UPDATE: Top House Republicans More Cautious About Fannie, Freddie
WSJ
DECEMBER 28, 2010, 6:34 P.M. ET
(Adds comment from Rep. Bachus.)
By Alan Zibel of DOW JONES NEWSWIRES
online.wsj.com
WASHINGTON (Dow Jones)--Earlier this year, leading House Republicans proposed privatizing mortgage giants Fannie Mae (FNMA) and Freddie Mac (FMCC) or placing them in receivership starting in two years.
Now, as Republicans prepare to assume control of the House next week, they are offering a more nuanced message: Any retreat of government support in the housing market should be gradual.
"We recognize that some things can be done overnight and other things can't be," said Rep. Scott Garrett, (R., N.J.), incoming chairman of the House Financial Services subcommittee that oversees Fannie and Freddie. "You have to recognize what the impact would be on the fragile housing market as it stands right now."
Cautious statements from key Republicans on the House Financial Services Committee are a shift from the debate over the Dodd-Frank financial overhaul during the spring and summer, when Republicans blasted the Obama administration for leaving Fannie and Freddie out of that legislation.
At the time, Republicans were backing a bill by Rep. Jeb Hensarling, (R., Texas), to cut the government's ties to the mortgage giants, or put them into receivership starting in two years. If they were deemed financially viable under Hensarling's approach, they would be fully private within five years.
"Of all the dumb regulation that caused our economic crisis, none was dumber than that which created the [Fannie and Freddie] monopolies," Hensarling said in March.
Many Republicans now concede that a speedy exit may not be practical, because Fannie and Freddie have such a dominant position in the nation's housing market.
"Using taxpayer money to subsidize the mortgage market is an addiction and, like all addictions, it can't be cured overnight," Rep. Spencer Bachus (R., Ala.), the incoming chairman of the House Financial Services Committee, said in an emailed statement. "There will be a reasonable transition period over a number of years to allow for the private market to develop."
A hasty end to the government's support of Fannie and Freddie would mean fewer Americans could get home loans, causing home sales and prices to drop even further and making the taxpayer bill for rescuing the mortgage giants even higher, said Rep. Randy Neugebauer (R., Texas), a former banker and housing developer who serves on the House Financial Services Committee.
"You'd cause Freddie and Fannie to have even larger losses than they'd already have," Neugebauer said.
One idea to lessen the government's role is to reduce the maximum size of loans that can be backed by Fannie and Freddie. It is currently set at $729,750 in high-cost areas such as New York and San Francisco. Reducing that limit could restart the market for private mortgage-backed securities, which has been nearly dormant for the past three years.
"At some point, you're going to have to put some pressure on the private market to start picking up that slack," Neugebauer said.
Fannie and Freddie, which buy mortgages from banks and package them into securities, were placed into a government conservatorship in September 2008, after they nearly failed as losses from the housing bust started to mount. The companies' federal regulator has estimated that the bailout will wind up costing about $154 billion--far more than the $25 billion estimated cost of the broader Troubled Asset Relief Program, which bailed out the rest of the financial industry.
Ever since the housing market went bust, the federal government has been the main source of support for new mortgage lending. Fannie, Freddie, the Federal Housing Administration and the Department of Veterans Affairs backed nearly 90% of new home loans in the first three quarters of 2010, according to trade publication Inside Mortgage Finance.
With home prices starting to sink anew, lawmakers and the Obama administration face intense pressure from the real-estate and banking industries to maintain some form of federal support.
"We don't believe that the private market, right now, is willing or able to provide the liquidity that's necessary to get us out of this," said Joe Stanton, chief lobbyist for the National Association of Home Builders.
"To erode that support right now would be a disaster," said Vince Malta, a real-estate agent in San Francisco and a vice president of the National Association of Realtors.
Republicans say they want to examine the Treasury Department's proposal for how to overhaul the mortgage giants, expected next month. Administration officials have been weighing whether to include some sort of federal backstop, which could work like a catastrophic insurance fund to be used in the event of a housing market bust.
Republican lawmakers remain deeply skeptical of this idea. "The Republican effort will be focused on diminishing the government guarantee, to the extent possible," said Rep. Ed Royce, (R., Calif.). "In terms of where we end up, that remains to be seen."
Nevertheless, Republicans they say they want to compromise with the Obama administration and Senate Democrats on a plan that could pass a divided Congress next year.
Lawmakers shouldn't wait too long, Garrett said, because doing so would allow Democrats to argue that Fannie and Freddie should be reconstituted.
"There's a huge incentive to hash out a deal," Garrett said. "This needs to be addressed yesterday."
-By Alan Zibel, Dow Jones Newswires; 202-862-9263; alan.zibel@dowjones.com |
