Fractured Committee Debates Housing Finance

A fractured House Financial Services Committee met on the subject of Housing Finance this morning. On the subject of the Fannie Mae and Freddie Mac (GSEs), the future is still uncertain. It is very clear that the members of the committee are split on more than just party lines regarding the future of the GSEs.  Some members of the committee believe that the GSEs have provided a crucial backstop to the mortgage market during a particularly troubling period of the past few years.  During this time, private lenders vanished, leaving the government to support over 90% of the market.  They see the needs of common folk who might be forsaken by banks and lenders whose main focus is their own bottom line.

Another group involved in the debate is the private market supporters.  They don't believe the government should be supporting the housing market at all.  They want to see the GSEs wound down to nothing, or very limited roles.

In some cases, these Congressmen actually want to impose strict penalties on the GSEs, in the form of a punitive 10% dividend, to ensure that they are never able to record profits and slip out of government control by becoming profitable. Ironically, by imposing strict penalties such as these, the market is essentially nationalized by the government and the companies may never be able to privatize.  At least one Republican appears to be in this group (Ed Royce, R, CA). This has left the current shareholders (20.1% owners) in a position of doubt over their future.  It also lessons the possibility that the government can recoup losses by selling stock, in a manner similar to the AIG bailout.

Rep. Gary G. Miller (R, CA) actually supports reducing the government's 10% dividend to 5%, which would immediately make the GSEs profitable, based on the last two quarters financial reports.  Thus, the government may actually be able to sell their senior preferred stock, or convert to common, ending the bailout sooner, rather than never.

Also, in the room were moderates, who believed a Utility Model could be implemented.  This model could ratchet up/down government support, while letting the companies operate as for-profit institutions.  Treasury Secretary Tim Geithner said that the Utility Model has merit, but didn't go as far as to support any one idea over another.

As always, Barney Frank (D, MA) sparred with Republicans over the cause of the entire crisis, which they placed in his lap.  He also mentioned the fact that these companies are now making loans that are substantially better and more profitable than those made during the bubble years.  Maxine Waters (D, CA) echoed this fact.


See the video of today's hearing here. http://www.c-spanvideo.org/program/FutureofFan

• Fractured Committee Debates Housing Finance
• Treasury Will Make Profit on Fannie and Freddie MBS
• Fannie and Freddie, Conservatorship Agreement Transparently Violated
• The Cost of Resolution at Fannie and Freddie
• Recent Supreme Court Cases May Affect GSE Outcome
• Fannie Mae and Freddie Mac Shareholders Organize