Affordable Housing Institute : US

Winds of change ruffle Congress’s topsails:

 

 

USS Constitution — two hundred years old, still in commission!

Sailing from Boston to Marblehead, July, 1997

 

with the Senate’s introduction of its answer to the House’s proposed GSE legislation:

 

Senate Banking Committee Chairman Richard C. Shelby (R-Ala.) yesterday released legislation that could force mortgage finance companies Fannie Mae and Freddie Mac to significantly reduce their combined $1.5 trillion investment portfolios.

 

The Senate’s proposal is spiritually to the House’s right:

 

By proposing to give a new regulator broad discretion over the kinds of assets Fannie Mae and Freddie Mac can hold, Shelby has followed the course preferred by the Bush administration — but set up a possible conflict with the House, where Financial Services Committee Chairman Michael G. Oxley (R-Ohio) supports a less strict set of rules.

 

And it’s closer to White House wishes for tighter controls:

 

Fannie Mae and Freddie Mac buy home mortgages from banks and other lenders, keeping the housing markets supplied with cash. Together, they help finance two-fifths to two-thirds of the home sales in the country each year.

 

Typically, after buying mortgages, the companies repackage them and resell them to other investors. In recent years, however, they have held onto more and more of their investments — a strategy critics say may boost company profit but has little to do with their government-chartered mission of supporting homeownership.

 

In a version of the bill approved by Oxley’s committee in May, the new regulator would be able to adjust the size of the companies’ portfolios to keep them from running into financial trouble.  In Shelby’s bill, by contrast, the regulator would also be able to look more broadly at whether the size of either company poses a risk to the financial system. The regulator would also have the power to force Fannie Mae and Freddie Mac to dispose of assets that do not help them fulfill their housing mission. 

 

This description does a disservice to Mr. Oxley’s proposal, since it too allows forced disposition.  The more significant difference is Senator Shelby’s elimination of the House’s half-tithing idea:

 

Shelby cited concern over the companies’ investment portfolios when he came out against a proposal in the House bill that would require Fannie Mae and Freddie Mac to contribute a portion of their profit to fund the creation of low-income housing.  He said such a fund would give the companies an incentive to expand their investment holdings to boost profit. 

 

With the greatest respect, Senator, are you really trying to argue that allocating 5% of profits to an affordable housing fund is a greater incentive than pocketing 95% for shareholders?

 

 

 

Shelby did not include the proposed set-aside in the bill he released yesterday, making it less likely that Democrats will vote for it.  

 

As a result, the bill, while likely to be approved by the Banking Committee next week, may not reach the Senate floor, said analysts.

 

“Chairman Shelby has tailored a bill to gain administration support at the expense of obtaining bipartisan legislation,” said Howard Glaser, a housing industry consultant. “A partisan split tends not to launch a bill to the head of the line for consideration by the full Senate.”

 

Theoretically, should the House and Senate both pass legislation, the House-Senate conference committee will iron out differences by working between all sets of opposed points.  But what if the Senate never passes anything?  Then the House conferences with itself …

 

 

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