The U.S. housing industry is finding political traction in Congress as it objects to plans that would wind down Fannie Mae and Freddie Mac and eliminate any government role in mortgage finance.
Two members of the House Financial Services Committee, Gary Miller, a California Republican, and Carolyn McCarthy, a New York Democrat, today introduced legislation to create a government-run replacement for the two mortgage finance companies, which originally were chartered by Congress.
The measure directly challenges House Republican leaders, who have backed bills that would do away with the two companies and aim to minimize the risk that taxpayers will have to bail out future mortgage failures.
“This ideological approach has resulted in a stalemate for years,” Miller said at a press conference. “It’s not getting us any closer to fixing the housing problem.”
He and McCarthy were joined at the event by leaders from two of the industry’s most active lobbying groups, the National Association of Realtors and the National Association of Homebuilders.
The legislation reflects concerns by the industry, consumer activists and some policymakers that a complete withdrawal of government support for home lending could deepen the housing recession.
That message has gained momentum even as Fannie Mae and Freddie Mac continue to rely on taxpayers for survival. The two have cost the Treasury Department about $130 billion since they were seized by regulators in September 2008.
“There was the idea that people were so tired of taxpayer losses related to housing that the traditional housing lobby would not be able to retaliate effectively,” said Jim Vogel, head of agency debt research at FTN Financial in Memphis, Tennessee. “It’s time to start waving the housing flag again.”
That would be a turnaround from February, when the U.S. Treasury Department recommended selling off the holdings of Fannie Mae and Freddie Mac within a decade and the fourth-ranking House Republican, Jeb Hensarling of Texas, said he wanted to do it in half that time.
Since then, homebuilders, real estate agents, investment banks, civil rights leaders and consumer advocates have lobbied to preserve a government role -- including the implicit federal guarantee behind Fannie Mae and Freddie Mac, which were created by Congress as private companies designed to expand home ownership.
Line of Credit
Washington-based Fannie Mae and Freddie Mac of McLean, Virginia, were put under government control when failing subprime loans took them to the brink of insolvency. The Treasury told investors the U.S. would make good on the companies’ debt and promised the firms an unlimited line of credit. The companies have accepted more than $160 billion in Treasury aid. As of the first quarter of 2011, they had paid $26 billion in dividends back to the Treasury.
The Miller-McCarthy bill would create a “secondary market facility” for residential mortgages, in essence a federal utility that would buy home loans, pool them into bonds, and insure their principal and interest payments. The utility would be governed by a presidentially appointed board.
“We don’t want Congress meddling,” Miller said. Income from the bond sales would finance the company’s operation and any profit would be returned to the Treasury.
The Miller-McCarthy proposal follows a plan introduced in May by Representatives John Campbell, a California Republican, and Michigan Democrat Gary Peters. That bill would replace the government’s guarantee behind housing bonds with a system of privately run associations that would bear most of the risk.
The Campbell-Peters bill was modeled on proposals from the Housing Policy Council, a Washington trade group that represents big financial companies, private mortgage insurers, lenders and loan servicers, including JPMorgan Chase & Co., and the Mortgage Bankers Association, whose members include small lenders.
Smaller lenders oppose the approach, saying they fear that they could be squeezed by larger competitors who might end up being the ones selling the guarantees now sold by Fannie Mae and Freddie Mac.
“Under the Miller bill, the big banks don’t get to play. Under the Campbell bill they might,” said Rob Zimmer, a lobbyist for Community Mortgage Lenders of America, which works for small lenders.
At this stage in the legislative process, both proposals are little more than stakes in the ground. Neither will get a hearing before the Financial Services Committee, said Representative Scott Garrett of New Jersey, who is leading Republican efforts to eliminate Fannie Mae and Freddie Mac.
“The central tenet of the Republican philosophy is no more bailouts,” Garrett said. “We will only be considering legislation that abides by that principle.”
He said “it comes as no surprise” that mortgage lenders, investors and others in the housing business want to preserve as much of the current system as they can.
“They wanted to be bailed out before and they want a system again where they can be bailed out,” Garrett said.