The Senate Banking Committee will open debate on a bill to wind down taxpayer-owned mortgage financiers Fannie Mae and Freddie Mac on Tuesday, but does not plan any votes as the panel's leaders scramble for broader support.
The decision to postpone any votes reflects the difficulty Committee Chairman Tim Johnson, a Democrat, and the panel's top Republican, Mike Crapo, are having rounding up the backing needed to increase the likelihood the legislation will reach the Senate floor.
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The bill would replace the firms with an agency that offers a government mortgage guarantee, 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.
Johnson, a Democrat, and 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.
The panel meets at 10 a.m. (1400 GMT) for opening statements, but then plans to adjourn, a committee aide said.
Johnson and Crapo have been trying 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 voiced opposition in the past to legislation that would get rid of Fannie Mae and Freddie Mac.
"This is complicated legislation," said David Stephens, president of the Mortgage Bankers Association. "If you can get a broad majority coming out of the committee, then there is momentum for the bill to reach the Senate floor."
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.
Chartered by Congress to provide liquidity to the market, Fannie Mae and Freddie Mac buy mortgages from lenders and package them into securities for investors, which they offer with a guarantee.
The companies ran into trouble after the housing bubble burst, and the government bailed them out given their huge presence in the financial system. 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.
Johnson and Crapo's draft bill is silent on how private shareholders in the firms should be handled.
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.
"There will be no disruptions and, in fact, the new system will be more efficient," said Donovan. "Taxpayers should never again be on the hook for bailing out companies that guarantee mortgage credit."