(Corrects home state of Senator Johanns in 17th paragraph in story published Feb. 11.)
Congressional Republicans criticized what they termed a lack of detail in the Treasury Department’s plan to overhaul mortgage finance while saying they would use the report as a starting point for debate over legislation.
The proposal delivered to Congress today by Treasury Secretary Timothy F. Geithner and Shaun Donovan, the secretary of the Department of Housing and Urban Development, would have the government shrink “and ultimately wind down” mortgage firms Fannie Mae and Freddie Mac under three possible scenarios.
Congress already has scheduled hearings on the matter, kicking off a complex legislative process that lawmakers and administration officials said may last months or years.
“What the administration offered today isn’t a plan to move us forward, but rather a collection of options to consider,” Representative Spencer Bachus, the Alabama Republican who heads the Financial Services Committee, said today in a statement. “What’s needed is a real plan, and we intend to sit down with administration officials to find common ground.”
Fannie Mae and Freddie Mac, which were taken into government conservatorship in 2008 and have drawn more than $150 billion from the Treasury since then, were left untouched in the Dodd-Frank regulatory overhaul last year over the objections of Republicans. A provision in the law required Treasury to present Congress with a proposal this year.
Senior House Republicans, in statements today, said they were “encouraged” by portions of the administration’s plan that would phase out Fannie Mae and Freddie Mac and reduce the federal role in the mortgage market.
The 31-page plan may force the hand of the Republicans who have railed against the mortgage companies since their collapse, said Brian Gardner, the senior vice president of Washington research for Keefe, Bruyette & Woods.
“This tries to flush out the congressional Republicans a little bit,” Gardner, a former House Republican aide, said in a phone interview. The proposal is an effort to “actually have them take some political risk and actually propose legislation and alternative systems.”
Where Congress ends up has implications across the financial system, with the largest banks like Bank of America Corp. and Wells Fargo & Co., as well as credit unions, community banks, homebuilders and real estate brokers all holding stakes in the outcome.
Crossing Party Lines
Yet unlike the legislative debate on the overhaul of financial regulation, which was a largely partisan process, the battle lines on housing finance don’t track along party lines, Gardner said.
Conservative Republicans, long critical of the role Fannie Mae and Freddie Mac play in the housing market and their burden on taxpayers, have pushed for a quick end to federal involvement in mortgages. Still, as a group Republicans may be wary of risking harm to the fragile housing recovery or the ire of major realtor and homebuilder trade groups, said Representative Brad Miller, a North Carolina Democrat.
“I can’t imagine that they would really want to do something that would make that important of a constituency apoplectic,” Miller said in an interview.
Some Democrats have argued that a form of federal guarantee is necessary to protect affordable housing goals.
“My underlying concern is that they may radically increase the cost of homeownership, and housing in general, over the coming years,” Representative Maxine Waters, a California Democrat and member of the Financial Services panel, said today in a statement.
The split in power between a Senate run by Democrats and a House in Republican hands will add another layer of difficulty that didn’t exist during the Dodd-Frank debate.
Senate Banking Committee Chairman Tim Johnson, a South Dakota Democrat, said he welcomed the report and looked forward to finding “bipartisan consensus around sound policy solutions.”
The top Republican on the panel, Senator Richard Shelby of Alabama, said the report doesn’t contain many details and lacks “any sense of urgency.” Senator Mike Johanns of Nebraska, Shelby’s Republican colleague on the panel, said “the administration’s failure to step forward with a concrete plan is disappointing.”
Geithner, who led the Obama administration through the Dodd-Frank debate after being at the center of President George W. Bush administration’s response to the financial crisis as head of the Federal Reserve Bank of New York, noted that regardless of lawmakers’ plans and positions, the process will take time.
“This is going to take five to seven years,” Geithner said.
Donovan also said there wouldn’t be quick action on the proposals.
“There is an education and discussion that needs to happen about the implications of these reforms,” he told reporters today. “Given the fragility of the market at this point, there is no need to rush into a decision, particularly when that education needs to take place.’