WASHINGTON — The Treasury Department's move to backstop Fannie Mae and Freddie Mac has dramatically accelerated legislative efforts to create a new regulator for the government-sponsored enterprises, observers said Monday.
The actions Sunday effectively upended the conventional wisdom surrounding the bill. Last week several lobbyists said House Financial Services Committee Chairman Barney Frank had little leverage to make the changes he wanted.
But the Treasury's call to add major provisions, and a growing crisis surrounding the GSEs, likely strengthened Rep. Frank's ability to overcome resistance from Sen. Richard Shelby, the top Republican on the Senate Banking Committee, and other lawmakers to further compromise.
"Anyone who sits in a position that results in the failure of the bill is taking a risk that is politically probably not acceptable," said former Rep. Richard Baker, now the president of the Managed Funds Association. "No one at this point would want to be identified as the person for not bringing the new regulator on board."
Rep. Frank still insists he wants to delay the enactment date for the creation of a new GSE regulator and add language raising the conforming loan limit. But Sen. Shelby has said he opposes both moves.
A week ago the Alabama Republican was viewed as having the upper hand, because his party has enough votes in the Senate to block the bill. But the legislation is now seen as necessary and urgent for the broader economy.
That gives the advantage to Rep. Frank. The Massachusetts Democrat could use the opportunity to make the changes he was seeking in addition to adding the Treasury language.
"Shelby doesn't have as much leverage as he usually does to reject anything he doesn't like," said an industry lobbyist, who spoke on the condition of anonymity. "Frank has the upper hand."
The House was expected to move quickly to incorporate the Treasury's recommendations, which would increase a line of credit for Fannie and Freddie and allow the government to take an equity stake in the companies as well as add a consultative regulatory role for the Federal Reserve Board. (See story
According to draft legislative language obtained by American Banker, no dollar limits are placed on the Treasury line. The secretary could purchase "any obligations and other securities" issued by the GSEs "on such terms and conditions as the secretary may prescribe and in such amounts as the secretary may determine." That authority would end Dec. 31, 2009.
Though a spokeswoman for Freddie Mac said Treasury could only buy equity shares of the GSEs with the permission of the enterprises, no such restriction appears in the language.
A full House vote is expected this week. Observers said that the Senate is under pressure to follow suit in short order, and that the bill could be approved by the end of next week. "All the tumblers have clicked into place to provide a glide path right to the president's desk," said Scott Talbott, the Financial Services Roundtable's senior vice president for government affairs. "You will see great pressure to get this done to restore confidence in the market."
Lawmakers were receptive to the Treasury's suggestions, but some adjustments are likely.
"There will be some changes here and there," said Steve Adamske, a spokesman for Rep. Frank.
Sen. Dodd cautioned House lawmakers not to go too far in seeking revisions to the legislation, which passed the Senate in a 63-5 vote Friday after weeks of procedural hurdles.
"My hope would be that the House would not send a bill back with provisions in it that would be met with a very hostile Senate reaction," he told reporters in a conference call.
When asked what provisions he meant, Sen. Dodd would not answer. "We've been back and forth" with House lawmakers, he said. "They know there are some things that would be harder to deal with than others."
There remained doubts Monday about whether Sen. Shelby supported the Treasury's action. Though Sen. Dodd said his colleague backed the Treasury proposals, Sen. Shelby's office would not comment publicly. Several sources said he dislikes the plan but has not decided how to respond.
Some analysts said Rep. Frank may have more running room but should be careful not to push Sen. Shelby too far. "Never underestimate Richard Shelby," said Brian Gardner, an analyst at KBW Inc.'s Keefe, Bruyette & Woods Inc. "He confounds his critics. He is very good at blocking something he really opposes and doesn't want, even if it's politically popular."
