Abolishing Fannie Mae: Harder Than It Looks?
By Nick Timiraos
House Republicans who want to abolish Fannie Mae and Freddie Mac may be finding themselves outmaneuvered by colleagues—and the real-estate industry—who prefer a permanent government presence in the mortgage market.
As a House subcommittee took up six bite-sized bills to chip away at Fannie and Freddie’s market presence on Tuesday, Republicans said that they were unlikely to put forward a comprehensive overhaul bill and faulted the White House for not offering more direction.
“We would like a comprehensive bill,” said Rep. Spencher Bachus (R., Ala.), who chairs the financial services committee. “Now, can we get a comprehensive bill? I don’t know. I don’t think so.”
Before taking back control of the House of Representatives last fall, Republicans called for a timely wind down of the mortgage-finance giants. They have since introduced more than a dozen bills designed to clip the firms’ wings, and Rep. Jeb Hensarling (R., Texas) has introduced a separate measure to shrink the firms and strip them of their federal charters.
The problem for Republicans is that two bills introduced over the past two months would restructure the government’s role in the housing market, but they wouldn’t eliminate government-guaranteed loans. Both bills have a Republican and a Democratic sponsor along with heavy support from the banking and housing industries.
In February, the Obama administration sketched out three options for what lawmakers might do with Fannie and Freddie, but it has punted on providing more specifics or support for any of the options.
Republicans met with Treasury Secretary Timothy Geithner and Housing Secretary Shaun Donovan in April, and Mr. Bachus said the Obama administration had “two or three more weeks” to bring forward a comprehensive plan.
The hesitance by lawmakers on both sides of the aisle to “go first” on Fannie and Freddie speaks to both how politically charged the issue remains and how technically complex it will be to revamp the nation’s $10.5 trillion mortgage market, especially at a time when the housing market is sagging.
Fannie and Freddie, together with federal agencies, back nearly nine in 10 new mortgages and guarantee more than half of all outstanding home loans. Withdrawing government support is likely to raise borrowing costs, and abolishing Fannie and Freddie could also concentrate more risks in the four largest banks.
Rep. Scott Garrett (R., N.J.), who has pushed for the current series of small bills to kickstart the discussion, says that any overhaul should be phased in over the next four to five years. “You have to give the private market a sign that we’re actually going to get to this,” he said in a recent interview.
House Republicans also face a difficult dilemma because the longer it takes to get a bill moving, the more the memory of the mortgage market’s spectacular collapse could fade. “So many members [of Congress] have forgotten that the crisis of 2008 occurred,” said Mr. Garrett. “You can imagine how their memory will be nine, 10, or 15 years from now.”
Corrections & Amplifications: An earlier version of this post incorrectly reported the number of bills on Fannie and Freddie taken up Tuesday by the House subcommittee. It was six, not seven.