It looked like Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) were another step closer to the wind-down process lawmakers want. However, liberal Democrats are trying to add new mandates which conservative Republicans would probably oppose.
Democrats face off with Republicans… as usual
The Washington Times reports that Democrats want to require private lenders to offer loans to disadvantaged groups, including African Americans, Hispanics, and others. However, Republicans say these mandates are what caused the 2008 housing crisis, so they are likely to oppose the mandates.
House Republicans believe Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) should be closed down entirely. This differs from the Senate version of the bill, which has bipartisan support as it stands. Republicans haven’t wanted to submit a version of the bill on Fannie Mae and Freddie Mac because it would divide lawmakers even further.
Johnson-Crapo bill winds down Fannie Mae, Freddie Mac
This month the Senate Banking Committee is expected to mark up what has become known as the Johnson-Crapo bill, which calls for winding down Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) and replacing them with a new agency. That new agency would be much more limited in its government guarantees regarding mortgage-backed securities.
Private lenders and banks would again take over writing and securitizing loans and cover the first 10% of losses. This would be a major incentive for them to avoid making extremely risky loans like the ones which led to the 2008 housing crisis. Banks would also have to pay fees for the government insurance to cover losses that are more than 10%.
Fannie Mae, Freddie Mac deadlocks Congress
The debate about what to do with Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) has dragged on for five years. The more time that passes, the more some worry that no reform will ever make it through both houses of Congress. Meanwhile, both government-sponsored entities have been posting tidy quarterly profits, turning into a nice investment for the government and for institutional investors who hold their shares.