Senate Republicans introduced legislation Thursday that would quickly phase out government-run housing giants Fannie Mae and Freddie Mac as GOP lawmakers on both sides of the Capitol intensified their drive to shrink the federal role in the mortgage market.
Sens. John McCain, R-Ariz., and Orrin Hatch, R-Utah, unveiled a bill that within five years would dismantle Fannie and Freddie or cut them loose as completely private entities. In the meantime, it would force them to take steps like charging higher fees and shrinking the size of their mortgage portfolios in hopes of opening up more of the mortgage market to private banks.
On the brink of collapse in September 2008 under the weight of the nation's housing crisis, Fannie and Freddie were taken over by the government, which has so far spent $150 billion to keep them afloat.
The Obama administration and most Democrats agree that the two companies need to be wound down, yet many Republicans would do it faster and leave little or no federal role in the mortgage market, and the GOP has blended the issue into its overall drive to shrink government.
"Never again can we allow the taxpayer to be responsible for poorly managed financial entities who gambled away billions of dollars," said McCain, who made the near-collapse of the two housing finance companies an issue in his failed 2008 presidential campaign. "Fannie and Freddie are synonymous with mismanagement and waste."
Fannie and Freddie don't sell mortgages to consumers. They help supply cash to the mortgage market by buying mortgages from lenders and packaging mortgages into securities that they then sell to investors.
McCain's bill is identical to one introduced in the House in mid-March by Rep. Jeb Hensarling, R-Texas.
House Republicans this week introduced eight smaller bills, each designed to end government support for Fannie and Freddie and help private banks get a larger piece of the mortgage market. With private banks still nervous about investing in housing, Fannie and Freddie, along with other federal agencies, have backed about nine in 10 mortgages in the past year.
The House subcommittee that oversees Fannie and Freddie plans to approve the eight measures next Tuesday. Republicans have decided to push those smaller bills as the Democratic-run Senate has shown little eagerness to consider sweeping legislation overhauling the housing finance system.
The eight measures would take steps like forbidding employees of Fannie and Freddie from being paid more than analogous federal workers, increasing the fees they charge to guarantee loans and ending the requirement that they subsidize lower-cost housing.
Even so, with many Republicans hoping to demonstrate their desire to make big changes in Fannie and Freddie, House Financial Services Committee Chairman Spencer Bachus, R-Ala., said Thursday that his full committee would consider Hensarling's bill before it considers the eight smaller ones.
Republicans are hardly in lockstep on the issue, with some worried that eliminating the government role of subsidizing mortgages would jar the already limp housing market — the same view taken by homebuilders, real estate agents and mortgage bankers.
One of those critics, Rep. Gary Miller, R-Calif., said he will soon introduce his own overhaul legislation.
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