Republican Senator Pat Toomey released a set of guidelines to end government control of
Legislation to overhaul Fannie and Freddie must “foster a liquid secondary mortgage market while protecting taxpayers and promoting equitable access for all lenders,” Pennsylvania’s Toomey, the Senate Banking Committee’s top Republican, said in a Monday
Amanda Thompson, the communications director for Toomey and other banking panel Republicans, said the announcement signals an openness to creating something many GOP lawmakers have long resisted: a federal guarantee of the trillions of dollars of mortgage bonds that Fannie and Freddie issue.
Pacific Investment Management Co. and other fund managers have said that releasing Fannie and Freddie without a government backstop of their mortgage securities would be a huge mistake, arguing that it would be difficult for many investors to hold such assets without the U.S. standing behind the market — a scenario that risks making it much harder for consumers to get home loans. Federal support for mortgage bonds is currently assumed with the companies
Legislation that establishes a U.S. guarantee is probably the only way to get a bill through the Democratic-controlled Congress and perhaps free Fannie and Freddie from the government’s grip during the Biden administration. Even if a plan does win enough support to advance on Capitol Hill, it would also need the backing of Treasury Secretary Janet Yellen at a time when she’s administering an unprecedented $1.9 trillion stimulus plan to help an economy that’s been hammered by the Coronavirus pandemic.
Toomey’s statement came ahead of a Tuesday Banking Committee hearing on housing that may focus on Fannie and Freddie. The mortgage giants are essential to the housing market because they buy loans from lenders, package them into mortgage bonds and guarantee investors the payment of principal and interest.
“The current system exposes taxpayers to risk of future bailouts, fosters excessive risk taking, and crowds out private capital,” Toomey said in the statement. “I hope my colleagues, the administration, and all interested stakeholders will join me in working to implement these responsible reforms to prevent yet another financial crisis.”
Toomey said he wants to transition Fannie and Freddie “toward a competitive secondary market,” and remove potential hurdles to private investment in the housing-finance system. He said lenders of all sizes and types, and in various geographic locations, should have fair access to the secondary mortgage market.
“The GSEs exist to provide access to affordable, equitable access to home financing for all homeowners and renters,” Brown said. “I look forward to working with the Biden Administration and my colleagues through future hearings to continue discussing how utility regulation of the GSEs can help expand housing.”
Federal Housing Finance Agency Director Mark Calabria, Fannie and Freddie’s regulator, supports ending the conservatorships. But the job status of Calabria, a Republican appointed by former President Donald Trump, is in doubt due to a pending decision from the U.S. Supreme Court. He would also need the backing of the the Biden administration, which hasn’t unveiled any major policy proposals on Fannie and Freddie.
Tuesday’s Banking Committee
