House Tightens Reins on Fannie, Freddie

By Marcy Gordon
Associated Press
Wednesday, May 23, 2007

Legislation to tighten federal oversight of the two biggest buyers of home mortgages, Fannie Mae and Freddie Mac, cleared the House yesterday.

However, the bill could lose the support of the Bush administration because of a new provision trimming the authority of federal regulators.

The vote in the House was 313 to 104 for the measure, which would provide for stricter federal supervision of the two government-chartered companies that finance or guarantee more than three-quarters of U.S. home mortgages. The legislation also would create a housing aid fund -- worth as much as $3 billion -- to be financed by Fannie Mae and Freddie Mac.

All 104 opposing votes came from Republicans. Ninety other GOP lawmakers joined the unified 223 Democrats.

The legislation is the product of a compromise between majority Democrats in the House and the administration.

Multibillion-dollar accounting scandals that roiled Fannie Mae, of the District, and Freddie Mac, of McLean, in recent years brought demands for tighter government supervision and cuts in the companies' massive mortgage holdings, now worth a combined $1.5 trillion.

But in House action last Thursday, the bill was reshaped in a way that lessens the power of the new federal regulator of Fannie Mae and Freddie Mac over their mortgage holdings compared with an earlier version that moved through the House. An amendment adopted by voice vote puts some restrictions on that authority.

The Bush administration has insisted that the new regulator have the discretion and authority to reduce the companies' mortgage portfolios. White House support is considered crucial to the bill's prospects in the Senate and for eventual congressional passage after years of failed efforts to enact such legislation.

"I believe our nation needs a stronger regulatory structure and a deeper commitment to meeting the housing needs of the American people," Sen. Christopher J. Dodd (D-Conn.), chairman of the Senate Banking Committee, said in a statement after the vote. "I am committed to continuing to find common ground to address this important issue in a bipartisan, timely and thoughtful way."

Fannie Mae quickly signaled its satisfaction with the amendment limiting the new regulator's authority over the companies' mortgage holdings. The amendment "clarifies an important aspect of regulatory discretion" over the portfolios, company spokesman Brian Faith said in a statement.

A partisan split was evident in House debate over the bill's provision creating a housing aid fund.

An estimated $500 million to $600 million a year from the companies' profits would go to the five-year fund, which would be used to build and rehabilitate housing for low-income people. In the first year, the money would go for housing for victims of hurricanes Katrina and Rita.

Diverting company profits to the housing fund would impose a "mortgage tax" on every home loan financed by Fannie Mae and Freddie Mac, Republicans said, thereby requiring middle-class homeowners to pay for the fund.

In addition, the White House said it was concerned that the fund could be "susceptible to political influences that could compromise the goals of assisting as many low-income families in need as possible."

Republicans said no money from the fund should go to community groups that run voter registration drives.

Fannie Mae and Freddie Mac were created by Congress to pump money into the mortgage market by buying home loans from banks and other lenders to keep interest rates low and make homeownership affordable for low- and moderate-income people. The companies bundle the mortgages into securities for sale on Wall Street.

© 2007 The Washington Post Company