Hope for reforming government mortgage buyers Fannie Mae and Freddie Mac is dimming as the 113th Congress finishes up its last business before the November elections, even as Obama administration officials intensify the push to fix housing finance and boost home lending.
With lawmakers finishing votes on war and government funding before leaving in November, the administration faces the possibility that when Congress returns, either a Republican or an uncooperative Democrat would be set to take control of the Senate panel with jurisdiction over housing finance. That development would further set back an already moribund push for legislation and lessen the chances that the fate of the government-sponsored enterprises is determined on Obama’s watch.
“There’s gonna be no change whatsoever to the legislative dynamic, and the politics of it don’t become any easier next year no matter who takes over,” said Isaac Boltansky, an analyst at the investment firm Compass Point.
“I think the Ohama administration realized that their last true shot on goal was with Johnson-Crapo,” said Berlanskey, referring to the Senate reform measure favored by the White House. “Now that that effort has concluded, I don’t see the White House taking any more major action [on legislation].”
Named after Senate Banking Committee Chairman Tim Johnson, D-S.D., and ranking member Mike Crapo, R-Idaho, Johnson-Crapo would wind down Fannie and Freddie, which received a taxpayer bailout in 2008 and have been in the government’s custody since. Johnson-Crapo would replace the companies with a system of private insurance for mortgage-backed securities, backed by the government.
Administration officials continued to boost the bill this week. In a speech at a housing summit in Washington, newly installed Housing and Urban Development Secretary Julian Castro said that “the bipartisan passage of Johnson-Crapo in the Senate Banking Committee was a huge step forward. Now we must keep pushing until housing reform legislation gets over the finish line — once and for all.”
Those remarks were echoed by the Treasury Department’s counselor for housing finance policy, Michael Stegman, who said at the same event that that the only way to reduce the role of the government-sponsored enterprises was through legislative reform.
Yet Johnson-Crapo has made no progress in the broader Senate, lacking support from Republicans and Democrats who believe that it doesn’t do enough to promote affordable housing and unfairly gives an advantage to big banks.
And it faces grim prospects in the next Congress as well, with Johnson — its namesake — set to retire. The Democrats who could take over the Banking Committee chairmanship, widely thought to be Sen. Sherrod Brown of Ohio or Sen. Chuck Schumer of New York, both voted against Johnson-Crapo.
Johnson’s likely Republican successor, Sen. Richard Shelby of Alabama, also voted against the measure. Long a critic of the government-sponsored enterprises before they got into trouble during the financial crisis, he would be expected to pursue a more conservative approach to reform — one that would be just as likely to fail to gain traction in a divided Senate.
“I think he’s a very practical politician and is going to recognize that he may not have the big numbers on his side,” said an industry source involved in the legislation, adding, “I would expect that over time he would feel that he’d have to come forward with some kind of package.” Shelby, he said, would favor a measure more like the one passed on a partisan basis by Republicans on the House Financial Services Committee in summer 2013.
Like the Senate bill, that Republican effort failed to gain broader support and did not receive a vote in the House. It also would have wound down Fannie and Freddie, but did not include a government guarantee for mortgage-backed securities.
With reform looking increasingly unlikely during Obama’s tenure as the legislative year draws to a close, the administration has stepped up its efforts to expand mortgage credit as much as possible through the existing system.
The White House hosted a meeting with housing industry leaders and regulators Thursday, during a week in which top administration housing officials renewed calls for reform.
A White House spokesman said that “the president has repeatedly called for regulators to cut red tape so all responsible families can get a mortgage — not a return to the days of unsound lending practices, but ensuring that responsible, creditworthy families can obtain access to sustainable mortgage credit when they’re ready and prepared to buy a home.”
Thursday’s meeting between lenders, mortgage insurers and regulators, the spokesman said, “will continue the dialogue on ways to drive further progress as part of the administration’s broader effort to support middle-class families.”
Those include efforts by the Federal Housing Finance Administration, the overseer of Fannie and Freddie led by Obama appointee Mel Watt, to increase lending to families with less-than-perfect credit.
Meanwhile, a group of owners of Fannie and Freddie stock who have sued the federal government for taking the businesses income for the Treasury rather than recapitalizing the companies welcomed the lack of progress of legislation.
“The Johnson-Crapo bill, which failed to pass the Congress in 2014, is a fundamentally flawed bill that would have violated the rule of law, wiped out shareholders and disrupted mortgage affordability,” said Tim Pagliara, chairman of Investors Unite, a group of investors in Fannie and Freddie. “Congress needs to start over in 2015, and Investors United looks forward to being part of this discussion,” Pagliara told the Washington Examiner.
