WASHINGTON The House and Senate should move ahead with divergent housing reform bills and let negotiators from the two chambers reconcile them later, a co-author of the Senate bill said Thursday.
Sen. Bob Corker, R-Tenn., said the best scenario is for the House to pass a GOP-supported bill all but ending government guarantees for mortgages, the Senate to pass Corker's bill preserving a federal backstop and a House-Senate conference committee to work out a compromise.
"The greatest enemy is inaction," Corker warned.
Corker lamented recent moves by investors to try to recoup more funds from Fannie Mae and Freddie Mac as the government-sponsored enterprises are recovering in federal conservatorship. Both bills would eliminate Fannie and Freddie.
"I'm cheering on the House, and I'm hoping that we will pass something out of [the] Senate, pass something out of [the] House and have a conference that moves us beyond where we are today," Corker said at a forum sponsored by King & Spalding and the Republican National Lawyers Association. "As we sit today, what's being pushed is a 're-IPOing' of Fannie and Freddie, which to me is the worst thing we could possibly do."
Corker has drafted legislation with Virginia Democrat Mark Warner to wind down Fannie and Freddie while creating a Federal Mortgage Insurance Corp. Modeled after the Federal Deposit Insurance Corp., the new entity would provide reinsurance for losses suffered by holders of mortgage-backed securities. Private capital would have to cover the first 10% of losses for any security.
However, the bill adopted Wednesday by the House Financial Services Committee takes a much different tack. That legislation, which is being pushed by committee Chairman Jeb Hensarling, R-Texas, and other GOP leaders would create a new "utility" to develop best practices for the private mortgage market -- but the new entity would be barred from offering any support to that market.
"What we want to do is do away with the GSEs after a thoughtful period of time probably five years and there will never again be any government backstop," Rep. Scott Garrett, R-N.J., a chief sponsor of the House bill, said at the same forum. "Your taxpayer dollars will never again be at risk to bail out the GSEs."
But Corker said that, even though his bill would create a new agency with the authority to provide guarantees and charge fees for that support, it is unlikely such authority would ever have to be used since the 10% first-loss position for the private sector would discourage private firms from taking excessive risks.
"A lot of people are saying, 'Well, Corker, the government never gets it right on charging G-fees.' You're right. Candidly, with the 10% capital [buffer], I don't really care that much," he said. "That 10% capital creates a tremendous amount of discipline in advance of any kind of government guarantee taking place."
Garrett said he was skeptical about Corker's view that a guarantee would not be used. Policymakers who supported the current GSE system had pledged for years that a bailout would not occur, until Fannie and Freddie were given the lifeline of the government conservatorships, he said.
"With all due respect, you'll never get there until you do," Garrett said.