Senators try to clear way for housing finance reform

By Peter Schroeder - 03/14/13 08:12 AM ET

A bipartisan group of senators are calling on Congress to stop using fees collected by mortgage giants Fannie Mae and Freddie Mac to cover other governmental costs, in an effort to get the ball rolling on housing finance reform.

Sens. Bob Corker (R-Tenn.), David Vitter (R-La.), Mark Warner (D-Va.) and Elizabeth Warren (D-Mass.) introduced Thursday legislation that would prevent the "guarantee fee" collected by the two government-sponsored enterprises from being used to offset government spending. The measure would also block the Treasury Department from selling its preferred shares in the two entities without Congress's blessing and a major housing finance reform in place.

The senators, all members of the Banking Committee, contend that the bill would help remove obstacles that stand in the way of the already complicated matter of housing finance reform. And the legislation, sponsored by liberal and conservative lawmakers, marks a rare bipartisan effort on that front.

"Reforming a broken housing finance system and protecting taxpayers is a win win, and we can begin that effort with this bipartisan GSE reform proposal," said Vitter. "This bill shows that Republicans and Democrats do agree on the urgency required to reform the mortgage finance system."

Congress has previously looked to increases in the "g-fee" as a way to fund other government programs. For example, lawmakers agreed to increase that fee to cover the cost of a two-month extension of the payroll tax cut at the end of 2011. The regulator for Fannie and Freddie, the Federal Housing Finance Agency, has also advocated for increasing the fee, but as part of an effort to wind down the enterprises by making it easier for private competitors to enter the market.

The sponsors of the new bill also contend that allowing the Treasury to unload its shares in the GSEs without reforms in place could simply cement in place the old, outdated system.

Congress has done lots of talking about reforming how the nation creates and backs mortgages since the financial crisis, but little has been done in terms of action. Republicans have pushed hard to privatize Fannie and Freddie or otherwise entice private capital into a market dominated by the government entities. Democrats say they recognize the need for the private sector, but have expressed concerns about what could happen to affordable mortgages in any system overhaul.

The White House too has said Fannie and Freddie must be wound down, but has declined to endorse a specific path forward.

Fannie and Freddie were weighed down by losses spurred by the subprime mortgage crisis, and have only been kept afloat by billions of dollars in government support. Ever since the government stepped in and took over the agencies in the fall of 2008, the two entities have required nearly $200 billion in funds.