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The Senate Banking Committee’s top Republican on Thursday accused Treasury Secretary Henry Paulson of breaking his word when he negotiated with Democrats to include a measure lifting Fannie Mae’s and Freddie Mac’s loan limits by more than $300,000.
At a hearing on the two mortgage giants on Thursday, Sen. Richard Shelby (R-Ala.) recounted an exchange he had with Paulson just prior to the Treasury secretary’s talks with House leaders last month when Paulson was helping hash out the stimulus legislation.
“I asked him, ‘Are you going to negotiate the limits?’ ” Shelby recalled. “He said, ‘Absolutely not.’ Two hours later, he did.”
Shelby warned that he would confront Paulson on the alleged bait-and-switch at their next encounter: “I haven’t met him lately. But I’m sure I’ll see him again.”
Then, in an exchange with top Treasury official David G. Nason, Shelby voiced doubt about Paulson’s resolve to give Fannie Mae and Freddie Mac a stronger regulator, a cause championed by Shelby and other Republicans. “I’m not sure Paulson is [committed]. He says one thing and does the other.”
The episode illustrates the tensions surrounding the off-and-on push to rein in Fannie Mae and Freddie Mac. Collectively known as the Government Sponsored Enterprises (GSEs), the two private companies benefit from an implicit government backing. They buy home loans and repackage them as securities. At the end of 2007, they owned or guaranteed $1.4 trillion in residential mortgages.
Democrats say the GSEs are vital to spreading homeownership, while their GOP detractors argue that their huge mortgage portfolios pose an unacceptable risk to taxpayers and the financial system.
The Bush administration last month succumbed to vociferous calls from Democrats to lift GSE loan limits, allowing Fannie and Freddie to inject liquidity into the jumbo loan market. That is important to higher-cost regions along the coasts.
The House-passed stimulus package would temporarily increase the GSE limits from $417,000 to nearly $730,000. In exchange, Paulson extracted a promise from Senate Banking Committee Chairman Chris Dodd (D-Conn.) that he would follow the House and push legislation this year to give the GSEs a strong new regulator.
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