A Democratic member of the U.S. House Financial Services Committee predicted that legislation revamping government-owned mortgage firms Fannie Mae and Freddie Mac (FMCC) won’t become law this year.
“The problem is the clock right now,” Representative Gary Peters, a Michigan Democrat, told Bloomberg News reporters and editors today in New York. “I think it’s going to be difficult to get anything done this year.”
Peters, who is seeking retiring senator Carl Levin’s U.S. Senate seat in November, noted that Congress has a tight legislative schedule over the next six months as is typically the case in an election year.
His comments come two days before the Senate Banking Committee is scheduled to consider a bipartisan plan to phase out Fannie Mae and Freddie Mac over five years and replace them with federal insurance for mortgage bonds that would kick in only after private investors were wiped out.
Current shareholders of Fannie Mae (FNMA) and Freddie Mac would be in line behind the U.S. government in receiving compensation from the wind-down. The legislation would create a Federal Mortgage Insurance Corporation to provide insurance for mortgage-backed securities.
Prospects for passage dimmed significantly last week when six Senate Democrats whose support is crucial agreed in a private meeting that they wouldn’t vote for the measure, according to three people familiar with the meeting.
The six senators -- Elizabeth Warren of Massachusetts, Charles Schumer of New York, Sherrod Brown of Ohio, Jeff Merkley of Oregon, Robert Menendez of New Jersey and Jack Reed of Rhode Island -- agreed that the measure needed major revisions: The structure of the re-insurer seemed unworkable and the bill lacked sufficient support for affordable housing goals. Changing the bill to address those concerns could weaken Republican support.
Any House-Senate accord on revamping Fannie Mae and Freddie Mac would have to be the result of bipartisan work that hasn’t happened, Peters said, adding that the political climate in Congress may be even more difficult next year.
“There are concerns that the longer we wait the harder it is,” he said. “I think there’s a window. We have to act fairly quickly.”
Senate Banking Committee Chairman Tim Johnson, a South Dakota Democrat, and Senator Mike Crapo of Idaho, the top Republican on the panel, have the backing of six Democrats and six Republicans on the 22-member committee.
Senate Majority Leader Harry Reid has said the bill needs to attract more support from Democrats, who hold the majority in the chamber, before he will bring it to the floor for a vote.
A delay in winding down the companies could benefit stockholders including Bruce Berkowitz’s Fairholme Capital Management, hedge fund Perry Capital LLC, and Bill Ackman’s Pershing Square Capital Management LP. Ackman, whose firm holds about 11 percent of Fannie Mae and Freddie Mac’s outstanding common shares, said May 5 that the stock could be worth $23 to $47 a share over time.
Fannie Mae and Freddie Mac, which buy loans and package them into securities, were taken into U.S. conservatorship in 2008 and received a $187.5 billion taxpayer bailout. They’ve since returned to profitability.
Fannie Mae last week reported net income of $5.3 billion for the three months ended March 31. Freddie Mac reported earnings of $4 billion for the period.
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