GOP lawmakers to unveil own plan to wind down Fannie Mae, Freddie Mac
A month and a half after the White House announced its plan to wind down Fannie Mae and Freddie Mac, House Republicans on Tuesday plan to introduce their own.
According to congressional sources familiar with the matter, a series of eight bills by Republicans will call for raising fees charged to borrowers in two years and taking other steps to shrink the companies’ footprint in the housing market.
The bills will call on Fannie and Freddie to begin to sell their massive portfolios of mortgage investments, which keep rates low, and would take away other advantages enjoyed by the companies that banks and private-sector firms don’t have.
They would also end requirements that Fannie and Freddie direct a portion of their business to low- and moderate-income housing and pay the employees of the companies only what counterparts in the federal government earn.
What’s striking about the new GOP plan is that in many ways it mirrors the Obama administration’s approach to shutting down the taxpayer-backed mortgage giants but only on a faster timetable.
What’s also notable is that neither the administration nor the GOP is prepared to endorse a long-term model to replace Fannie and Freddie, which together with the Federal Housing Administration guarantee more than 90 percent of new mortgage loans.
The piecemeal approach could raise the prospect of government action on housing-finance overhaul this year, with some details to be worked out about timing. The administration’s white paper on the subject, released last month, called for hiking fees and requiring larger down payments.
To some degree, the GOP is backing away from calls from some of the party’s members for a rapid elimination of Fannie and Freddie. The Republicans gave an overview of their principles for withdrawing support for the companies as far back as March 2010.
Many Republicans view the companies as primary instigators of the financial crisis, faulty instruments of federal housing policy that helped fuel risky lending practices.
The proposals they intend to release Tuesday will make it more expensive for Fannie and Freddie to do business, costs that will be passed on to borrowers. Republicans hope that banks will find less-expensive alternatives, which will attract consumers and reduce Fannie and Freddie’s role in the market.
The Obama administration mostly agrees with the GOP assessment that it is necessary to increase the costs of obtaining Fannie- and Freddie-backed mortgages to bring private-sector firms back into the market.
But it worries that moving too fast to withdraw Fannie and Freddie’s support for housing could further destabilize an already struggling housing market. Fannie, Freddie and the FHA have helped keep the market alive in the past few years.
The Republicans are not prepared Tuesday to make a proposal for a long-term solution.
The administration also avoided commiting to a new approach, instead suggesting three options. All of them do away with Fannie and Freddie. One of them replaces the companies with nothing. Another retains a big presence for the government in the housing market.
The first of the eight bills to be presented Tuesday will increase the authority of the inspector general of the Federal Housing Finance Agency, which oversees Fannie and Freddie. The second will require Fannie and Freddie employees to be subject to the federal payscale.
A third would hike fees over two years, while a fourth would prohibit the firms from entering any new lending markets.
A fifth will require the Treasury to approve any new debt issuance by Fannie and Freddie, and a sixth eliminates the affordable-housing goals.
Finally, a seventh would cap Fannie and Freddie’s portfolios at $250 billion in five years (both portfolios are now nearly around $1 trillion), and an eighth would prohibit mortgages guaranteed by Fannie and Freddie from being exempted from new rules that would require mortgage lenders to take a financial interest in home loans they make.