Congressional efforts to toughen government oversight of Fannie Mae and Freddie Mac resume today, with the mortgage finance companies politically weakened by financial scandal and their chief government nemesis leaving the stage.
Armando Falcon Jr., director of the Office of Federal Housing Enterprise Oversight, submitted his letter of resignation to President Bush yesterday, saying he will leave as the companies' chief regulator May 20. He marshaled an improbable and ultimately successful campaign over the past two years to force changes in the operations of two of the nation's most powerful companies.
Attempts to strengthen or replace OFHEO, including bills in 2003 and 2004 that died with a whimper in the Senate Banking Committee, have vexed legislators for years. But key players said there is a good chance that this summer Congress will enact, and the White House will sign, a law creating a new regulatory regime for the companies that fund nearly half of all mortgages made in the United States.
The difference is that both companies have been laid low by multibillion-dollar accounting scandals and the departures of their top officials, most recently Fannie's Franklin D. Raines, who was ousted as chief executive by his own company in December.
"Before it was politically impossible," said Rep. Christopher Shays (R-Conn.), a member of the House Financial Services subcommittee that oversees Fannie and Freddie. "Now it's politically tough. The difference is Raines. He has been disgraced."
Subcommittee Chairman Rep. Richard H. Baker (R-La.) said his legislation would create an entirely independent regulator for government-sponsored enterprises (GSEs) -- which are government-chartered but investor-owned -- such as Fannie, Freddie and the Federal Home Loan Banks. It would allow the regulator to put any GSE into receivership without prior approval from Congress, empower the regulator to sharply limit the size of Fannie and Freddie and require it to approve in advance any new products offered by the companies.
Fannie and Freddie are regulated by OFHEO, a division of the Department of Housing and Urban Development that must seek budget approval from Congress each year. Despite OFHEO's strong -- critics say strident -- regulation of the two companies, Baker, Shays and other members of Congress for years have criticized the regulator as weak, in part because of how lawmakers set it up over a decade ago.
Baker's subcommittee and the Senate Banking Committee will hold hearings today on oversight of the mortgage giants. Falcon will testify at Baker's hearing about Fannie's accounting failures.
Federal Reserve Chairman Alan Greenspan will testify at the Senate hearing, chaired by Sen. Richard C. Shelby (R-Ala.). Greenspan is expected to reiterate his call for limiting the size and implied government backing of Fannie and Freddie.
Limiting the growth of the companies, or even shrinking them, will been one of the most contentious issues under consideration in the new legislation, housing industry and congressional sources say. In addition to Greenspan, Treasury Secretary John W. Snow has called for legal limits to both companies' portfolio of mortgage assets.