After the House Financial Services Committee voted overwhelmingly Wednesday to pass legislation creating a new independent regulator for housing giants Fannie Mae and Freddie Mac, lawmakers congratulated themselves on their spirit of compromise.
Everyone, it seems, agrees that Fannie and Freddie need better oversight.
But the agreement ends there.
While the House bill passed on a vote of 65 to 5, many of the issues the legislation is designed to address remain unresolved, and debate could become contentious as it moves through the full House and Senate in coming weeks. A full House vote could come this summer, and a Senate committee is expected to take up the bill in June. Final passage is not expected before the fall.
Lawmakers and advocates for various housing industry interests were still digesting the contents of the legislation yesterday but agreed that several central issues could stymie its progress.
"There is a lot about this bill that is not sufficient for consensus," said Bert Ely, an independent banking consultant and longtime critic of Fannie and Freddie.
The bill, drafted by committee Chairman Michael G. Oxley (R-Ohio), would give a new regulator for Fannie and Freddie the power to require the companies to buy or sell assets if the regulator deems it necessary. But the Bush administration would have liked even stricter language limiting Fannie and Freddie's investments -- a provision the White House sees as critical to protecting the soundness of the financial system and plans to keep pushing, said spokesman Trent Duffy.
Fannie and Freddie were created to pump cash into the housing market by buying mortgages from banks and other lenders. But since the early 1990s, the two companies have kept more mortgages and other assets on their books to increase profits, including airplane lease securities. As a result, Fannie and Freddie now manage $1.5 trillion in assets.
The Bush administration and others argue that by holding so many mortgages and mortgage-backed securities, the companies are vulnerable to interest rate swings, putting the financial system and taxpayers in jeopardy if either one failed.
"Congress must ensure that the large mortgage portfolios do not put the financial system at risk," Duffy said.
Recent accounting scandals at the two companies have also prompted calls for tighter oversight.
Also contentious is the bill's provision that Fannie and Freddie set aside 5 percent of after-tax profits for grants to promote low-income housing.
