Four formerly undecided Senate Democrats announced that they would not support the Johnson-Crapo bill to reform the government-sponsored enterprises, Mortgage News Daily reported May 9.
The bill’s co-author, Sen. Tim Johnson, D-S.D., had hoped to have 16 favorable votes in the Senate Finance Committee before bringing S 1217 before to the floor; the bill obtained only 12 “yes” votes on May 8 with six Republicans and six Democrats in favor of the legislation.
Two Democrats were opposed, and four had been undecided until ultimately deciding to vote against the bill. The Democrats moving to vote “no” were Charles Shumer, N.Y.; Jeff Merkley, Ore.; Jack Reed, R.I.; and Robert Menendez, N.J. Sens. Elizabeth Warren, D-Mass., and Sherrod Brown, D-Ohio, already declared their intention to vote against the bill.
While Senate Finance Committee Chairman Johnson has the votes necessary to move the bill to a full Senate floor vote, Mortgage News Daily reported that the opposition of so many Democrats may prevent Majority Leader Harry Reid, D-Nev., from bringing the bill up for a vote.
Reportedly, Democrats agreed in a private meeting not to support the bill because they felt that the Federal Mortgage Insurance Corporation, which would replace Fannie Mae and Freddie Mac and provide a federal catastrophic backdrop against mortgage default losses, did not seem like a viable option.
Several amendments to the Johnson-Crapo bill have been proposed, including one by Brown that would create fiduciary responsibility for investors in mortgage-backed securities.
Sen. David Vitter, R-La., proposed nine other amendments to close loopholes in the bill that would allow depository institutions in the secondary market to participate in a way that could lead to another bank bailout.
Mortgage News Daily reported that Warren and Brown both have been vocal in their opposition to the bill because of its elimination of the affordable housing goals originally assigned to the GSEs.
“Either collectively or individually, issuers of mortgage-backed securities that are government-guaranteed should have a clear and enforceable duty to serve the entire primary market,” Warren stated in support of credit availability for low-income and minority borrowers, Mortgage News Daily reported.
Warren also has been concerned about protecting the lending roles of smaller financial institutions that serve rural and poorer urban markets.
“Any future housing finance system must ensure not only that smaller lenders can sell their loans into the secondary market, but also that they can do so at competitive rates and remain viable players in the primary market,” Warren said, Mortgage News Daily reported.
A spokesman for Johnson told Mortgage News Daily that the committee will continue to work to find common ground so they can bring the bill to the Senate floor for a vote.