WASHINGTON -
Two hearings held by the House Financial Services Committee on a bill to regulate the government sponsored enterprises-Fannie Mae, Freddie Mac and the Federal Home Loan Banks-indicated that the third try at reforming the secondary market will not be as easy as the new Democratically controlled Congress had hoped.
The hearings came as the crisis spreading through the subprime market had lawmakers contemplating new legislation to rein in subprime mortgages or to even create a fund to bailout the hundreds of thousands of borrowers having subprime loans foreclosed on. That left the possibility that the subprime issue could infect the ongoing debate over the secondary market.
One Barrier Finally Surmounted
Ironically the new turf battles came as lawmakers reached agreement on the major impediment to a bill in the last Congress, portfolio limits for Fannie and Freddie. In a carefully negotiated compromise, the Bush administration agreed not to seek a provision requiring the two secondary mortgage market giants to trim their portfolios, but one which will give a new regulator the authority to order a reduction in portfolios, if necessary to maintain safety and soundness.
Both the thrift lobby's America's Community Bankers and the National Alliance of Independent Mortgage Brokers urged lawmakers to regulate the GSEs to ensure that neither Fannie or Freddie will encroach on mortgage originations, the so-called primary market.
But the community bankers lobby, the Independent Community Bankers of America, and NAFCU insisted there should be no "bright line" barring the two secondary market giants from developing or creating new products and services to help smaller mortgage lenders.
The president of the Federal Home Loan Bank of Pittsburgh urged Congress to allow the 12 FHLBs to securitize more than $1 billion in mortgages to help them expand their fledgling secondary market alternative to Fannie and Freddie, known as Mortgage Partnership Finance.
Several bankers also expressed concern that Congress might expand the powers of the Farm Credit System, another GSE, and insisted the possibility of adding another federally-backed competitor should not be part of the current GSE bill.
In a statement submitted to the Financial Services Committee, NAFCU urged that four major principals be adhered to in any new bill. They are: creation of an independent regulator to oversee the GSEs; that no defined limits be set for the portfolios of Fannie and Freddie; that minimum capital levels be set solely for the sake of safety and soundness; and that no 'bright line' be set between the secondary mortgage purposes of Fannie and Freddie and the primary market, but that the new regulator have veto power if it feels any new products or services introduced by the two companies are "deemed unfit."
New Regulator Under Consideration Again
A bill introduced in the Committee is similar to one that passed the full House in the last Congress and would create a new regulator for Fannie, Freddie and the FHLBs; set new capital standards for the housing GSEs; and allow the regulator to limit the portfolio size of Fannie and Freddie. It would also require that the two companies set aside funds-estimated at as much as $500 million a year-to finance affordable housing project, similar to what the FHLBs do now.
Members of the committee hope to vote a bill as early as this week.
