WASHINGTON - Sen. Richard Shelby is hard at work on a bill to rein in Fannie Mae and Freddie Mac, but even before the Banking Committee chairman introduces the measure observers say chances of enactment this year are fading fast.
Sen. Shelby wrapped up five hearings on the issue last week, including one starring Federal Reserve Chairman Alan Green-span, who said the government-sponsored enterprises pose big risks to the economy.
Mr. Greenspan may have made passage harder by adding new ideas - like limiting the companies' debt issuance - that have little political support.
"These are issues that neither banking committee has had a chance to chew on," said Bert Ely, an independent analyst in Alexandria, Va., and a longtime GSE critic. "I don't think the committee members are ready to ignore Greenspan, nor do I think they are ready to move ahead. It was going to be hard enough as it was. This just made it harder."
Other factors likely to impede enactment: a short legislative calendar in this election year, an increasingly complicated debate, and the major players' unwillingness to compromise.
Few doubt that lawmakers will still try to get something done.
Sen. Shelby is pushing for a committee vote on his coming legislation by the end of the month. The Alabama Republican is working with Sen. Paul Sarbanes, the panel's leading Democrat.
But they face a significant challenge navigating between what the Bush administration has demanded as minimum powers of any new supervisor and what Fannie and Freddie have said they will accept.
Those differences have largely been boiled down to three components: minimum capital, receivership powers, and program approval.
Mr. Greenspan supported the administration's view on all three, saying a new supervisor should have total control over the GSEs' capital requirements, the ability to put the enterprises into receivership, and authority over any new programs.
Some industry observers say the full-court press from the administration and the Fed will make the GSEs compromise. The two companies may strike a deal to end the risk that Congress will make a disruptive change to their business.
"I suspect what is more likely to happen is that Fannie and Freddie are going to say, 'Hey, we better get this bill while we can. Let's cut our losses and get this over with,' " said Alfred DelliBovi, the president of the Federal Home Loan Bank of New York.
In public, at least, the Fannie and Freddie are refusing to give. Despite offering what many saw as a tepid compromise on minimum capital, the GSEs' chairmen stood their ground Wednesday, warning that going too far with a new supervisor could disrupt the housing market.
Franklin Raines of Fannie and Richard Syron of Freddie said that giving a regulator receivership powers akin to those the Federal Deposit Insurance Corp. has over banks would disrupt the debt markets. They also said any control over minimum capital should be tempered with limits that it could only be raised if a safety-and-soundness problem developed. Additionally, they said that any authority over new programs must be carefully devised lest a new regulator have to pre-approve any new activity at the companies.
"I don't see Fannie Mae giving in to a bill that they feel will be detrimental to their business model," said Paul Miller, an equity analyst with Friedman, Billings, Ramsey & Co. Inc. "They would rather fight it out in the press. They feel time is on their side."
Some believe Fannie does not really want a bill and has calculated that the issue could ebb if a Democrat is elected President.
But Sheila Bair, a former Treasury assistant secretary for financial institutions in this administration, said the issue will not go away, no matter who wins the election.
"The political risk, whoever is in the White House next year, if any of these entities get into trouble … is tremendous," said Ms. Bair, who is now a dean's professor of financial regulatory policy at the University of Massachusetts' Isenberg School of Management. "I think the ... [GSEs] need to get this monkey off their back."
Indeed, several sources said Fannie is angling for a bill that does not result in a significantly stronger overseer. "Frank Raines totally wants a bill - but he doesn't want the bill to do anything meaningful," said one industry lobbyist, who spoke on condition of anonymity.
Complicating the debate is aggressive action by the Office of Federal Housing Enterprise Oversight, the current regulator of Fannie and Freddie. The agency recently told the two companies they could no longer be trusted to calculate the conforming loan limit and warned Fannie it relied too much on manual systems for its accounting. If OFHEO continues to crack down on the companies, it could make the goal of reforming the GSEs' regulation less pressing to some in Congress.
Additionally, there are several outstanding issues about how to include Federal Home Loan bank supervision in the process. The banks are different in form and function from Fannie and Freddie, so lawmakers will have to carefully resolve controversial topics including whether and how the banks register with the Securities and Exchange Commission.
To be sure, some industry representatives remain optimistic. They said that Mr. Greenspan's strong testimony emphasized that there is a problem that has to be addressed, and that lawmakers will not be willing to just let the issue lie.
"After this week the odds of getting a bill out of Senate Banking and then the full Senate are higher," said Robert Davis, the lead lobbyist for America's Community Bankers. "I think Alan Greenspan's testimony painted a picture of a potential risk situation that focused attention in a way only he could."
But Senate passage is just half the battle. The House is not expected to even begin debate on the issue until the Senate is done.
Edward Yingling, the executive vice president of the American Bankers Association, said the bill's chances ultimately turn on Sen. Shelby's bill - does it give the administration enough of what it wants without losing GSE support?
"So far in this Congress ... [Sens. Shelby and Sarbanes] have shown an ability to work together and thread a needle," he said. "The key thing will be their bill and the immediate reaction to it. Then you will know if it has a shot or not."
