The US Senate Bankine Committee indefinitely delayed a vote to dismantle Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) amid disagreements between Democrats over the measure and a mounting campaign to keep the mortgage buyers alive.

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

Fannie Mae, Freddie Mac: Television ad campaign kicks off campaign to keep status quo

A television advertising campaign, notably blasted commercials on cable channels such as CNBC touting the fact that, despite the 2008 financial crash, the corporations that purchase mortgages from banks repaid all the money the government lent and then some – all with a Madison Avenue glitz that welcomes the dawn of a new day on America.

The Johnson-Crapo bill currently considered in Congress would replace Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) over five years with federal insurance for mortgage bonds that take effect only if private investors were wiped out, a Bloomberg report recently noted. Under the bill, current shareholders of Fannie Mae and Freddie Mac get in line behind the US government in getting any compensation from the unwinding.

Democrat Miller wonders if investors will “get mugged again?”

Democrat dissenters, however, see through the façade and point to the Wall Street lobby.  “There is a glaring problem with proposals to dismantle Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) and “bring private capital back” to the mortgage market: Investors got mugged once and are not likely to walk down the same alley again, former Democratic Congressman Brad Miller wrote recently in The Hill.  “From 2002 to 2006, Wall Street banks overtook Fannie and Freddie and issued the majority of mortgage-backed securities. The market for “private-label” mortgage-backed securities, the securities issued by Wall Street banks, collapsed in 2007 and remains comatose. In 2013, Fannie and Freddie issued 99 percent of new mortgage-backed securities.”

Democrats appear weary that Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) will be an easy dumping ground for Wall Street’s toxic garbage and will be left holding the bag once again.

“The bank that issued the securities hired the trustee, usually another bank, which hired the servicer, which was usually a subsidiary of the bank that hired the trustee. It was a cozy arrangement for everyone but investors,” Miller wrote, representing one voice on the issue that advocates changing the system to eliminate conflicts of interest. “Trustees, not investors, had the legal right to demand that Wall Street banks buy back mortgages that were not what the banks promised investors. More than a third of the mortgages that backed many securities were bad loans, which resulted in enormous losses to investors.”

The bill has bipartisan backing of six Democrats and six Republicans on the 22-member committee, and needs more support.

“While I do not relish the idea of a short delay, I am pleased that a number of senators believe that with just a short period of additional time to consider it, they will have the opportunity to productively join us,” the bill’s sponsor Crapo said at the hearing.