WASHINGTON – The Senate yesterday defeated an amendment to the bank reform bill that would have ended government support of Fannie Mae and Freddie Mac over the next two years and forced the two government sponsored enterprises into a privatization.
Senate Banking Committee Chairman Chris Dodd of Connecticut cited support from NAFCU, Realtors and home builders when he said the housing markets are not ready yet to do without the major intervention provided by the two secondary mortgage market giants. Dodd, who is managing the floor debate on the bank bill, said it would be "reckless" to pull the plug on Fannie and Freddie without some kind of alternative housing finance structure in place.
The amendment was proposed by Republican senators who said it is time to begin ending government support for Fannie and Freddie, whose massive losses have eaten up $150 billion in aid so far, with no end in sight. “It’s more money down the rat hole,” said Arizona’s John McCain, one of the sponsors of the failed amendment.
The Republicans insisted that the resolution of Fannie and Freddie should be part of the overall bill that purports to deal with so-called “too-big-to-fail” financial institutions.
But Senate Majority Leader Harry Reid of Nevada said it was not yet time to cut the two housing companies free, as the mortgage markets are still shaky and their roles are vital. The two GSEs, he said, “are trying to find their sea legs."
In an unusual move, Dodd read a letter from NAFCU on the floor of the Senate, which referred to the liquidity Fannie and Freddie provided to the mortgage market for lenders such as credit unions. “Despite their conservatorship, Fannie Mae and Freddie Mac have remained an important tool for credit unions to free up funds to make more loans,” said the NAFCU letter, signed by chief lobbyist Dan Berger.
The Obama administration has said it plans to propose an overhaul for Fannie and Freddie later this year that would serve as a foundation for a future resolution of the two huge companies.
Earlier in the day the Senate approved an amendment proposed by Vermont’s Bernie Sanders that will require an audit of the Federal Reserve’s huge lending operations during the financial crisis. The amendment was approved on a bipartisan vote.
