July 19 (Bloomberg) -- U.S. House Financial Services Committee Chairman Jeb Hensarling said he will advance a bill to eliminate Fannie Mae and Freddie Mac and remove the federal backstop from most of the residential mortgage market.
“I don’t know anybody who wants to defend Fannie and Freddie,” Hensarling told Peter Cook in an interview to be broadcast Sunday on Bloomberg Government’s “Capitol Gains.” “I don’t know anybody who wants more taxpayer bailouts. I don’t know anybody who wants to support government policies that are going to put people into homes they can’t afford to keep.”
Hensarling said his committee will vote on the proposal next week and that he expects it to get a vote on the House floor. The Texas Republican sees his proposal as an alternative to a bipartisan Senate measure.
The Hensarling bill has been faulted as an “ideologically pure exercise” by Senator Mark Warner, the Virginia Democrat who joined with Tennessee Republican Bob Corker in proposing that the U.S.-owned mortgage financiers be replaced with a government reinsurer to stand behind private capital. Representative Maxine Waters of California, the top Democrat on Hensarling’s committee, has called his plan unworkable.
“We do not see any way for this approach to win support in the Senate even if the Republicans win a majority in the mid-term election,” Jaret Seiberg, a senior policy analyst at Guggenheim Securities LLC’s Washington Research Group, said of Hensarling’s plan in a research note today. “We are not even sure this approach can pass the full House.”
The Corker-Warner bill is problematic because it includes a government guarantee, Hensarling said in the “Capitol Gains” interview.
“If you don’t get rid of the permanent, everyday government guarantee in the secondary mortgage market, I fear all you’ve done is put Fannie and Freddie in the Federal Witness Protection Program,” he said. “Give them a face-lift, give them new names, maybe they come out as Eddie and Annie. And yet they’re released on an unsuspecting public.”
Washington-based Fannie Mae and Freddie Mac of McLean, Virginia, provide liquidity for the mortgage market by buying loans and packaging them into securities on which they guarantee principal and interest payments in exchange for fees. The two companies, which have operated under U.S. conservatorship since they were seized amid losses during the 2008 credit crisis, were kept solvent by $187.5 billion in U.S. bailout funds before returning to profitability this year.
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