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GSE Regulator's Receivership Authority Emerges as Sticking Point

MARCH 26, 2004


GSE Regulator's Receivership Authority Emerges as Sticking Point

The Senate Banking Committee's attempt to draft legislation restructuring the regulation of the housing GSEs has run into a snag over whether the regulator will be able to appoint a receiver with authority to liquidate Fannie Mae and Freddie Mac.

The White House is reportedly satisfied with draft language that would give a receiver authority to repudiate the enterprises' bond obligations and liquidate them if he deems it necessary. Senate Democrats are worried that this sort of broad receivership authority is one step away from privatizing the GSEs, resulting in a reduced commitment to affordable housing.

ICBA has written to Senate Banking Committee Chairman Richard Shelby (R-AL) and ranking Democrat Paul Sarbanes (MD) with additional concerns. ICBA's letter states that "ICBA is concerned that broad receivership authority-including the authority to repudiate contracts-could … lead rating agencies to downgrade the debt that Fannie Mae and Freddie Mac issue … . This would increase the enterprises' borrowing costs and ultimately increase mortgage interest rates for homebuyers.

"Second, community banks hold significant amounts of securities issued by Fannie Mae and Freddie Mac .… Congress should reject any proposal-like new receivership and contract repudiation authority-that would substantially downgrade the value of bank-held securities issued by Fannie Mae and Freddie Mac. Otherwise, community banks' earnings and capital would be reduced, compromising their ability to serve their consumer and small business customers."

The powerful National Association of Home Builders has raised similar concerns. Responding to reports about the likely content of the legislation, NAHB's CEO, Jerry Howard, said that if receivership authority is included, "NAHB will staunchly oppose this bill and will try to rally the rest of the housing industry to our side…."

Other key players are weighing in on additional important issues, e.g., the structure of the proposed new regulator and its powers. The committee had signaled that it would begin marking up a bill as early as next week, and that is still a possibility. However, the receivership controversy or other issues could push committee action back to a later date.