An overhaul of Fannie Mae and Freddie Mac is unlikely again this year despite recent Republican efforts to move the issue up the agenda.
Congressional Republicans, along with some Democrats — and even GOP presidential candidate Newt Gingrich — are renewing calls to craft an agreement to reduce the involvement of Fannie and Freddie in the nation’s mortgage market.
But without a broader accord, passage of any legislation this year is slim, housing experts say.
Jim Tobin, senior vice president of government affairs for the National Association of Home Builders, concedes that despite a mix of Democratic and Republican proposals, including a push by the Obama administration last year, congressional leaders probably won’t get far this year on a plan for Fannie and Freddie, the government-controlled mortgage giants.
Tobin said there are “good ideas out there” and while he expects the House to put some bills on the floor and possibly pass legislation, the Senate is likely to remain in oversight mode without any “broad-based legislation on housing finance.”
“We’re bracing for a year where it’s difficult to break through on important policy issues,” he said this week.
While the issue makes for a good talking point, especially in an presidential election year, congressional efforts are largely being stymied by the housing market’s sluggish recovery, prohibiting the hand off between the government and private sector in mortgage financing, housing experts say.
David Crowe, chief economist with NAHB, said that the market has hit rock bottom and is now undergoing a “slow climb out of the hole.”
The House has taken the biggest steps so far — by mid-July the Financial Services Committee had approved 14 bills intended to jump-start reform of the government-sponsored enterprises.
“As we continue to move immediate reforms, our ultimate goal remains, to end the bailout of Fannie, Freddie and build a stronger housing finance system that no longer relies on government guarantees,” panel Chairman Spencer Bachus (R-Ala.) said last summer.
Meanwhile, a number of GOP and bipartisan measures have emerged — Democrats and Republicans generally agree Fannie and Freddie are in need of a fix but their ideas still widely vary.
There are a handful of bills floating around Congress, including one by Reps. John Campbell (R-Calif.) and Gary Peters (D-Mich.), and another by Reps. Gary Miller (R-Calif.) and Carolyn Maloney (D-N.Y), which would wind down Fannie and Freddie and create a new system of privately financed organizations to support the mortgage market.
“Every one of those approaches replaces them [Fannie and Freddie] with what they think is the best alternative to having a new system going forward that would really fix the problem and would really give certainty to the marketplace and allow housing finance to come back, and therefore housing to come back, as well,” Campbell said at a markup last month.
There’s another bill by Rep. Jeb Hensarling (R-Texas) and bills in the Senate being pushed by Sens. Bob Corker (R-Tenn.) and Johnny Isakson (R-Ga.).
Corker, a member of the Senate Banking Committee, made the case earlier this week for unwinding government support for the GSEs while promoting his 10-year plan that would put in place the “infrastructure for the private sector to step in behind it.”
“A big part of the problem right now is the private sector is on strike,” Corker said.
He has argued that his bill isn’t a silver bullet, rather a conversation starter to accelerate talks.
“So what we need to do is figure out an orderly wind-down,” Corker said in November. “And so we’ve been working on this for some time. We know that Fannie and Freddie cannot exist in the future.”
He suggested getting the federal government this year to gradually wind down the amount of the loans it guarantees from 90 percent to 80 percent and then to 70 percent.
“And as that drops down, we think the market will send signals as to what the difference in price is between what the government is actually guaranteeing and what they’re not,” he said.
Even Gingrich, who has taken heat for his involvement with taking money while doing consulting work for the GSEs, called for an unwinding during a December interview.
“I do, in fact, favor breaking both of them up,” he said on CBS’ Face the Nation. “I’ve said each of them should devolve into probably four or five companies. And they should be weaned off of the government endorsements, because it has given them both inappropriate advantages and because we now know from the history of how they evolved, that they abused that kind of responsibility.”
In a white paper on housing last week, the Federal Reserve argued that the mortgage giants should take a more active role in boosting the housing market, although they didn’t outline suggestions for how to fix the agencies.
The central bank did argue that “some actions that cause greater losses to be sustained by the GSEs in the near term might be in the interest of taxpayers to pursue if those actions result in a quicker and more vigorous economic recovery.”
Nearly a year ago, Treasury Secretary Timothy Geithner asked Congress to approve legislation overhauling Fannie Mae and Freddie Mac within two years — that deadline appears to be in jeopardy.
The Obama administration’s initial recommendations called for inviting private dollars to crowd out government support for home loans. The white paper released in February proposed three options for the nation’s housing market after Fannie and Freddie are wound down, with varying roles for the government to play.
About the same time last year, Bachus made ending the “taxpayer-funded bailout of Fannie and Freddie” the panel’s first priority.
While an overhaul remains stalled for now there is plenty of other activity on several fronts.
In November, the Financial Services panel overwhelmingly approved a measure to stop future bonuses and suspend the current multi-million dollar compensation packages for the top executives at the agencies.
The top executives came under fire for providing the bonuses but argued they need to do something to attract the talent necessary to oversee $5 trillion in mortgage assets.
Earlier this month, the Federal Housing Finance Agency announced that the head of Fannie received $5.6 million in compensation and the chief executive of Freddie received $5.4 million.
Under the bill, the top executives of Fannie and Freddie could only have earned $218,978 this year.
Last week, Fannie’s chief executive Michael Williams announced he would step down from his position once a successor is found. That comes only three months after Freddie’s CEO Charles Haldeman Jr. announced that he will leave his post this year.
The government is being tasked to find replacements, not only for the two mortgage giants which have cost taxpayers more than $150 billion since their government takeover in 2008, but there is talk that the Obama administration is looking to replace FHFA acting director Edward DeMarco, the overseer of the GSEs.
In a letter to President Obama earlier this week, more than two dozen House members said DeMarco simply hasn’t done enough to help struggling homeowners avoid foreclosure.
The lawmakers are pushing the president to name a permanent director “immediately.”
Also, in December, the Securities and Exchange Commission (SEC) sued six former executives at Fannie and Freddie, alleging they misled the public and investors about the amount of risky mortgages in their portfolio.
In the claims, the SEC contends that as the housing bubble began to burst, the executives suggested to investors that the GSEs were not substantially exposed to sub-prime mortgages that were defaulting across the country.
- Can anyone save Fannie Mae and Freddie Mac? (money.cnn.com)
- CEO who led Fannie Mae after government seizure to quit (usatoday.com)
- SEC Sues Former Fannie Mae And Freddie Mac Executives For Fraud (huffingtonpost.com)
- Fannie Mae CEO steps down during troubled times (agbeat.com)
- Fannie Mae CEO Steps Down, Despite Having “Long Way to Go in Housing” (inquisitr.com)
- The Future of Fannie Mae and Freddie Mac (money.usnews.com)
- Fannie, Freddie CEOs Took Millions, Far More Than Gingrich (pjmedia.com)
- Lawmakers slam Fannie Mae, Freddie Mac CEOs over pay and bonuses (latimesblogs.latimes.com)