Fannie, Freddie replacement stalled in Senate

by Ryan Smith12 May 2014
A plan to wind down Fannie Mae and Freddie Mac appears to be stalled in the Senate.

The bill, written by Senate Banking Committee Chairman Tim Johnson (D-S.D.) and Ranking Member Mike Crapo (R-Idaho) would dismantle the mortgage finance giants and replace them with a new federal mortgage insurer while moving more risk onto private capital.

The bill has enough votes to pass the Senate Banking Committee. Last week, however, six key Democrats – Elizabeth Warren (D-Mass.), Charles Shumer (D-N.Y.), Sherrod Brown (D-Ohio), Jeff Merkley (D-Oregon), Robert Menendez (D-N.J.) and Jack Reed (D-R.I.) – withdrew their support from the legislation. Warren and her allies said the bill needed major revision, according to Bloomberg. They felt the structure of the new federal reinsurer was problematic and that the bill didn’t contain sufficient support for affordable housing goals. But without more Democratic support, Senate Majority Leader Harry Reid (D-Nev.) is unlikely to bring the bill before the full chamber, the Washington Post reported.

Despite bipartisan support, the bill is controversial. Shareholders in Fannie and Freddie want Fannie and Freddie returned to private ownership. Several hedge funds have filed lawsuits challenging the current system in which the mortgage giants send all their profits to the Treasury.

Other critics worry the bill would tighten credit requirements for government-backed mortgages, making mortgages more expensive for many borrowers and pricing some would-be home buyers out of the market.

COMMENTS

  • by Alan Brucato | 5/12/2014 9:30:06 AM

    You can say you read it here 1st. Fannie and Freddie or some other GSE are not going anywhere. The real estate market would crater without access to long term mortgage backed securities.

  • by Jim in Connecticut | 5/12/2014 9:47:07 AM

    I think Alan is correct. The only environment in which such a change could be made would be in a strong housing/employment market (if then), not today's on-life-support recovery.

  • by A.F. | 5/12/2014 9:47:07 AM

    Alan you're 100% right! The GSEs are not going anywhere and it's because the banks themselves don't want them to go anywhere. Does anybody really think that the banks would just sit there quietly if they could be making money in the securitization business again? The problem is that there is nobody to sell this stuff to anymore. The countries and pension funds they swindled leading up to the crash are all broke. Besides, can you imagine the can of worms they would be opening if Fannie and Freddie were to go public? They'd have to show all the skeleton in their closets. All those garbage mortgages that were cleaned off the banks balance sheets are still hidden on the GSEs books.

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