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Banks should share bailout costs
The nation’s largest banks have an obligation to pay some of the cost for bailing out mortgage buyers Fannie Mae and Freddie Mac because they sold them bad mortgages, a government regulator said Wednesday.
Edward DeMarco, the acting director for the Federal Housing Finance Agency, said the banks this summer have refused to take back $11 billion in bad loans sold to the two government-controlled companies, in written testimony submitted for a House subcommittee hearing Wednesday. A third of those requests have been outstanding for at least three months.
Mr. DeMarco said the banks have a legal obligation to buy back the loans and called the delays “a significant concern.” He said the government may take new steps to force those buybacks if “discussions do not yield reasonable outcomes soon.”
In an interview with reporters after the hearing, Mr. DeMarco declined to give further details on what the government might do next. He said only that “we’re looking for contractual obligations to be fulfilled.”
Fannie and Freddie buy mortgages and package them into securities with a guarantee against default.
The two mortgage giants nearly collapsed two years ago when the housing market went bust. The government stepped in to rescue them, and it has cost taxpayers about $148 billion so far. The rescue is on track to be the most expensive piece of stabilizing the financial system.
After blast, more oversight sought
The Obama administration wants Congress to tighten oversight of the nation’s pipelines and more than double penalties for some safety violations in response to a deadly gas explosion in California and a major oil spill in Michigan.
Legislation sent to Congress on Wednesday would increase from $1 million to $2.5 million the maximum fine for the most serious pipeline violations involving deaths, injuries or major environmental harm, the Department of Transportation said. It also would pay for an additional 40 inspectors and safety regulators over the next four years.
The proposal follows several accidents, including last week’s huge gas explosion in suburban San Francisco, that have called attention to the nation’s aging pipelines and how they are monitored. Transportation Secretary Ray LaHood said his department “needs stronger authority to ensure the continued safety and reliability of our nation’s pipeline network.”
Congress is expected to recess for midterm elections in the next few weeks, making it unlikely a bill can be enacted within the next two months. Rep. James L. Oberstar, Minnesota Democrat, chairman of the House Transportation and Infrastructure Committee, which was holding a hearing Wednesday on the Michigan oil spill, said he wants to “scrub” the proposal with the help of administration officials and lawmakers from both parties before the recess so that a bill can at least clear the pipeline subcommittee by then.
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