Effort to Rein In Fannie, Freddie Gains Steam

Republican congressional staff members agreed that the GOP is open to compromise, but they warned that veering too close to the companies' position could prevent a compromise. "We're prepared to make a deal that we're not completely happy with," one senior GOP staff member said. "The question is, 'Can others do the same?' "

The measure to regulate Fannie Mae and Freddie Mac will probably be wrapped into a large, multifaceted bill to address the nation's housing crisis, according to congressional aides. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, said it is expected to include an overhaul of the Federal Housing Administration, a new tax credit to help low-income housing and the creation of a fund to assist cities and states prevent home foreclosures -- along with the Fannie Mae and Freddie Mac legislation.

"Our nation needs a stronger regulatory structure and a deeper commitment to meeting the housing needs of the American people," Dodd said. "I am committed to continuing to find common ground to address this important issue in a bipartisan, timely and thoughtful way."

Shelby also has spoken optimistically. "It is my hope that Senator Dodd and I can continue to work closely on a number of those issues, such as the need for meaningful GSE reform," he said earlier this month on the Senate floor.

The two companies are regulated by the Office of Federal Housing Enterprise Oversight. James B. Lockhart III, the agency's director, has called their reform essential. "Fannie Mae and Freddie Mac have become the dominant players in the mortgage market and are under increasing pressure to do more. It is critical at this time to have a stronger regulatory framework to maintain confidence in the GSEs and to restore stability and liquidity to the mortgage market," he said.

Past fights over efforts to boost regulation have been bare-knuckled affairs. Fannie Mae and Freddie Mac assembled two of the most expensive and formidable lobbying operations in Washington and were able to stop almost any attempt at regulation. "They really had this place locked down, and everybody was afraid of them," Hagel recalled.

But a few years ago, accounting scandals at both companies weakened their standing with lawmakers and the public. In addition, FM Policy Focus, an anti-Fannie-and-Freddie lobbying coalition led by the companies' commercial competitors, grew in size and influence.

Recent declines in the housing market have again strengthened the hand of Fannie Mae and Freddie Mac, which argue that a broad crackdown would constrict their ability to finance mortgages. "Given today's challenging housing market, it's more important than ever to get legislation right," said Douglas Duvall, a spokesman for Freddie Mac.

Staff writer Lori Montgomery contributed to this report.