WASHINGTON - In spite of intense pressure from industry lobbyists and criticism from colleagues in both parties, Rep. Richard Baker introduced a bill Wednesday that would put Fannie Mae and Freddie Mac under the supervision of the Federal Reserve Board.
But the Louisiana Republican, who is chairman of the House Financial Services Committee panel that has oversight of the two government-sponsored enterprises, signaled to critics that he may be open to modifying the proposal. He characterized the bill as a "beginning point" that he expects will serve as "a vehicle for serious hearings and discussions about regulatory structure."
Those discussions began Wednesday, even before the bill was officially introduced, when a number of sources expressed surprise that the Fed would agree to take on such responsibility.
Most significantly, House Financial Services Committee Chairman Rep. Michael G. Oxley, R-Ohio, said that the bill did not represent the opinion of the committee as a whole and that Rep. Baker should not expect to see a vote any time soon.
"We certainly have not reached anywhere near a consensus on whether it ought to be the Fed or not," he said. "The Fed may not even want it, for all I know."
In fact, a source close to the Fed who has spoken with senior policymakers there about the Baker bill was told that the central bank did not seek the authority granted it in the proposal nor was it involved to any significant degree in the drafting of the bill.
A Fed spokeswoman declined to comment on the bill.
In an interview Wednesday, Rep. Baker would not comment directly on whether he had worked with the central bank in developing the bill. "We did what we felt was professional and appropriate to involve all parties who may have some interest in this matter," he said.
However, he added, "I did not personally speak with [Fed Chairman Alan] Greenspan, and I do not know the level of his awareness of the provision."
The Department of Housing and Urban Development, which currently oversees Fannie and Freddie's compliance with their charters, was unwilling to take a position on the bill. That agency also has authority over the Office of Federal Housing Enterprise Oversight, which monitors the companies' safety and soundness. Under the Baker bill, HUD would lose virtually all of that authority and OFHEO would cease to exist.
Spokeswoman Nancy Segerdahl said that "HUD's oversight responsibility includes overseeing the Office of Federal Housing Enterprise Oversight, overseeing Freddie Mac and Fannie Mae's mission charters, and their affordable housing/fair lending goals. To suggest a different approach would require comprehensive review from the department."
But an agency official, speaking on condition of anonymity, was openly critical. "I don't think this bill has any legs," the official said. "It would be nice if the sponsor of the bill took the time to talk through the bill with HUD officials before offering it. It is not like we have a Republican House and a Democratic administration."
Rep. Baker's proposal also caught considerable flak from the ranking Democrat on the House Financial Services Committee. "There are a lot of problems with it," Rep. John J. LaFalce of New York said in an interview. "He makes it much more difficult for the GSEs to engage in any new activities, and I think that would stifle innovation. I think the end result of passage of his bill would be detrimental not only to the interests of GSEs but detrimental to the mission of GSEs."
The bill, a draft copy of which was leaked to American Banker on Tuesday, would strip HUD of its authority to regulate the two companies. It would require Fannie and Freddie to get specific approval from the Fed before engaging in any new lines of business and would force the Fed to limit Fannie and Freddie's nonmission activities.
Additionally, it would restrict the GSEs' access to emergency funding from the Treasury Department and impose strict reporting requirements aimed at increasing the transparency of their operations.
Senior officials from Fannie and Freddie met with Rep. Baker on Wednesday afternoon. Following the meeting Rep. Baker said that the officials raised concerns but did not demand specific changes. Further, Rep. Baker said that the bill he introduced would contain only "minor modifications" to the version leaked on Tuesday.
"The only agreement I can safely allege exists is an agreement by everyone that a stronger regulator is in everyone's best interest," Rep. Baker said.
Freddie spokeswoman Sharon McHale said the meeting was nevertheless "very productive."
"We voiced our concerns with the bill as it stands and he committed, and we committed, to work together to ward a mutually acceptable resolution," she said.
Michele Heller contributed to this story.
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