Not so much fly as waddle
The 109th Congress, preparing to adjourn
Right after the November elections, I speculated on GSE regulatory reform actually being enacted in the lame duck session, as this would serve the interests of both the Administration and incoming House Financial Services Chairman Barney Frank.
It didn’t quite happen. Last week, the utterly undistinguished and by now thoroughly dispirited 109th Congress adjourned sine die (Latin for ‘without a day’), having largely punted on all the pending legislation it had failed to finish before adjournment.
Waddling across the White House lawn, 1961
Though the lame duck failed to fly, it waddled toward
In GSE Talks, Step Toward Compromise
It didn’t.
Still, the breakthrough — in which the Bush administration gave substantial ground on its demands that Fannie Mae and Freddie Mac hold fewer mortgages in portfolio — improves the odds of enactment next year.
“It’s another sign we are moving toward a bill in 2007,” said Brian Gardner, a policy analyst at Keefe, Bruyette & Woods Inc. “This is not something the real harsh GSE critics would likely be satisfied with, but I don’t think they have the votes to block it. I see this as something that can pass in next year’s Congress.”
Jaret Seiberg, a policy analyst at the Stanford Washington Research Group, agreed. “It lays a blueprint for how the administration and the Democrats could quickly move a bill early in the 110th Congress,” he said.
To get to the compromise, the Administration sent to Capitol Hill its most logical ambassador:
Charles-Maurice de Perigord Talleyrand would have been good too …
Rumors swirled last week that the “right people are talking” and that a deal was imminent. Treasury Secretary Henry Paulson was said to be personally involved, and being given considerable leeway by the White House to negotiate.
Paulson is a Wall Street banker, very smart on capital issues, and non-ideological.
But sources said Senate leaders are not embracing the deal, with Republicans saying the Treasury compromised too much and Democrats figuring they can get a better deal next year when their party controls Congress.
Here’s the danger of shifting political sands: disgruntled right-wingers think too much has been given, and newly ascendant left-wingers think some given can be clawed back.
See the footprints of previous members of Congress?
Sometimes nothing is done, and that remains a risk here:
The key players declined to comment beyond saying they continue to negotiate.
“No comment.”
Documents obtained by American Banker say several contentious issues remain unresolved, including whether the conforming-loan limit should be raised in high-cost areas and the size of a proposed affordable housing fund.
I’ll have much more to say on these subjects as the GSE regulatory reform bill takes shape, but for the moment, will observe that neither of those two provisions are deal-breakers. And the real deal-breaker has, apparently, been agreed:
But the Treasury and Rep. Barney Frank, D-Mass., the incoming chairman of the House Financial Services Committee, appear to have reached common ground on the most contentious issue: portfolio limits.
As I’ve previously posted, limiting portfolio size essentially puts a damper on balance sheet turbocharging, the technique that boosts GSE profits while increasing taxpayer risk. If that is settled, everything beyond it can be resolved.
In a 13-page document circulated on Capitol Hill late last week, the Treasury agreed to require a proposed new regulator to establish within 180 days “standards by which the portfolio holding, or rate of growth of portfolio holdings … will be deemed to be consistent with the mission and the safe and sound operations of the enterprises.”
So instead of statutory caps, the compromise is a strong new regulator with real powers, who will set objective standards for later monitoring and management.
The legislative language says the new agency director must consider several factors, including the size and growth of the mortgage market, the need for the portfolio to directly support the affordable housing mission of the GSEs, and “any potential risks posed by the nature of the portfolio holdings.”
That last phrase could prove crucial. The Bush administration has insisted for two years that legislation require a new regulator to slash Fannie’s and Freddie’s mortgage portfolios.
It has opposed a House bill that would have given the new agency discretion over the portfolios but did not mandate a reduction. The administration supported a Senate bill that would have required portfolios to be reduced to only how much the GSEs needed to fulfill their missions, and it specifically defined appropriate mission activities.
The new deal is closer to the House language. It does not order a reduction and does not allude to systemic risks posed by the portfolios.
Meanwhile, of most interest to affordable housing advocates, Mr. Frank’s half-tithing concept appears now certain to survive:
The Treasury and Rep. Frank appear closer to a deal involving the affordable housing fund.
Another document being circulated late Friday, labeled a “discussion draft” and credited to Rep. Frank, would essentially force Fannie and Freddie to set aside 4.2 cents for every $100 in unpaid principal of new mortgage purchases. For example, if the companies bought roughly $1 trillion of mortgages, as they did last year, they would have to set aside $420 million in an affordable housing fund.
That’s serious money, as it would presumably be mainly grants.
Under the draft, that money would be handed over to the Department of Housing and Urban Development to distribute to state housing agencies.
In other words, block granted to the states.
The fund would sunset after five years, and the Treasury Department is pushing for a $500 million cap, sources said.
In
Funding gone in five years?
Before there can be a sunset, there must be a sunrise — legislative enactment. Judging by last week’s movement, what are the odds of GSE regulatory reform in 2007?
