|
 Obama made the case in his State of the Union address on Tuesday for
reforms that would make the mortgage market rely less on the
government, but many in Congress fear revamping the decades old
system could undermine access to the long-term, fixed-rate loans
that are a cornerstone of the housing sector.
Fannie Mae <FNMA.OB> and Freddie Mac <FMCC.OB>, which own or
guarantee 60 percent of all U.S. home loans, remain easy political
targets for their roles in the housing crisis. Both Republicans and
Democrats realize, however, that their functions offer benefits that
many are hesitant to abandon.
"We simply do not believe that Obama's commentary, or the
congressional response, signal a change in the underlying dynamics
of the housing reform debate," said Isaac Boltansky, a policy
analyst at Compass Point Research & Trading.
He said housing "reform efforts will remain a talking point for
lawmakers given the political and fundraising benefits of the
issue," but that a bill was unlikely to pass soon. "2015 or 2017 are
far likelier dates for reform efforts to become law."
Putting an end to government-run Fannie Mae and Freddie Mac would
likely increase the cost of taking out a mortgage, even though the
White House insists that any reforms retain some government role to
preserve easy access to the 30-year mortgages that are a staple for
middle-class buyers.
The two congressionally chartered companies buy and guarantee loans
and package them into securities that they sell to investors. In
doing so, they provide a steady flow of liquidity for the market.
Their long-standing ties to the government have enabled them to
raise funds more readily than private competitors, and have helped
keep mortgage costs low.
But their mortgage holdings got them into trouble when the U.S.
housing bubble burst. They were taken over by the government in 2008
and drew $187.5 billion in taxpayer aid.
The have since returned to profitability and paid about $185.2
billion in dividends to the government thanks to a surge in the U.S.
housing market.
Still, their need for a bailout has fueled calls among both
Democrats and Republicans for reforms.
"Send me legislation that protects taxpayers from footing the bill
for a housing crisis ever again, and keeps the dream of
homeownership alive," Obama exhorted Congress on Tuesday, without
specifically mentioning Fannie Mae or Freddie Mac.
That is easier said than done.
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HEAVY LIFT ON CAPITOL HILL
The main stumbling block comes down to differences on Capitol Hill
over how much the government should support the mortgage market. By
and large, Democrats see a need to keep some supports in place,
while some Republicans think the government should exit the market
entirely.
The Obama administration is working on a housing reform bill with
Senate Banking Committee Chairman Tim Johnson, a Democrat, and
Senator Mike Crapo, the panel's top Republican.
It has yet to detail how it expects reforms to work.
The Senate bill would provide for government reinsurance that would
kick in only after private creditors shouldered large losses.
Crapo's willingness to back a reinsurance role fueled hopes a
bipartisan deal could be reached, but talks on the Senate bill have
stalled in recent weeks, and even bigger problems loom in the
Republican-led House of Representatives.
Republicans in the House have advanced a bill, without the support
of any Democrats, that would much more sharply limit the
government's role.
"The president tiptoed the line very carefully on housing finance
reform," said Jaret Seiberg, a senior policy analyst at Guggenheim
Securities. "He called for legislation, but did not make it a
priority and did not specify what the legislation should do. Rather,
he stated it as part of the broader desire for Washington to get
things done in 2014."
(Reporting by Margaret Chadbourn;
editing by Andrew Hay)
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