Key Congressman Optimistic on Fannie-Freddie Bill
Tuesday, March 13, 2007
The chairman of a key House panel said yesterday that he was cautiously optimistic that, after years of failed attempts, the latest effort to revamp oversight of mortgage funding giants Fannie Mae and Freddie Mac will bear fruit.
Rep. Paul E. Kanjorski (D-Pa.), chairman of the subcommittee on capital markets, said his counterparts in the Senate and the Bush administration have expressed willingness to support something close to a bill introduced last week.
The Treasury Department, which had pushed for a tougher measure than House members would accept, praised the bill. Robert Steel, undersecretary for domestic finance, issued a statement saying the bill was "well-crafted" and created "a strong regulator."
"We've come a long way, baby," Kanjorski said after a hearing on the bill yesterday.
Lawmakers and administration officials have been calling for stronger supervision of Fannie Mae and Freddie Mac since 2003, when Freddie Mac disclosed billions of dollars of accounting errors and distortions after getting a clean review from the agency that oversees it, the Office of Federal Housing Enterprise Oversight. The issue heated up again the following year, after billions of dollars of accounting problems were exposed at Fannie Mae.
Though similar legislation made it through the House in the last Congress, the Senate did not act on it.
Last week, House Financial Services Committee Chairman Barney Frank (D-Mass.) and other sponsors introduced a version that would give a regulatory agency broad powers. Those include determining how much capital the companies must maintain as a cushion against financial setbacks, forcing them to shed assets if conditions warrant and placing the companies in receivership if they become severely undercapitalized.
The new agency would also control the companies' ability to introduce products, a sensitive point because it involves the potential clash of Fannie Mae's and Freddie Mac's ambitions with those of companies in other segments of the lending business.
Like an earlier House proposal, the bill would require Fannie Mae and Freddie Mac to contribute to a fund for affordable housing. However, the new bill would entrust a federal agency, rather than Fannie and Freddie, with management of the fund. That change could mollify critics who worried Fannie and Freddie would use the money to build grass-roots political support.
Frank, the lead author of the bill, has been one of the companies' strongest supporters on Capitol Hill. The measure nonetheless won plaudits from the companies' nemesis, FM Policy Focus, a lobbying group that represents financial services companies with competing interests.
"Chairman Frank's legislation contains strong protections that are essential for true comprehensive regulatory reform," Mike House, executive director of the group, said in a written statement.
Senate Banking Committee Chairman Christopher J. Dodd (D-Conn.), a presidential candidate, "expects to continue to work in a bipartisan fashion to hopefully make progress on this important issue in coming weeks and months," said Marvin Fast, a spokesman for Dodd.
Fannie Mae and Freddie Mac were chartered by the government to channel funds to mortgage lenders. They borrow money to buy mortgages, and they package mortgages into securities for sale to other investors.
The Federal Reserve and other policymakers worry that their trillions of dollars of assets and obligations could put taxpayers at risk if either company got in serious trouble.
Representatives from each organization are scheduled to testify on the bill Thursday.