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GSE Bill Stalemated Over Receivership Issue

APRIL 23, 2004


GSE Bill Stalemated Over Receivership Issue

The ranking Democrat on the House Financial Services Committee pulled no punches in explaining why he thinks the bill to restructure the regulators of the housing GSEs is bogged down. Rep. Barney Frank (D-MA) told a group of mortgage bankers this week that the administration was exaggerating the risk of failure of Fannie Mae and Freddie Mac, thereby killing any chance the bill had of adoption this year.

"People tend to pay their mortgages," Frank said. "I don't think we are in any remote danger here. This focus on receivership, I think, is intended to create fears that aren't there." The administration has insisted that the new regulator have full receivership powers to wind down an insolvent GSE and repudiate its debt. The administration has withdrawn its support from a bill cleared by the Senate Banking Committee because it gives Congress veto power over the appointment of a receiver. ICBA strongly supported giving Congress such veto power.

Wayne Abernathy, the assistant Treasury secretary for financial institutions, spoke at the same conference and defended the administration's position. "Anybody know what happens if one of these GSEs should become insolvent?" Abernathy asked. "You know what the answer is. Chaos. There is no government authority." Abernathy also said Fannie and Freddie have a conflict of interest: while the GSEs have a mission to lower the cost of homeownership, they have a vested interest in buying high interest rate mortgages for their own accounts. "Maybe this conflict of interest is starting to draw them away from what they were created to do," he added. A Fannie Mae spokesperson later countered that studies prove its portfolio actually reduces mortgage costs for consumers, refuting the conflict of interest charge.

The GSE reform bill was reported out of the Senate Banking Committee on a largely party-line vote. No further action is scheduled at this time.