Republicans are unlikely to fix Fannie Mae and Freddie Mac this year, despite reform's place high on the House GOP’s agenda, mortgage industry experts say.
The effort to reform Fannie and Freddie, which back the vast majority of the nation’s mortgages, is simply too large to tackle quickly, housing experts say.
In addition, the continued fragile state of the housing market makes it difficult for lawmakers to navigate a substantial exit for Fannie and Freddie, despite tough rhetoric from Republicans for more than two years.
Finally, a divided government and scars over past housing debates add doubts to whether anything will happen in 2011.
“There can’t be a magic silver-bullet solution that happens in 2011,” predicted Paul Leonard, vice president of government affairs for the Housing Policy Council, which is part of the Financial Services Roundtable. “It’ll have to be the start of the big solution.”
Jerry Howard, the chief executive officer of the National Association of Home Builders, suggests 2011 will be more of a year for ideas to percolate than for legislation to pass.
“I'm hopeful that cooler heads can prevail and they can realize that the most important thing you can do is Fannie and Freddie reform of some type,” Howard said. “This sort of limbo they've [Fannie and Freddie] been in ... has, I think, only protracted the housing recession.
“The Senate provides the key,” Howard continued. “The balance of power in the Senate is so narrow, it almost lends itself to be sort of the incubation point.”
Republicans, who in the minority argued that Fannie and Freddie were to blame for the financial crisis, are publicly insisting they’ll go forward soon. Yet a GOP aide said the party is willing to slow a wind-down of Fannie and Freddie to accommodate market conditions.
Home prices dropped another 1.3 percent this fall, according to the Standard & Poor’s/Case-Shiller index, leading officials there to suggest that a double-dip in the housing market is on its way. Removing the government backstop of Fannie and Freddie quickly, without establishing a robust private market to take its place, could further drive down the market.
While in the minority, Republicans pushed fast-acting legislation that would begin winding down the government-sponsored enterprises, or GSEs, in as little as two years, with the goal being full liquidation after five years.
Rep. Spencer BachusSpencer BachusSpencer Bachus: True leadership The FDA should approve the first disease-modifying treatment for Duchenne Muscular Dystrophy Study: Payday lenders fill GOP coffers MORE (R-Ala.), who is taking over as chairman of the House Financial Services Committee, has identified ending the "taxpayer-funded bailout of Fannie and Freddie" as the panel's first priority.
“The era of policies that put the taxpayers on the hook for private failures ended in November,” said Rep. Ed Royce (R-Calif.), a committee member who challenged Bachus for the chair after the election. “We need to get politics out of the process and bring private capital back into the system. If our Democrat colleagues on the committee want to work with us to make these much-needed changes, then we welcome their input.”
Yet experts expect more hearings and behind-the-scenes work, rather than a legislative overhaul, in 2011.
The debate on reform is expected to kick off quickly in January, when the administration releases its recommendations to Congress for overhauling the current housing finance system.
“That’ll give an outline of the parameters they’ll be willing to work on,” said Leonard. “I don’t think it’ll be one of those things that comes out and just goes away.”
Rep. Jeb Hensarling (R-Texas), vice chairman of the House Financial Services Committee and chairman of the House Republican Conference, plans to reintroduce his legislation reforming Fannie and Freddie, according to his spokesman. That measure would remove Fannie and Freddie from federal conservatorship within two years, with the goal of making them completely free of government backing after five.
It is not known yet if Hensarling’s bill will be pushed as the GOP proposal to reform Fannie and Freddie, but if any reforms are to become law soon, House Republicans will have to craft a bipartisan measure.
Both Democrats and Republicans generally agree Fannie and Freddie are in need of a fix, so the debate is expected to center around exactly how extensive a role the government should play as a backstop in the housing market, and the timeframe for winding down Fannie and Freddie’s role in the market.
Partisan scars linger on the housing finance issue, which could be reopened in the next Congress if compromise proves elusive.
The bipartisan Financial Crisis Inquiry Commission fell apart in December after the four GOP members splintered off and issued their own report that laid the lion's share of the blame for the crisis at the feet of Fannie and Freddie.
Rep. Darrell Issa (R-Calif.) is planning on using his position as chairman of the House Oversight and Government Reform Committee to further explore the role Fannie and Freddie played in the foreclosure crisis. Issa’s drive would appear to make compromise with Democrats more difficult.