Fannie Mae and Freddie Mac showed no hint of compromise this week on legislation that would toughen regulatory oversight of the government-sponsored enterprises,.
Their stance seemed to confirm predictions that the bill would go nowhere this year.
On Tuesday, Fannie and Freddie officials took a hard line against the bill at a hearing held by its sponsor, Rep. Richard H. Baker, chairman of House Banking's capital markets subcommittee. The panel's Democrat strongly supported their argument that the legislation would stifle the secondary markets and decrease funds available for home loans to average Americans.
Critics say Fannie and Freddie are turning a safety-and-soundness issue into a political one. They say that the GSEs' argument - that to stand behind the legislation is to stand against the popular institution of federally subsidized homeownership - protects their franchise at the taxpayers' expense.
The Baker bill is aimed at protecting taxpayers from the risk of Fannie and Freddie's growing debt. It is largely assumed that were Fannie and Freddie to experience large-scale losses in the case of an economic crisis, the government would bail them out.
The Baker bill proposes to put regulation of three government-sponsored enterprises - Fannie, Freddie, and the Federal Home Loan Bank System - under one roof. Fannie and Freddie are currently regulated by the Office of Federal Housing Enterprise Oversight and the Department of Housing and Urban Development, while the Home Loan banks are regulated by the Federal Housing Finance Board. The bill also proposes to eliminate Fannie and Freddie's $2.25 billion lines of credit with the Treasury Department in case of financial crisis, and it seeks to add stiffer guidelines for product launches.
Despite the dim prospects for the legislation this year, Rep. Baker is looking for incremental victories to raise the profile of his reform plan and put pressure on the government-sponsored enterprises.
Indeed, Rep. Baker touted the fact that Fannie Mae chairman and chief executive officer Franklin Raines had agreed to meet with him privately to discuss the legislation. No date has been set.
Rep. Baker also said the interest of lawmakers in the issue had increased, noting that attendance at the hearing Tuesday was much higher than at a similar hearing in March.
Still, those may be inconsequential gains.
Freddie Mac officials held talks with Rep. Baker last week, but no compromises emerged. During the hearing Tuesday, Mr. Raines said that the only housing oversight change he supported was to impose a risk-based capital standard on Federal Home Loan banks like those being developed for Fannie and Freddie.
There were tense exchanges at the hearing as Rep. Baker and several fellow Republicans questioned whether Fannie Mae has been acting in good faith.
Rep. Donald Manzullo, R-Ill., and Rep. John E. Sweeney, R-N.Y., accused Fannie of misrepresenting themselves in enlisting their constituents to write letters of opposition to the Baker bill. Rep. Manzullo also implied that some of the letters may have been fabricated because the senders and their return addresses did not match up. Mr. Raines denied any misrepresentations or improper conduct but said he would investigate further.
Rep. Baker accused Fannie of buying loans for Jacuzzis through an arrangement with Chevy Chase Bank and Home Depot. Mr. Raines denied the charge, saying the loans in question were for lower-income, "honest Americans" who were using the funds to purchase siding and make basic home improvements.
Rep. Baker insisted otherwise and implied that the Fannie chief had eloquently dodged the question. "You are very, very good," the Louisiana Republican told Mr. Raines.
Rep. Baker vowed to continue the fight. "I am nothing if not persistent," he warned. "We will go until we get a legislative remedy, because I view this as a significant concern that does need to be addressed." Details of legislation may evolve over time, he said, but "concerns about systemic risk cannot be denied."
Rep. Baker said he plans a third hearing on June 7 with representatives from several large mortgage companies.