Republicans criticize changes to bailout of Fannie Mae and Freddie Mac

Congressional Republicans are blasting the White House’s decision to rework the government bailout of housing giants Fannie Mae and Freddie Mac.

The Treasury Department’s decision to modify some terms of the nearly four-year federal lifeline is drawing calls from GOP lawmakers to overhaul the housing system once and for all. They chastised the White House for taking these steps instead.

{mosads}Rep. Scott Garrett (R-N.J.) called the changes a “slap in the face” to taxpayers and charged the administration with “kicking the can down the road” on reforming the housing system with the adjustments.

“Instead of devoting time and energy towards prolonging bailouts, the Obama Administration should work with Congress to wind these companies down and create a new and sustainable housing finance system where taxpayers are not at risk,” he said in a statement.

The Treasury Department announced Friday it was adjusting the terms of the bailout for the two government-sponsored enterprises (GSEs), which have been kept afloat thanks to nearly $200 billion in government aid.

Under the new arrangement, they would be required to wind down their investment portfolios more quickly, and the government would take the agencies’ quarterly profits in a way that recoups taxpayer investment to the GSEs without allowing them to rebuild capital and potentially exit from government support as private entities.

Previously, the government required Fannie and Freddie to make regular dividend payments to the Treasury to pay back the bailout. However, that arrangement meant that when the GSEs suffered rough quarters and had little profit, they actually had to borrow from the government in order to pay the money to the Treasury.

The Treasury touted the moves as intended to reassure investors while ensuring mortgage credit can continue to flow in the housing market.

But House Financial Services Committee Chairman Spencer Bachus (R-Ala.) said Friday’s changes simply make it less likely the government will ever recoup its bailout funds, all the while cementing the existence of Fannie and Freddie in the housing market no matter their woes.

“Today’s announcement makes it less likely that taxpayers will ever be paid back for their $200 billion bailout and blunts efforts to reform Fannie and Freddie by fostering the false impression they are healthy institutions that should be restored to their previous status,” he said.

Sen. David Vitter (R-La.) described the changes as nonsensical and said he would renew his efforts to implement “sweeping GSE reforms.”

The White House has long maintained that Fannie and Freddie should ultimately be wound down, and it laid out several options for remaking the housing system in a February 2011 white paper without endorsing a particular approach.

This post updated at 3:34pm.