An Oct. 26 Business article about a House bill to overhaul regulation of Fannie Mae and Freddie Mac incorrectly described the authority that a new regulator would have under the measure. The bill would grant the regulator authority to adjust the portfolios to ensure that the companies remain solvent. (Published 10/27/2005)
The House Rules Committee yesterday agreed to send to the House floor legislation tightening oversight of Fannie Mae and Freddie Mac, setting the stage for a final vote as early as today.
The bill, which follows multibillion-dollar accounting scandals at the two mortgage finance companies, would grant a new federal regulator the power to decrease the size of the companies' investment holdings if they are found to have grown so large that they threaten the broader financial system.
In forwarding the legislation to the floor, the committee also cleared lawmakers to debate two amendments -- one would let the regulator force the two companies to sell off assets deemed too risky, and the other would strip the companies of a long-standing line of credit from the U.S. Treasury.
The second proposal is significant because Fannie Mae and Freddie Mac can borrow money at favorable interest rates in part because lenders perceive that the federal government would bail them out if they ran into trouble. It is unclear how much support either amendment has.
Eight members appeared yesterday before the House Rules Committee to try to persuade the panel to allow votes on their amendments, with Rep. Barney Frank (D-Mass.), a key supporter, saying he would oppose the measure because of planned changes to a low-income housing fund. Along with the new regulatory position, the bill requires Fannie Mae and Freddie Mac to set aside 3.5 percent of their profit to finance low-income housing, with priority given to projects in hurricane-ravaged areas in the Gulf Coast and in Florida.
Under a compromise brokered by House leaders, the bill's sponsors agreed to change the bill to ban any group that engages in voter registration and get-out-the-vote activities from participating in the affordable-housing fund. A coalition of civil rights, housing and faith-based groups said the restrictions would force them to choose between providing housing and advocating for the poor.
Frank's stance threatened to draw away Democratic support for the bill, which passed the House Financial Services Committee with overwhelming bipartisan support. The White House has also criticized the bill for not doing enough to rein in the companies.
House Majority Whip Roy Blunt (R-Mo.) said yesterday that he was confident the bill would pass with a "healthy margin."
The White House has the option of issuing a statement opposing the bill, which may carry weight with rank-and-file Republicans. White House spokesman Trent Duffy said a statement would be issued only the morning of the vote.
If the bill passes, major differences remain between the House bill and its companion measure in the Senate. The Senate bill does not create a low-income housing fund. And instead of deferring to a new regulator as the House bill does, the Senate proposal would require the companies to shrink by limiting the kinds of assets they can hold. Critics of Fannie and Freddie, including the White House, prefer the Senate bill because they argue that the companies' investment portfolios are so large they pose a threat to the financial system.
The House vote comes nearly a year after federal regulators ordered Fannie Mae to restate $10.8 billion in previously reported earnings.