The Senate Banking Committee approved a bipartisan bill to overhaul Fannie Mae and Freddie Mac, though it was a narrow and likely hollow victory, according to a May 15 article in The Wall Street Journal.
Thirteen committee members, including seven Republicans and six Democrats, approved the bill on May 15, a narrow majority of the 22 lawmakers on the committee.
Despite the Obama administration’s support of the bill, which calls for winding down the government-sponsored enterprises and replacing them with private firms that would carry government insurance to cover catastrophic losses only, it is unlikely to reach the Senate floor, as it lacks the support necessary to drive Senate Majority Leader Harry Reid, D-Nev., to bring it to a vote before November’s mid-term elections, the Journal reported.
Committee Chairman Sen. Tim Johnson, D-S.D., and Sen. Mike Crapo, R-Idaho, sponsored the bill, which would require private firms to carry initial losses on mortgage-backed securities.
The Journal reported that Fannie and Freddie will remain in government conservatorship until either an act of Congress or their regulator, the Federal Housing Finance Agency, ends it.
Given that six Democrats on the Senate Banking Committee voted against the bill, fearing it would impact availability of credit to moderate income borrowers; it’s highly unlikely the legislation will move through the Senate this year.
A bill brought forth by House Republicans last year also called for winding down the GSEs, but it hasn’t come to the House floor for a vote either.
Nevertheless, the White House has expressed support for the Johnson-Crapo legislation, and Gene Sperling, the president’s former top economic adviser, has said that doing nothing to address the issues with Fannie and Freddie will kill the public’s faith in the government.
Many housing industry advocates have argued Fannie and Freddie are too critical to the housing finance system to eliminate.