Photographer: Brent Lewin/Bloomberg

The Fannie-Freddie Overhaul Is Near Do-or-Die With Corker Retiring

Updated on
  • Senator will make push for bill before retiring, analysts say
  • Tennessee Republican has co-led failed legislative efforts

For nearly a decade, “wait ’til next year” has been the refrain for proponents of overhauling mortgage giants Fannie Mae and Freddie Mac. For U.S. Senator Bob Corker, arguably the biggest advocate of that push, it will either be next year or never.

Corker said Tuesday that he won’t seek re-election for a third term, leaving him roughly 15 months in office. Analysts and others in the housing-finance industry said the announcement could lead to a final aggressive drive for reform. But since housing-finance legislation would still a long shot, his departure could leave a leadership vacuum in addressing one of the last vestiges of the 2008 financial crisis.

Bob Corker

Photographer: Andrew Harrer/Bloomberg

The Tennessee Republican’s impending retirement “will surely lead to him pushing aggressively for GSE reform before he leaves the chamber,” according to Compass Point Research & Trading analyst Isaac Boltansky, who said he expects the effort to fail.

Fannie and Freddie don’t make mortgages but buy them from lenders, wrap them into securities and make guarantees to investors if the loans default. The government took over the companies in 2008, eventually injecting them with about $187.5 billion in bailout money.

Lawmakers have tried and failed several times to pass legislation that would overhaul the mortgage-finance system. In the meantime, Fannie and Freddie have returned to profitability and since 2012 have paid taxpayers more than $270 billion. The terms of their bailout agreements require them to send nearly all profits to the U.S. Treasury.

Progressives’ Opposition

Corker was at the forefront of some of the failed efforts. He and Senator Mark Warner, a Virginia Democrat, spearheaded legislation that would have wound down Fannie and Freddie and replaced them with a new system. That bill passed the Senate Banking Committee in 2014 but withered amid opposition from progressives.

More recently, the two lawmakers have tried to build a bipartisan coalition to work on the issue. They have considered more modest changes, including introducing competition to Fannie and Freddie and ending their too-big-to-fail status. The push has also become a priority for Senate Banking Committee Chairman Mike Crapo, an Idaho Republican, who has held a series of housing-finance hearings in recent months.

Corker’s impending retirement gives that effort new urgency, said Charles Gabriel of Washington-based research firm Capital Alpha Partners.

“While Corker is leaving, that may not mean that he is a spent force,” Gabriel wrote in a note on Tuesday, predicting a possible push for a limited Fannie-Freddie bill before the senator leaves office.

Foreign Relations

At the same time, Fannie-Freddie reform could take a back seat to more pressing matters for Corker, who in addition to his work on the Banking Committee deals with international issues as chairman of the Senate Foreign Relations Committee.

Cowen Inc. analyst Jaret Seiberg on a Wednesday note wrote that he expected Corker to devote more time to that committee than to housing finance. Seiberg, who had put a high probability on Congress passing reform, lowered that probability below 50 percent and said he believed it was more likely that the Trump administration ends up taking action.

The administration has been slow to outline its desires for Fannie and Freddie. Treasury Secretary Steven Mnuchin earlier this year said ending government control of the companies would be a priority for the second half of 2017, but earlier this month said an effort realistically wouldn’t happen until 2018.

Officials at Treasury and other parts of the administration have been working on a set of housing-finance principles to be released before the end of the year, but those points are expected to be broad rather than the outline of a specific plan.

Corker has also been a frequent foil for private shareholders of Fannie and Freddie, some of whom want the administration to bypass Congress and release the companies from private control largely as they are.

Common shares of Fannie and Freddie on Wednesday rose as much as 4.8 percent before retreating. Fannie ended the day up about 1.3 percent, or 4 cents, while Freddie shares fell less than 1 percent, or 2 cents. The companies’ preferred shares also fell slightly.

Mel Watt

Releasing the companies from government control would require the cooperation of the Federal Housing Finance Agency, the independent agency that oversees the companies. FHFA Director Mel Watt, whose term ends in 2019, has said he believes Congress needs to enact reform. An FHFA spokeswoman on Wednesday said nothing has changed.

The House Financial Services committee, led by Texas Republican Jeb Hensarling, has begun its own Fannie-Freddie effort and will hear testimony from Watt next Tuesday. That could serve as a kickoff for a series of hearings planned by the panel’s housing and insurance subcommittee, which is led by Wisconsin Republican Sean Duffy.

Hensarling has pushed for legislation that would severely curtail the government’s role in the housing finance, though he has said in speeches that he’s open to other ideas. Because this is Hensarling’s last term as chairman, it could also be his last time leading a reform effort from that perch.

Jim Parrott, who helped lead housing-finance efforts in the Obama White House and now consults for financial institutions, said the impending departure of Corker and end of Hensarling’s chairmanship could light fires in both committees.

“If it doesn’t, then we enter 2019 in desperate need of leadership on the issue,” Parrott said.

— With assistance by Felice Maranz

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