Senator Tim Johnson’s likely retirement and upcoming mid-term elections could pave way to guide Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) policy discussion, note Barclays analysts.

Stephen Kim and team at Barclays in their recent Equity Research report dated May 9, 2014, believe six Democrats in the Senate Banking Committee have decided to oppose the Johnson-Crapo bill.

Johnson-Crapo bill

U.S. Senators Tim Johnson and Mike Crapo made a new proposal in March for reforming the U.S. mortgage industry that generally falls in line with last year’s proposal from Bob Corker and Mark Warner. The proposal would set up a system of private companies that release a common security, much like how Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) sell securitized mortgages under the current system.

However, last month the U.S. Senate Banking Committee indefinitely delayed a vote to dismantle Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) amid disagreements among Democrats over the measure and a mounting campaign to keep the mortgage buyers alive.

Democrats appear wary that Fannie Mae / Federal National Mortgage Association (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 bill has bipartisan backing of six Democrats and six Republicans on the 22-member committee, and needs more support.

Vital Democrats oppose Fannie Mae and Freddie Mac bill

The Barclays’ analysts believe that the six Democrats in the Senate Banking Committee who were vital to the passage of the Johnson-Crapo Fannie Mae and Freddie Mac bill reform bill have decided to oppose it. The following are the members of the Senate Banking Committee:

Members of Senate Banking Committee Fannie Mae Freddie Mac

The analysts note while the bill would still be likely to pass the Senate Banking Committee, without this support, they believe that the vote threshold would be below the critical 15+ level (out of 22 members in the Senate Banking Committee) to signify greater momentum. The analysts believe this would greatly diminish the likelihood for a full Senate floor vote in 2014.

The Barclays’ analysts note the Committee passage of the Johnson-Crapo bill is still likely to provide a good framework for future Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) reform discussions. However, the analysts note the upcoming mid-term elections in November are likely to be the most important determinant for Fannie Mae and Freddie Mac discussions longer term, particularly as the current chairman of the Senate Banking Committee, Senator Tim Johnson, is likely to retire, thereby paving way for a new chairman to guide Fannie Mae and Freddie Mac policy discussion going forward.