Prospects dim for U.S. Senate housing bill as panel postpones votes

Reuters News
Posted: Apr 24, 2014 2:34 PM

By Margaret Chadbourn

WASHINGTON (Reuters) - The already dim prospects for a bill to wind down taxpayer-owned mortgage financiers Fannie Mae and Freddie Mac grew darker on Tuesday, as a U.S. Senate committee adjourned a meeting on the bill without holding any votes.

The decision to delay a vote on the measure reflects the difficulty the panel's leaders are having rounding up the broad backing that would be needed for the measure to be scheduled for consideration by the full Senate.

"There continue to be important discussions to build a larger coalition supporting the bill," Committee Chairman Tim Johnson said.

Johnson said the committee had the votes needed to pass the bill, but some members had asked for a "brief delay to try to work out additional issues prior to a final vote."

Johnson, a Democrat, and the panel's leading Republican, Mike Crapo, have been trying to thread a needle to win support from Democrats worried about loan availability and Republicans wary of government involvement in the market.

They wanted to secure at least 16 "yes" votes on the 22-member panel to pressure Senate Majority Leader Harry Reid to let the measure come up on the Senate floor. Reid, a Democrat, has opposed legislation to get rid of Fannie Mae and Freddie Mac.

"The longer Congress avoids acting on mortgage finance legislation, the greater the chances the two companies survive," said Brian Gardner, senior vice president at Keefe, Bruyette & Woods Inc. "It is increasingly likely the debate ... lasts into 2017."

The Senate bill would replace the two giant mortgage firms with an agency that offers a government guarantee on home loans, but one that only kicks in after private interests absorb big losses.

It aims to preserve the 30-year fixed rate loans that are at the heart of the nation's mortgage system, while protecting the taxpayers who bailed out Fannie Mae and Freddie Mac in 2008. The companies are the two biggest sources of U.S. mortgage funds.


Even if the bill cleared the panel and the Democrat-led Senate, it would still need to be reconciled with any legislation the Republican-controlled House of Representatives might produce. The most likely House measure would scale back the government's involvement much more sharply.

Many conservatives blame Fannie Mae and Freddie Mac for fostering the loose lending that sparked the financial crisis, and want to do away with government mortgage guarantees.

While there is almost no chance of a bill being enacted this year, strong support for the Senate bill in the banking committee would set a marker for future negotiations.

"This legislation represents a real and important step in building a rock-solid system that brings responsibility, opportunity, and stability back to the housing market," Housing and Urban Development Department Secretary Shaun Donovan told reporters on Monday.

Enough's Enough
Walter E. Williams

It was unclear when the committee might meet on the bill again.

Chartered by Congress to provide liquidity for loans, Fannie Mae and Freddie Mac buy mortgages from lenders and package them into securities that they sell to investors with a guarantee.

The companies ran into trouble after the housing bubble burst. They absorbed $187.5 billion in taxpayer funds but have since returned to profitability and have now returned more money as dividends to the Treasury for the government's controlling stake than they received in aid.

Some private shareholders have sued the government over bailout terms that prevent the companies from buying back the government's shares, and conservative groups want them to receive a portion of profits if the two are liquidated.

Housing advocacy and civil rights groups worry the bill would wipe out lending mandates that support affordable housing, while small lenders fear the legislation would permit the largest lenders to play multiple roles in the mortgage market.

There are also concerns over how well the mortgage market would function during the five-year phase out of Fannie Mae and Freddie Mac that the bill envisions.

(Reporting by Margaret Chadbourn; Editing by Chizu Nomiyama and Andrea Ricci)