Senators: Tie Freddie Mac, Fannie Mae Profits to Lower-Income, Affordable Housing
U.S. Senate critics of Fannie Mae and Freddie Mac are seeking to link the mortgage finance companies’ profit-making investments to low-cost housing.
The plan endorsed by four outspoken Republican critics of Fannie Mae and Freddie Mac picks up on a suggestion from Federal Reserve Chairman Ben Bernanke, who recently suggested the companies’ investments be “anchored” in their affordable housing investments.
How a new regulator should best manage the two enterprises’ $1.4 trillion investment portfolios has become a key issue in the reform debate.
Critics of the companies, which provide many Florida mortgage loans to Sunshine State applicants, have called their investment assets dangerously bloated.
Fannie and Freddie contend that their portfolios are a vital business tool that helps stabilize the housing market.
Introduced by Republicans Chuck Hagel of Nebraska, Elizabeth Dole of North Carolina, Mel Martinez of Florida, and John Sununu of New Hampshire, the legislation says that portfolio holdings … should be focused, to the maximum extent possible, on mortgages and mortgage-backed securities that meet the affordable housing goals.”
“Fannie Mae and Freddie Mac must be run properly and with both adequate transparency and oversight. We will not tolerate an intentionally weak regulator,” Dole said.
The legislation also calls on a new regulator for Fannie and Freddie to curb the companies’ investments overall, something that may impact the Florida mortgage volume issued by the firms in coming years.
Last month, the House of Representatives Financial Services Committee voted to approve a bill that would give a new GSE regulator broad oversight, but it set no explicit limits on the companies’ investments.
By limiting the companies’ investments to affordable or workforce housing, the measure introduced Thursday would stifle a profitable investment tool.
Among other changes, the legislation omits two key provisions of the House bill: an affordable housing trust fund and a measure that would let Fannie and Freddie invest in expensive mortgage loan products.
The reform measure contains many key provisions of a similar bill that passed the Senate Banking Committee in 2005, but was never considered by the full Senate.
Chris Dodd, chairman of the Banking Committee, has supported the less-stringent version of reform. Among other provisions, the new bill would allow a regulator to close down one of the companies if it were to fail and give that regulator more power to raise capital.
SOURCE: Reuters
