Representative Maxine Waters (D., CA) has introduced a draft proposal that would eliminate Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) and replace them with a government regulated cooperative empowered to issue mortgage backed securities with an explicit government guarantee, similar to the structure that has been proposed in the recent Crapo-Johnson proposal in the Senate, reports Margaret Chadbourn for Reuters.

Fannie Mae Freddie Mac FHFA Federal National Mortgage Assctn Fnni Me (FNMA)

House Republicans previously proposed Fannie Mae and Freddie Mac privatization

“Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC)’s return to profitability and repayment of taxpayer dollars has led some to rightly speculate whether (they) need any reform at all,” said Waters, ranking Democratic member of the House Financial Services Committee. “I am hopeful that this legislation will continue to move the conversation on housing finance reform forward.”

While the Crapo-Johnson proposal has broad bipartisan support in the Senate, Waters’ similar proposal is expected to meet stiff resistance in the noticeably more conservative House. Committee chairman Jeb Hensarling (R., TX) has proposed a bill that would end the conservatorship of Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) within two years of passage, and then privatize the entities a few years after that. His bill would effectively end government involvement in the secondary mortgage market, a move that appeals to hardline conservatives.

Johnson-Crapo has momentum, but will face resistance

At this point, Crapo-Johnson seems to have the most political momentum of any Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) reform plan that has come out so far so it was inevitable that someone in the House would make a similar proposal, but momentum isn’t enough to guarantee its passage. Both houses are typically out of session in August, and with mid-term elections coming later this year there isn’t a lot of time for both houses to pass their respective reform bills and that hammer out a compromise that suits both.

For conservatives like Hensarling, there is also an incentive to wait until after the elections to see if the conservative bargaining position becomes stronger. There doesn’t seem to be much chance of the Democrats regaining control of the House this year, but some early polling has suggested that Republicans have a chance of taking over the Senate this year.

Deutsche Bank analysts Steve Abrahams and Chris Helwig have written that they expect something like Crapo-Johnson to become law, but passage by the end of this year is optimistic, and it wouldn’t be surprising if debate over Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) reform extends to the end of 2015 or later.