion. Unlike the automotive companies that received taxpayer-funded bailouts, Fannie and Freddie were required to pay back the money in full, and through no small feat, have done so in a very short amount of time. Even more incredible is that the enterprises are still making payments to the U.S. Treasury despite having satisfied their repayment obligations to the government.

In addition to receiving a bailout, the GSEs were also put into a conservatorship and the Federal Housing Finance Agency (FHFA) – an entity under the auspices of the Treasury Department – was appointed as the overseer. As the conservator, FHFA is responsible for ensuring that Fannie and Freddie regain their economic footing and can emerge stronger and more viable. It is hard to dispute that Fannie and Freddie are not stronger today than they were seven years ago. Both companies recently reported out their third-quarter results for 2014: Fannie Mae reported $3.9 billion in net income for the quarter, and $12.9 billion in earnings for the first nine months of this year; Freddie Mac reported $2.1 billion in net income for the quarter, and $7.5 billion in earnings for the first nine months of 2014. With such high earnings, some might wonder what the problem is. The answer lies in a unilateral action taken by our government, which effectively wiped out all private shareholder dividends. When the conservatorship went into effect in 2008, dividend payments to the private shareholders who invested in the GSEs halted; that was not unexpected. What was unexpected was that federal bureaucrats would sneakily change the terms of the conservatorship mid-conservatorship as the GSEs began to make money in 2012. This started the sweeping of all profits due to shareholders into Treasury’s coffers — in other words, they go directly into the government’s piggy bank.

This is not a situation in which investors are looking for something more – we are simply looking to have what is technically already ours.

I put my money in the GSEs because I saw them as a smart investment, as housing is the backbone of the U.S. economy. Thousands of others did likewise. We are citizens, pensioners, and retirees, and we invested because someday we planned to use the money we earned for retirement or college funds or even to buy our own homes. We never expected that our own government would take over the marketplace and use it as its own piggy bank. If there was ever an institution that should uphold the rule of law in this country, it is the federal government. We are pressing our case through a number of forums. While congressional action is possible, a more likely solution is for the Federal Housing Finance Agency (FHFA), the overseer, to end the conservatorship. As Director Mel Watt visits Miami, I hope he considers this action as an opportunity not only to preserve the safety and soundness of the housing market he is charged with preserving, but also to uphold the rule of law. After all, our country was built on the premise that if a government takes from its own citizens with impunity it fails in its most basic responsibility to represent and protect them.

Dennis Diaz is from Coral Gables and is a small business owner. Column courtesy of Context Florida.