Panel Backs Bill To Restrain Fannie, Freddie
Washington Post Staff Writer
Friday, March 30, 2007; Page D01
Long-running efforts to tighten oversight of Fannie Mae Mae and Freddie Mac took a step forward yesterday as a House committee passed a bill that would create a stronger regulator for the mortgage-funding companies.
The bill also would require the federally chartered companies to contribute to a new fund for affordable housing, which Democrats supported but many Republicans opposed.
The bill also would give Fannie Mae and Freddie Mac an opening to expand their business in parts of the country with exceptionally high housing costs.
The measure passed the Financial Services Committee by a vote of 45 to 19, with more than a dozen Republicans joining the Democratic majority.
After the vote the committee chairman, Barney Frank (D-Mass.), said, "Something very close to this bill is likely to become law."
The House passed a version of the bill in 2005, and the Senate Banking Committee passed legislation in 2004, but the full Senate has not acted.
Frank said the outlook has changed because, unlike the earlier House bill, the one approved by the committee yesterday is supported by the Treasury Department, and Democrats now have a majority in the Senate.
As part of a compromise between Frank and the Treasury Department late last year, the current bill would give more power to the regulator than the earlier House bill, and it would eliminate presidential appointees to the companies' boards, putting more distance between them and the government.
Chartered by the government to promote home ownership, Fannie Mae and Freddie Mac buy mortgages from lenders, which then have more money to make loans. The companies also package mortgages into securities for sale to investors, and they guarantee to compensate the investors for any interest or principal payments the borrowers fail to make. They are able to borrow money at favorable rates, in part because the financial markets believe that the U.S. government would prop them up in a crisis, analysts say.
Together, Fannie Mae and Freddie Mac have debts and outstanding credit guarantees of $5.2 trillion, more than the government's $4.9 trillion in publicly held debt.
Financial-services firms with competing interests have pressed lawmakers to rein in Fannie Mae and Freddie Mac and make it clearer to investors that there is no guarantee that the government would stand behind the companies' obligations.
Both Fannie Mae and Freddie Mac have acknowledged in recent years that they misstated profits by billions of dollars. The Federal Reserve has argued that the collapse of either could shake the financial system.
