Housing battle lacks conviction
Phasing out Fannie Mae and Freddie Mac not as easy as it sounds
But House and Senate Republicans pushing bills to phase out both federally run companies are learning how fear, politics and old-fashioned lobbying can trump ideology.
Even in the GOP-run House, leading proponents of doing away with Fannie and Freddie aren’t predicting victory. As a precaution, they’re advancing eight bills taking bite-size swipes at the issue. In the Democrat-led Senate, a sister measure by 2008 presidential candidate Sen. John McCain, R-Ariz., faces long odds, and the Banking Committee’s top Democrat and Republican are wary of quickly reshaping the market for financing home purchases.
“There’s no consensus on it,” House Financial Services Committee Chairman Spencer Bachus, R-Ala., conceded in an interview this month about a sweeping overhaul bill by Rep. Jeb Hensarling, R-Texas. “I can’t promise we will build consensus.”
Fannie and Freddie don’t issue mortgages but buy them from the original lenders, thus providing cash for more loans. They then package many mortgages into securities that they resell to investors, using a government guarantee that lets them pay a lower yield than their few competitors.
Bachus calls Hensarling’s bill “the gold standard” for Republicans. It would halt government backing of Fannie and Freddie and end or dramatically reduce their role in mortgage financing within five years. The goal is to turn the mortgage market over to banks and other private lenders, who have shied away during the relentless real estate bust of the past few years.
With housing still staggering from foreclosures and low prices, some Republicans worry that erasing the federal role in the mortgage market could rattle the housing industry and perhaps the entire economy. Without the government guarantee of mortgage products that Fannie and Freddie enjoy, the cost of mortgages would likely rise, making homes less affordable.
Feeding lawmakers’ concerns are real estate agents, mortgage bankers and home builders, powerful constituencies and campaign contributors. The bankers and builders brought throngs of members to the Capitol last month to visit legislators, and the realtors are coming in May.
“Every member of Congress has hundreds of them in their district, and they are very active,” Rep. John Campbell, R-Calif., a conservative who wants to maintain a federal role in financing homes, said of realtors. “I would not discount their impact.”
Though Democrats, including President Barack Obama, agree that Fannie and Freddie should be eased aside to get private lenders back in the market, Republicans generally want to move faster and further.
For many in the GOP, Fannie and Freddie epitomize government waste run amok. Under President George W. Bush, the government took them over in September 2008 as they teetered near collapse as the housing market crumbled. Taxpayers have since shoveled $154 billion at the two companies to keep them alive – which resonates at a time when efforts to trim record budget deficits are a premier national issue.
The Obama administration has offered three options for phasing out Frannie and Freddie and is unilaterally taking steps aimed at reducing the two companies’ housing roles and creating room for private lenders to move into the market. They include gradually increasing the fees Fannie and Freddie charge and reducing the size of their loan portfolios.
House Republicans would go further, cutting the pay of Fannie and Freddie executives to government-level salaries and ending the companies’ mandates to back mortgages for lower-income people.