A measure that would dismantle Fannie Mae and Freddie Mac won the approval of a Senate commitee Thursday but most likely won’t make it to the full chamber this year because it failed to attract a large enough majority of the committee’s lawmakers.
The Senate banking committee passed the bill 13 to 9, with seven Republicans and six Democrats in favor of it. But despite weeks of negotiations, the bill’s proponents could not win over a key bloc of liberal Democrats. Without their support, Senate Majority Leader Harry M. Reid (D-Nev.) is unlikely to bring the bill to the Senate floor.
The Obama administration, which backed the measure and worked to rally votes for it, signaled that it won’t stop trying. In a statement Thursday, the White House said it would keep pushing to “broaden support for reform” in what it views as the last piece of unfinished business left to tackle in response to the 2008 financial crisis.
But many housing experts who follow the issue say the chances of getting the job done this year are slim, and they could erode further next year after the November mid-term elections if Democrats lose control of the Senate.
“We doubt that there is either the legislative capacity or the political willingness to address (Fannie and Freddie) reform further in this Congress,” Isaac Boltansky, an analyst with Compass Point, wrote in a note to clients. A revamp of housing finance probably won’t take place until 2017, Boltansky predicted.
Fannie and Freddie, which back about 60 percent of U.S. mortgages, do not make loans. They buy mortgages from lenders, package them as securities and sell them to investors. They also insure the mortgages and pay investors if the loans go bad.
The government took control of the companies in 2008 to keep them solvent and ward off a collapse of global financial markets. Nearly six years later, there’s broad concensus in Congress that the firms should be shut down. But lawmakers can’t agree on how to do it.
The measure — sponsored by Sens. Tim Johnson (D-S.D.) and Mike Crapo (R-Idaho) — aims to gradually shift the risks of mortgage lending away from taxpayers and have the private sector absorb the first 10 percent of any losses on mortgage-backed securities. The government would cover additional losses.
On Thursday, Democrats who voted against the bill said they were worried it would limit access to affordable housing in underserved areas and enable a few Wall Street players to dominate the mortgage market. Republican opponents said the measure was too complex and still kept taxpayers on the hook.
With congressional action unlikely, attention has turned to the new head of the Federal Housing Finance Agency, which oversees Fannie and Freddie. FHFA Director Melvin Watt said this week that he doesn’t plan to reduce the Fannie and Freddie footprint in the housing market until Congress comes up with an alternative system.
Also at center stage now are the various lawsuits filed by investor groups that are trying to stop the government from taking all the profits Fannie and Freddie generate, an arrangement put in place in 2012 as a term of the broader taxpayer bailout.
The committee on Thursday changed the bill to reflect that it would not “alter, supersede or interfere” with any court decision related to those lawsuits.
In a new Congress, the bill that passed Thursday, or some version of it, would need to pass through the Senate banking committee again before reaching the Senate floor. That committee will have a new leader, and the momentum built this year could be lost.
Johnson, the committee’s chairman and lead sponsor of the legislation, is retiring. If Democrats retain control of the Senate next year, the two Democrats in line to replace him did not vote for the bill passed Thurday, Boltansky noted.
Of the two Republicans who could take his post, only one supported the bill — Crapo, the panel’s most senior Republican and a co-sponsor of the bill.