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Panel Backs Bill To Restrain Fannie, Freddie
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The bill approved yesterday by the House committee would give regulators the power to put the two companies into receivership, limit their mortgage investments, block new products, and require them to hold additional capital as a cushion against financial trouble. Requiring additional capital could reduce profits.
However, in a boon for the companies, the bill would allow Fannie Mae, which is based in the District, and Freddie Mac, of McLean, to take on larger mortgages in areas with high housing costs. Currently, a national ceiling prohibits the companies from securitizing or buying loans of more than $417,000 in the case of single-family homes; the bill would raise the limit by as much as 50 percent, allowing the companies to take on mortgages as large as $625,500 in high-price markets.
The biggest point of contention in the committee was creating an affordable housing fund, potentially worth $500 million a year, and deciding who should control it.
Democrats said the fund would provide housing for people in need and force the companies to give back more to the public. Frank said there was no question that Fannie Mae and Freddie Mac benefit from their government-sponsored status, and "over the years the public has not received sufficient value" in return.
Republicans said the fund could foster wasteful bureaucracy, increase mortgage costs for middle-class home buyers and channel money to groups with partisan agendas.
Under the bill, the affordable-housing funds collected from the companies would be distributed to states, which would then give them to buyers. The initial money would be dedicated to states hit by Hurricane Katrina in 2005.
Fannie Mae spokesman Brian Faith said in a written statement that the bill was a step forward even if "there are important aspects of the legislation that we would hope to see improved."
Freddie Mac spokeswoman Sharon McHale called it "a very tough bill," adding that the company was particularly concerned about provisions that could require the company to hold more capital.
FM Policy Focus, a lobbying group for firms that want Fannie Mae and Freddie Mac restrained, praised the bill. This carefully crafted legislation places in the hands of one regulator all the authority necessary to oversee the [companies'] activities with regard to affordable housing, liquidity and safety and soundness," said Mike House, the group's executive director.
