The Senate Banking Committee is near completion of a bipartisan bill that would reform Fannie Mae and Freddie Mac, National Mortgage News reported Feb. 12. U.S. Department of Housing and Urban Development Secretary Shaun Donovan said it is critical to move on reform now, given pending litigation.
A number of hedge funds owning common and preferred stock in the two government-sponsored enterprises have sued the government over its requirement that the two mortgage giants sweep most of their profits into the U.S. Treasury. Shareholders claim they deserve compensation.
In a Feb. 12 briefing, Donovan warned that adverse court rulings could make it more difficult for lawmakers to reform Fannie and Freddie. Donovan said he hopes Congress will pass a reform bill this year.
Mortgage Bankers Association President and Chief Executive Officer David Stevens told National Mortgage News he feels it’s critical for Congress to pass legislation before the November elections, fearing lawmakers could lose momentum at that point.
National Mortgage News reported that the proposed reform bill likely will resemble one introduced last year by Sens. Bob Corker, R-Tenn., and Mark Warner, D-Va., which would have required private capital to take a first loss position of up to 10 percent on all mortgage-backed securities.
Senate Banking Committee Chair Tim Johnson, D-S.D., and Mike Crapo, R-Idaho, the committee’s ranking member, said they will release details of the proposed legislation in the next two weeks.
According to National Mortgage News, if lawmakers fail to reach an agreement on reform by spring, the issue could languish for another year and perhaps put reform efforts for Fannie and Freddie on hold indefinitely.
Johnson and Crapo issued a joint statement saying they “recognize that we must build a broad bipartisan consensus for an agreement to have a chance at becoming law.”
Six Democrats on the panel could cause issues, as they all opposed the original Corker-Warner bill.
Stevens said legislation will only be possible if lawmakers don’t “get pulled apart based on the extremes of either party.”
President Obama is pushing for the bill, too, having advised Congress in his State of the Union address to send him reform legislation before lawmakers’ focus shifts to mid-term elections.