U.S. House Republicans proposed legislation that would begin reducing the influence of government-run mortgage companies Fannie Mae and Freddie Mac.
The measures would wind down the firms in phases as policy makers work on a broader overhaul of the mortgage market. The proposed legislation would cut the value of the companies’ combined $1.5 trillion loan portfolio, raise the fees they charge to guarantee loans and reduce executive compensation.
The bills “represent immediate steps that Congress can take to begin building a stable housing finance system based on private capital rather than guarantees provided by the taxpayer,” according to a Republican staff memo circulated last night to committee members.
Representative Scott Garrett, a New Jersey Republican and chairman of the capital markets panel of the House Financial Services Committee, is leading the effort. Most of the Republican proposals line up with a list of recommendations put forth in February by the Treasury Department and the Department of Housing and Urban Development. Garrett’s panel will hold a hearing on March 31 on the proposals.
When it comes to the Treasury, “at the end of the day, we have the same ultimate goal to achieve here,” Garrett said at a press conference today. “If you look through their white paper, if you look at what we have, in essence we’re on the same page.”
The proposals mark the first round of measures aimed at incremental changes to Fannie Mae and Freddie Mac, Garrett said. In the weeks ahead, the panel will likely introduce other legislation designed to chip away at the government’s involvement in the firms.
“We’ll be looking at doing other rounds as we go forward and get these bills under our belts,” Garrett said.
Representative Spencer Bachus, an Alabama Republican who is the chairman of Financial Services, introduced a bill that would place the employees of Fannie Mae and Freddie Mac, which have been run by the federal government since 2008, under the government’s compensation structure. The measure would also express the sense of Congress that the 2010 pay packages of Fannie Mae and Freddie Mac senior executives should be returned to the government.
Any legislation that cleared the Republican-controlled House would need approval by the Democrat-dominated Senate and President Barack Obama.
Fannie Mae, based in Washington, and McLean, Virginia-based Freddie Mac have been sustained by $154 billion in Treasury funds since they were seized in September 2008. The two government-sponsored enterprises own or guarantee more than half of U.S. mortgages.
Representatives Jeb Hensarling and Randy Neugebauer, Texas Republicans who serve as the vice chairman and chairman of the Financial Services investigations subcommittee respectively, introduced bills limiting the portfolios of Fannie Mae and Freddie Mac and increasing the guarantee fees the companies require to insure mortgages. Hensarling’s bill would require the firms to cap their portfolios at no more than $700 billion in the first year, $600 billion in the second year and eventually down to $250 billion by the fifth year.
Neugebauer’s measure would require Fannie Mae and Freddie Mac to require higher guarantee fees over the next two years and direct its regulator to consider the state of the housing market as the higher fees are instituted.
Among provisions in the other bills are those that would require the Treasury to approve any new debt issuance by the companies and prohibit new business activities while they are under conservatorship or receivership.
“Our strategy is the same that it’s always been on Fannie and Freddie, and that’s to end government involvement and shift our mortgage market to the private market,” Bachus said.