The House of Representatives voted 331 to 90
on Wednesday to revamp the oversight of Freddie Mac, Fannie Mae, and the Federal
Home Loan Bank.
The legislation enables the creation of a new independent regulator with the
authority to set capital standards, dismantle a company in financial trouble,
and require that the mortgage companies reduce their huge mortgage portfolios.
The bill, however, fell far short of actually demanding the reduction of those
portfolios as has been advocated by many including retiring Federal Reserve
Chairman Alan Greenspan. The combined portfolios of Freddie Mac
and Fannie Mae have been estimated to total $1.5 billion.
A somewhat similar bill to regulate the two Government Sponsored Enterprises
has been stalled in the Senate for some time. It differs in
several respects from the House version of the regulatory bill and experts say
that there will be difficulties in reconciling the two in order to reach a consensus
that could be approved by both branches. The Bush Administration is also said
to be unhappy with the House bill. The main bone of contention between opposing
factions in the Senate and the source of the Administration's opposition
is the lack of that requirement to shrink the portfolios.
Fannie and Freddie's supporters were able to beat back a couple of inhospitable
provisions in the House version. One of these would have eliminated the GSE's
ability to borrow money from the U.S. Treasury and another would have given
more authority to the proposed regulator. Under the House versions of the legislation
the two corporations will also be able to buy so called "jumbo
loans" from originators. Under current rules the GSEs are allowed
to buy only conforming loans, defined as mortgages of up to $359,000 this year,
rising to $400,000 next year. The House version of the bill would allow the
GSEs to purchase loans of up to $600,000.
Another difference between the House and Senate versions is the provision in
the House of Representative's legislation mandating creation of an affordable
housing fund. This would require the GSEs to set aside 3.5 to 5 percent of the
corporations' profits for the next five years to build low-income
housing. One mechanism would be housing grants to local entities. A
last-minute amendment, however, would prohibit the use of these funds by any
group that engages in get-out-the-vote activities. This insertion was urged
by conservative organizations and opposed by many non-profit groups as well
as faith-based organizations such as the National Urban League and Catholic
The Senate version of the GSE oversight bill was approved by the Senate Banking
Committee last summer but is not expected to be brought to the floor until the
middle of next year.
All of this activity, of course, has emerged from the nearly two-year old series
of disclosures about first Freddie and then Fannie's accounting irregularities.
Freddie fessed up quickly and has partially recovered (although obviously still
facing Congressional backlash); Fannie has been forced to request delay after
delay in reporting restated earnings, reported in the vicinity of $9 billion,
dating back to 2001,and.in early 2005 slashed its quarterly divided in half
in anticipation of the revised profit figures.