No consensus in GOP over Fannie Mae and Freddie Mac

April 26, 2011|By Alan Fram, Associated Press

Representative Spencer Bachus (left), head of the House Financial Services… (Alex Brandon/Associated…)

WASHINGTON — Shutting down Fannie Mae and Freddie Mac should fit seamlessly into the Republican drive to shrink government. After all, keeping the ailing mortgage giants afloat has cost taxpayers $150 billion and many in both parties want private lenders to finance a bigger share of the nation’s $11.3 trillion residential mortgage market.

But House and Senate Republicans pushing bills to phase out both federally run companies are learning how fear, politics, and old-fashioned lobbying can trump ideology.

Even in the GOP-run House, leading proponents of doing away with Fannie and Freddie are not predicting victory. As a precaution, they are advancing eight bills taking bite-sized swipes at the issue. In the Democrat-led Senate, a sister measure by 2008 presidential candidate Senator John McCain, Republican of Arizona, faces long odds, and the Banking Committee’s top Democrat and Republican are wary of quickly reshaping the market for financing home purchases.

“There’s no consensus on it,’’ House Financial Services Committee chairman Spencer Bachus, Republican of Alabama, conceded in an interview this month about a sweeping overhaul bill by Representative Jeb Hensarling, Republican of Texas. “I can’t promise we will build consensus.’’

Fannie and Freddie do not issue mortgages but buy them from the original lenders, thus providing cash for more loans. They then package many mortgages into securities that they resell to investors, using a government guarantee that lets them pay a lower yield than their few competitors.

Bachus calls Hensarling’s bill “the gold standard’’ for Republicans. It would halt government backing of Fannie and Freddie and end or dramatically reduce their role in mortgage financing within five years. The goal is to turn the mortgage market over to banks and other private lenders, who have shied away during the relentless real estate bust of the past few years.

With housing still staggering from foreclosures and low prices, some Republicans worry that erasing the federal role in the mortgage market could rattle the housing industry and perhaps the entire economy. Without the government guarantee of mortgage products that Fannie and Freddie enjoy, the cost of mortgages would likely rise, making homes less affordable.

“You can’t do that,’’ Representative Gary Miller, Republican of California, a solid conservative and real estate developer from just east of Los Angeles, says of proposals to end the federal role in financing mortgages. “It would devastate the housing market.’’

Average home prices in the Los Angeles area have dropped 33 percent in five years, three times the national average, according to the Federal Housing Finance Agency.