Published March 29, 2011
A group of influential Republicans in the U.S. House of Representatives on Tuesday unveiled eight bills aimed at chipping away at the dominant role Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB) play in the $10.6 trillion U.S. mortgage market.
The series of narrowly crafted bills is designed to garner broader support than would likely be won with more sweeping legislation to shut down the government-controlled firms, particularly in the Democrat-led Senate.
"Today marks the start of a process -- a process to begin winding down Fannie Mae and Freddie Mac," Representative Scott Garrett, a New Jersey Republican who is leading the effort, said in a statement.
Included in the basket of bills are measures that would speed up the wind-down of the mortgage portfolios held by Fannie Mae and Freddie Mac, eliminate their affordable housing goals and raise the fees they charge to guarantee mortgages in an effort to make private capital more attractive.
Garrett, who chairs a subcommittee that oversees Fannie Mae and Freddie Mac, said Republicans planned to unveil several more targeted bills in coming months to lure private capital back into the mortgage market.
Republicans, who hold a majority in the House, plan to push the piecemeal approach to diminishing Fannie Mae and Freddie Mac's role in the housing market instead of pushing a broader bill that would kill them within five years.
"We see this as a moderate approach that offers less risk to sparking a housing finance credit crunch than a more comprehensive legislative package," said Jaret Seiberg, a policy analyst at MF Global Inc in Washington.
LOOKING FOR SUPPORT
Some of the proposals laid out on Tuesday mirror measures presented in a paper the Obama administration released last month.
In that paper, the administration presented three options for long-term changes to Fannie Mae and Freddie Mac and several short-term recommendations for reducing the government's role in the housing market.
House Financial Services Committee Chairman Spencer Bachus has scheduled an April 5 vote on the first round of incremental measures. He told reporters on Tuesday that the changes would not "happen overnight, but over several years."
Fannie Mae and Freddie Mac are the two largest providers of U.S. residential mortgage funds. They provide liquidity to the market by buying mortgages from lenders and repackage them as securities for investors, which they then guarantee.
They were also given a mission to help increase affordable housing.
The Bush administration seized the two companies in September 2008 as losses on loans they backed spiraled. They have since been propped up with more than $134 billion in taxpayer aid.
As credit contracted during the financial crisis, Fannie Mae and Freddie Mac took on an ever-increasing presence in the market. Through Fannie Mae, Freddie Mac and the Federal Housing Administration, the government backs almost nine in 10 new mortgages.
Democrats and Republicans alike agree the status quo in housing finance cannot last, but they disagree on the amount of support the government should continue to extend to the market. Democrats generally back a larger government role than Republicans.
In one of the bills outlined on Tuesday, Bachus, an Alabama Republican, proposed paying workers at Fannie Mae and Freddie Mac on the same scale as government workers. In late 2009, the regulator of the firms approved pay packages that allowed the top executives at each firm to receive as much as $6 million each in annual compensation.
Representative Randy Neugebauer, a Texas Republican, proposed a measure that would raise over two years the fees Fannie Mae and Freddie Mac charge for their guarantee, a move aimed at making private capital more competitive.